Alternative Energy Costs are Higher than Previously Thought

Brookings Study Raises New Questions about Wind and Solar Energy Costs

Alternative Energy Costs are Higher than Previously Thought
November 3, 2014

Alternative energy sources such as solar and wind power are considered crucial by many people and their respective governments to combat global warming and climate change. Cost factors and reliability are the primary reasons that solar and wind power have not made larger inroads into our infrastructure.

A study by Charles Frank, an economist and non-resident Senior Fellow with the Global Economy and Development program at the Brookings Institution, folds the reliability and efficiency issues back into the overall cost picture, and concludes that wind and solar energy costs are even higher than thought compared to their relative benefits.

Frank’s overall conclusion is that a combination of hydroelectric, nuclear, and gas-fired power plants have greater collective benefits than wind/solar in replacing coal-fired power plants and reducing emissions. The report suggests that, regardless of the technology chosen, a carbon tax of some form will need to be placed on fossil fuel suppliers to tip the economic balance toward low or no-carbon energy suppliers. Regulation may achieve the same effect, but a carbon tax would be a less costly method of achieving the same thing.

In the absence of such a tax, to quantify the carbon benefits for study purposes, Frank assumes the value of reduced emissions of carbon at $50/metric ton. Frank’s methodology challenges “levelized costs” – methods that attempt to level out the costs between high and low demand periods. He takes an approach comparing annual net benefits per unit of power delivered, including “avoided costs” on limiting carbon emissions, energy costs to operate, and capacity costs.

In other words, if solar and wind are only taking 20-30% of the power generation load, what is taking up the slack? System balancing and cycling costs are high in these circumstances. Thus, efficiency and reliability of supply, if you will, are given a higher emphasis in Frank’s analysis.

The essence of Frank’s conclusion toward wind and solar power methods is that they cost more to operate than the benefits they provide, even though they do not use any fuel source.

Frank’s conclusions on solar and wind power predictably did not go over well in some circles. Amory Lovins of the Rocky Mountain Institute delivered a 12-page rebuttal, claiming that significant parts of Frank’s data were obsolete, and, when corrected, Frank’s methodology actually supports wind and solar power as the second and third most desirable method of replacing coal-fired plants, behind hydroelectric power. The rebuttal is available for download at http://www.rmi.org/Knowledge-Center/Library/2014-21_Frank-Rebuttal.

The rebuttal focuses on the underestimating of recent gains in solar and wind power technology, and underestimating the costs/overestimating the efficiencies of traditional energy suppliers.

Both the study and the rebuttal appear to have some valid points and drawbacks. However, what this survey does show is that the conclusions you draw in these types of comparisons are highly dependent on the assumptions that you make and the relevancy of the data that you use. It also is important to assess correctly the current and likely future state of the technology.

It is easy to declare one report rubbish and another one pristine based on perception from who released the report and their affiliations. However, we owe it to ourselves to understand and challenge the assumptions of any of these reports. For our economic health and the health of the planet, it is important that we make the right decisions, and an informed electorate is necessary to ensure that the right policies are followed.

The report may be found online at: http://www.brookings.edu/~/media/research/files/papers/2014/05/19%20low%20carbon%20future%20wind%20solar%20power%20frank/net%20benefits%20final.pdf.

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