Tag Archives: Economic Impacts

More on the Reality of Living with Wind and Solar Energy

A while ago, I discussed that the future has arrived, and that we can see the real cost of ‘green’ energy policies in the case of Germany. If you are a business owner, or just and ordinary electricity bill payer, you should read the earlier post. The sudden retreat in Germany from nuclear power has left the country reliant on renewables, and energy shortages, energy unreliability and skyrocketing energy costs are the result. Just to serve to emphasise the point, Spiegel online has yet another news story that tells of the many problems being experienced in Germany. All the ingredients I long ago discussed are there.

  • Problems concerned with the intermittent power provision
  • High costs associated with connecting renewables to the grid
  • High costs associated with storage of energy
  • Hight costs associated with keeping backup online from conventional sources for when the wind does not blow / sun does not shine, including inefficient use of conventional capacity
  • High costs of investment from the necessity to build conventional plant backup for each renewable sources (capital expenditure)
  • Rationing of power, in this case, having large business energy users being paid to shut down their factories – paid to produce nothing

I may have missed a couple of points, but I am sure you get the picture. The consequences of renewable energy in Germany are now not the bright hypothetical future painted by ‘green’ propoganda, but are now very real and dismal. I have long admired Germany as an industrial power, but even Germany cannot be immune from the consequences of their mad ‘green’ energy policy. If the quotes I give below later are not enough, read the whole article. It is very clear and very simple to see the consequences of moving to ‘green’ energy.

Countries that follow a green energy agenda are putting an economic gun to their own heads, and pulling the trigger. In the case of Germany, the abandonment of nuclear has made the future now. We have yet to see the full consequences of energy based upon renewables; they will be seen in the next few years, but right now, the situation for energy provision is already dire. It is already very, very bad. It is a disaster, and even the ‘green’ Germans are starting to choke on the consequences. I will now quote at length from sections of the Spiegel article and let the quotes speak for themselves.

With the government driving up the price of electricity, Rösler seems to feel an urge to make himself useful by dispensing advice on how to save money and energy. On Monday, grid operators announced a significant increase in electricity prices in Germany, prices that are already the second-highest in Europe.

The price hike is the result of an assessment under the Renewable Energy Act (EEG), a sort of green-energy solidarity surcharge that is automatically added to every consumer’s electricity bill. Under the agreement reached in the last round of negotiations, the assessment will increase from 3.6 cents to 5.4 cents per kilowatt hour.

With the new rates, German citizens will be paying a total of more than €20 billion ($25.7 billion) next year to promote renewable energy. This is more than €175 for an average three-person household, a 50 percent increase over current figures. And then there are the additional charges a consumer pays for the electricity tax, the cogeneration assessment, the concession fee and value-added tax.

[and]

The rising cost of electricity is also a burden on businesses. According to Oettinger, energy costs now represent the biggest liability for Germany as a place to do business, especially in light of the marked increase in the number of blackouts and voltage fluctuations in the grid.

Consumer advocates view the electricity price as a social issue, not unlike the price of bread in ancient Rome. The Paritätischer Gesamtverband, an umbrella association for social-welfare groups, estimates that about 200,000 recipients of benefits under the Hartz IV welfare reform program for the long-term unemployed saw their power shut off last year because of unpaid bills. The VdK, Germany’s largest welfare organization, uses the term “electricity poverty” and is sharply critical of what it sees as a “glaring violation of basic social rights.” According to the VdK, it is unfair that citizens are being asked to bear much of the burden of costs and risks associated with the energy turnaround.

[and]

Unfortunately, the electricity is not needed as urgently along the thinly populated coast, but rather in the distant southern states of Baden-Württemberg and Bavaria. The two states have large populations and industry, as well as a number of nuclear power plants scheduled to be shut down soon. For this reason, the federal government’s decision to expedite the expansion of offshore wind power means that new power lines will have to be built, at a cost of €20 billion to €37 billion — the most expensive infrastructure project since German reunification.

[and]

Franken is part of the so-called cold reserve of the German energy supply. As long as there isn’t enough storage capacity, virtually every solar plant and every wind turbine has to be backed up by a conventional power plant. Without this double structure, the power supply would collapse.

At the same time, however, the boom in subsidized renewable energy is ensuring that conventional power plants are no longer profitable. Since the law requires that preference be given to green energy, if it’s available, gas-, oil- and coal-fired power plants frequently have to be shut down to avoid overloading the grid. This reduces their revenues while increasing costs because powering plants up and down consumes a lot of fuel and inflicts additional wear and tear on the equipment.

In the past, power plant operators were able to charge higher electricity prices around midday. But now there is more competition from solar plants at this time of day. On days when there is a lot of wind, the sun is shining and consumption is low, market prices on the power exchange can sometimes drop to zero. There is even such a thing as negative costs, when, for example, Austrian pumped-storage hydroelectric plants are paid to take the excess electricity from Germany.

