A Proposal For Exposing The True Costs Of Getting Electricity From Wind And Sun

Every place that tries increasing the percentage of electricity generation that comes from wind and sun then experiences rapidly rising consumer electricity costs. The reasons why this happens are not complicated. Even at relatively low levels of wind and solar penetration, backup fossil fuel or other generation cannot be closed, so consumers must pay for two duplicate generation systems. At higher levels of wind/solar penetration, things like overbuilding, curtailment, and hugely expensive grid-scale energy storage come into play. In my post of February 8, 2023, I asked “Could anybody possibly be stupid enough to believe the line that wind and solar generators can provide reliable electricity to consumers that is cheaper than electricity generated by fossil fuels?”

And yet it is an endlessly-repeated mantra of wind/solar advocates that generating electricity from those sources is “cheaper” than generating the same electricity from fossil fuel sources like coal and natural gas. In this post I will make a proposal for a way to definitively expose the falsity of the claims that wind and solar are “cheaper” than fossil fuels for electricity generation.

First, here is a smattering of quotes from various climate advocates (often masquerading as journalists or politicians) making the “wind and solar are cheaper” claim. Note that these are not just some fringe crazies, but rather are prominent media and political voices — including the President of the United States — who you might think would know at least a little of what they are talking about.

• From Bloomberg News, January 30, 2023: “Replacing US Coal Plants With Solar and Wind Is Cheaper Than Running Them. It now ‘unequivocally’ costs less to build new renewable energy projects than to operate existing coal plants, according to a new analysis.” 

• From the World Economic Forum, July 5, 2021: “Renewables are now significantly undercutting fossil fuels as the world’s cheapest source of energy, according to a new report. Of the wind, solar and other renewables that came on stream in 2020, nearly two-thirds – 62% – were cheaper than the cheapest new fossil fuel, according to the International Renewable Energy Agency (IRENA).”

• From Utility Dive, February 9, 2023: “Renewables would provide cheaper energy than 99% of US coal plants and catalyze a just energy transition. Investment in lower cost wind and solar resources is an economic opportunity worth up to $589 billion, providing jobs and tax base to coal communities.”

• From the BBC, September 13, 2022: “Switching from fossil fuels to renewable energy could save the world as much as $12tn (£10.2tn) by 2050, an Oxford University study says. The report said it was wrong and pessimistic to claim that moving quickly towards cleaner energy sources was expensive.”

• From President Biden in the State of the Union address, February 7, 2023: “Look, the Inflation Reduction Act is also the most significant investment ever to tackle the climate crisis. lowering utility bills, creating American jobs, and leading the world to a clean energy future.”

There is a virtually infinite supply of more where those came from. Not a one of those pieces, or hundreds more like them, ever mentions or explains that the “cheap” wind and solar power that they are talking about only includes the costs of an intermittent supply that does not work most of the time and cannot provide reliable and continuous electricity on its own; nor do any of these pieces mention that turning that intermittent supply into something reliable and continuous will entail additional large and unspecified costs.

The problem of exposing the true costs of getting electricity from wind and solar has been complicated by a large error, which is that state governments and utilities have allowed the structure of wholesale electricity markets to be altered to the advantage of the wind and solar generators. In particular, the wholesale electricity markets universally give priority of dispatch to the wind and solar generators, and also allow those generators to bid low prices in a spot market when the wind is blowing or sun shining. These rules have the effect of hiding the cost of covering for the intermittency of the wind and solar generators, and of giving the false impression that the cost of intermittency is not something caused by the addition of wind and solar facilities.

The people who set up this market structure have a fundamental misconception of what the product is that consumers need. Consumers do not want or need electricity that can go on and off from minute to minute. They want and need electricity that is very nearly 100% reliable all the time. The market should be set up to buy only the second product, not the first.

In a post back in July 2018, I made a very simple proposal for how to structure the wholesale electricity market to acquire the product that consumers want and need. Here was that proposal:

Scrap this ridiculous idea of grid priority for wind and solar.  Instead, the grid operator should seek only offers of power that are firm and reliable for some reasonable period, say 24 hours at a time.  If you want to sell wind power to the grid operator, it's then on you to also provide the mix of backup sources (could be fossil fuel power plants, could be batteries, could be whatever else you come up with) to make your offer reliable for the requisite period.

Now that wind and solar producers are experiencing geometric growth under crazy rules that favor them, this business is getting much more serious. It’s time to put some more detail on my 2018 proposal. First of all, the bids for a given service period should be taken and awarded well in advance of the period in question. For example, if the service period is April 1, 2023, then the bids should be taken and awarded some time in February at the latest, not on March 31. If you take the bids on March 31, that gives wind and solar operators a chance to game their bids based on weather forecasts. Second, although I suggested a service period for bid of only one day, I think a longer period would be better. A month or even a year would be fine. This would give bidders the chance to include wind and solar contribution based on average weather conditions over a period of time.

And here’s the most important new part of my proposal, this one intended to force the putting of a price on increasing penetration of wind and solar generation facilities on the grid. Ask for bids with minimum contributions from wind and solar generators at various levels: i.e., “your bid should include your price if a minimum of 20% of supply over the service period must come from wind/solar; and your price if a minimum of 30% must come from wind/solar; and similar for 40%, 50%, 60% and 70% minimum contributions from wind and solar.” I don’t think there’s any reason to go higher than 70% at this time, because nobody would be able to do it. For that matter, probably nobody can do greater than 30% anywhere in the U.S. today, but this bidding process would smoke that out.

A market structured in this way would make immediately clear that adding wind and solar generation to the mix increases the blended price to the utility; and it would also put quantitive numbers on the additional costs from each incremental addition of wind/solar generation.

I am not an expert on the regulation of electricity prices in the U.S., and I know that it is complicated. However, I do not know any reason why the public utility commission of each state would not have the authority to create and impose this structure on the wholesale electricity markets that impact its consumers. The blue states of course will never do this. But the red states could do it, and thereby give their consumers the benefits of far lower electricity costs, while also exposing how the blue states are damaging their own citizens in the pursuit of the climate religion.