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Not-So-Green Superhighway

Unforeseen consequences of dedicated renewable energy transmission.

Fortnightly Magazine - February 2012

hydro projects, the least expensive means of electricity production. Coal plants produce about 50 percent of U.S. electricity, and 23 of the 25 power plants in the U.S. with the lowest operating costs are coal-fired. In states where coal is widely used, electricity production costs and rates are the lowest, and states using coal to generate most of their electricity have electric rates that are only about half those of other states. Thus, the current fleet of coal plants produces cheap electricity—4 to 6 cents per kWh, the average used in this analysis.

Real Costs of Renewables

Deriving accurate, comparable LCOE estimates for RE is difficult, and it might not even be possible to meaningfully compare the LCOEs of dispatchable and non-dispatchable energy sources. Renewables suffer from problems of low and highly variable capacity factors, intermittency, unreliability, need for storage and backup, requirements for expanded transmission, and reliance on government subsidies and government-mandated utility quotas.

For example, while coal plants can have capacity factors above 85 percent, the estimated capacity factor the Department of Energy’s Energy Information Administration (EIA) uses for wind is 34 percent. EIA assumes 31 percent for ST and 22 percent for PV. In its RES study, JP Morgan used slightly lower capacity factors: 30 percent for wind, 30 percent for ST, and 20 percent for PV. While these might be reasonable as national averages, they also might be somewhat high. 13 An accurate LCOE for RE must take into account these low capacity factors, but even such an adjustment might not fully account for the fact that few renewable resources actually might be available when they’re needed most. 14

EIA’s levelized cost estimates for RE use a 31 percent capacity factor for wind, 31 percent for ST, and 22 percent for PV. 15 However, if actual capacity factors are lower than this, these LCOE estimates have to be increased.

Further, it isn’t clear how backup power costs should be incorporated into RE LCOE estimates. Given the fact that many RE technologies are variable and non-dispatchable, near 100 percent backup might be required—as it is in Germany. 16 Further, given that RE resources might not be reliably available when they’re needed most, 24x7 spinning reserve or dedicated, firm demand response resources often might be required. This need for backup translates into a large RE premium—paying once for the RE system and again for either load-shedding capabilities or fossil fuel systems, which must be kept continually running at a low level to be able to quickly ramp up when needed. Thus, the total cost of such a system should include the cost of the RE system and the cost of the backup power system. 17

Backup charges for RE can be substantial and are being imposed. For example, in 2009 BPA ruled that a new wind integration charge will be levied on all wind generators at a rate of 5.7 cents per kWh. 18 In July 2011, the agency reduced that rate to 5.43 cents. Previously, BPA charged some of its utility customers for conventional power reserves to back up