The masses want power on demand without interruption or failure. They want it at a practically negligible cost and more so every year, they want it without emissions or other unpleasant byproducts.
In the upper Midwest, energy without emissions means wind energy. Wind energy sounds great. It’s “free”. No emissions. But it comes with a load of drawbacks compared to conventional sources of coal, nuclear, and natural gas.
First, utilities can’t count on it for peak load generation. I searched a while for this and found nothing but the bottom line is there is no guarantee there will be any generating capacity from wind on a peak summer day. Therefore, wind generation offsets zero conventional generating capacity. It is essentially like buying an electric car for lower emissions but you have to keep your conventional gasoline-powered car for longer trips.
Second, wind generation is expensive. At a cost of about $2,000 per kW nameplate generating capacity it is very similar to a coal-fired plant. However, a quick analysis with a reliable online calculator indicates that the capacity factor, which is the average percent output of the turbine, is only about 30%. (the wind doesn’t always blow 48 miles per hour) This puts the installed cost of wind generation near triple the cost of conventional coal generation.
Third, the cost of wind energy doesn’t end with the fifty by seven foot deep wad of concrete supporting each turbine. Wind farms are far from Midwest population centers because that’s where the wind blows and this puts them out of site of the people who want it but don’t want to look at it (or pay for it). This requires substantial transmission costs with substations to step up voltage and transmission lines that run a minimum of $1 million per mile of transport – and this is for building transmission lines on farmland where it’s physically easy to do and there are no lawsuits because people in these areas have better things to do than file lawsuits to stop transmission construction.
Fourth, on average the wind blows the least when it is needed the most, in July and August. On average, turbines deliver roughly half the energy in July and August compared to the winter months.
When these unpleasant facts are factored in, wind generation benefits boil down to eliminating fuel costs, which are a tiny fraction of conventional generation, and no emissions or other waste products.
What brings this to mind is this article recently published by the Cedar Rapids Gazette. Alliant Energy / Interstate Power and Light has a rate case pending for a 14% rate increase to pay for the added wind generation capacity and the installation of a $188 million nitrogen oxides and mercury scrubbing system for their old Lansing plant.
One guy comments, “but I just don’t understand why you expect us as customers to pay for all these upgrades — the wind farm, all your safety upgrades and so on.” Well who else is going to pay for them? It isn’t going to come out of shareholders’ hides. Utilities don’t build this stuff to make more money!
Utilities are fully regulated monopolies in Iowa and many other states. Their ability to grow revenue and earnings is very limited. Essentially, it is limited to load growth within service territory by existing buildings and by attracting new business with new facilities to their service territory. In exchange for having a captive customer base, regulators, in this case the Iowa Utilities Board must approve changes in rates, which essentially translates directly to regulating profit.
Wind power and pollution controls cost the company hundreds of millions of dollars but add virtually no revenue or profit. These upgrades wouldn’t occur but for public pressure and policy coming out of Des Moines and other state and federal capitols.
These expenses can’t come out of earnings because utilities need to raise capital to pay for this stuff. To raise capital, they have to offer a competitive rate of return commensurate with the risk involved; thus, the rate case for higher prices.
Like Tom Aller, President of Interstate Power and Light, I am not denigrating or advocating green power and moratoriums on building conventional generating facilities. The public just needs to know this stuff adds a lot of operating cost and the business model of utilities requires rate increases to fund these things. If customers don’t like it, they better get involved in the political process and not let the Sierra Club have a monopoly of political ears.
By the way, the reason environmental organizations like Sierra Club are a big turn off to me is they are often political first and environmentalists second. They are opposed to this rate increase. Why? Their mission is “To explore, enjoy, and protect the wild places of the earth; To practice and promote the responsible use of the earth’s ecosystems and resources; To educate and enlist humanity to protect and restore the quality of the natural and human environment; and to use all lawful means to carry out these objectives.” I don’t see anything in there about controlling income in the private sector. Moreover, the guy’s statement flies in the face of their mission statement anyway. Higher prices mean less energy consumption, so why is he opposed? Could it be… politics? Or is he a “do as I say, not as I do” greenie?
Thank you for sharing the utility business model and wind energy.