The prospects are so poor that energy providers have little interest in building new power plants. Under current conditions, even the most modern and efficient combined steam and gas power plants are not recovering billions in investment costs.

[and]

With extremely cold temperatures gripping large parts of Europe, there was a spike in power consumption. Hamburg was on the verge of a blackout, says plant manager Lutz Bandusch. To keep the lights from going out in the city, he shut down the blast furnaces and rolling mills in Finkenwerder.

Instead of making money by producing steel, the plant operator was compensated for not producing it. It was a profitable arrangement for the steel mill. “It has to be worthwhile from an economic standpoint,” Bandusch admits, even though he felt that it was somewhat odd to be getting paid to do nothing.

[and]

Batteries are also part of the government’s plans, and €400 million in public funds have already been earmarked for related R&D. The industry also has high hopes for battery technology. But it this realistic?

For the fun of it, Florian Schlögl, director of the regenerative power plant department at the Fraunhofer Institute for Wind Energy and Energy System Technology (IWES) in the central German city of Kassel, calculated how large a battery would have to be to supply a city like Munich (pop. 1.38 million) with electricity for two or three days.

The answer, says Schlögl, depends on which battery technology is available. A cube-shaped lithium ion battery, such as the ones used in cell phones and laptops, would be 53 meters (174 feet) long on each edge. This would make it as tall as the roof of the Allianz Arena, where FC Bayern Munich plays its home games, and it would weight 250,000 metric tons. The dimensions would be even larger in the case of a lead acid battery, such as those used in cars. A cube-shaped battery would be 93.3 meter long on each edge — and Munich would have a new signature landmark.

[and]

In the next few years, electricity consumers will pay for more than €100 billion in subsidies for solar power. Additional billions will follow. Like its predecessor, the current CDU/CSU-FDP government has also bowed to the solar lobby. The latter’s business model is still based on collecting as many subsidies as possible rather than on feeding as much usable electricity as possible into the grid.

This is not the future. It is the ‘now‘ in Germany. It is the future being embraced by most of the major political parties in New Zealand. They are embracing economic decline, and telling you the future is bright. It is not bright, but a future of darkness in which the lights go out, and you pay ever more for an ever less reliable energy system. It is job losses, a lower standard of living, and energy poverty. It is time to wake up. We can now see the future. When you hear ‘green’ platitudes and arguments, point their attention to Germany. When you hear a politician wittering about the benefits of going ‘green’ point the politician’s attention to Germany. When you hear the ‘green’ platitudes and arguments for the wonders of renewables, paint the picture with the now of Germany.

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The Madness of Wind Energy

It did not take me long. Typing ‘wind energy’ into the New Zealand Herald search box produced a string of ‘hits’, including this from a piece about Genesis Energy:

While Genesis began seeking resource consents for a major new wind farm in the Wairarapa, called Castle Hill, during the period, it considers the market is currently “saturated” with new generation proposals that will more than meet weakly growing electricity demand in the near future.

Yes, like many others in the world, New Zealand is rushing down the wind energy route, and doing so in the face of a mounting body of evidence that this route is  a complete waste of money.

One of my earliest posts on the blog was a discussion of the utter uselessness of wind energy, and you may want to take a look at it. It gives an analogy which explains the uselessness of this method of energy production in simple terms. More recently, I posted on a Civitas (a UK ‘think-tank’) report on wind energy, which slammed both the economics of wind power, and the ‘green’ credentials of wind power. As it is, a new report has been released by the Global Warming Policy Foundation (GWPF). It is written by an Economics Professor, Gordon Hughes, and points out the same problems with wind energy that can be found in my earlier post and the Civitas report. I will quote from the forward of the report:

The total consumer bill for wind subsidies by 2030 is estimated to amount to a staggering £130 billion. A recent analysis of UK wind farms revealed that a dozen of the biggest landowners will between them receive almost £850 million in subsidies, a huge amount of funding that will be paid by ordinary
families through hidden taxes on their household electricity bills.

The forward notes that these huge expenses and subsidies have been hidden from the consumer. As is always the case, Hughes identifies that the fundamental problems with wind (and many other sources of ‘renewable’) energy is the intermittent nature of the generation, which means that back-up generation capacity is needed for the wind farms. The report also questions whether the use of wind farms will even reduce CO2 emissions, which is one of the fundamental reasons that wind energy has been promoted so heavily, and is in receipt of so much subsidy. If you have ever wondered about the economics of wind generation, I strongly recommend reading the report in full, or at least reading the summary.

The report goes against one of the great green causes, and it is therefore no surprise to see the limited coverage of the report in the press. I found no coverage in a search of Stuff, but a Google news search found coverage in several countries, also including this from The Australian:

The British study warns of the rising cost to consumers of wind power subsidies on the grounds that governments could achieve the same environmental benefits by other means at much lower cost.

Comparing a pound stg. 13 billion ($19bn) outlay on a combined-cycle gas plant against a pound stg. 120bn outlay on wind farms, Professor Hughes found the renewable energy option was too expensive by any standard.

Wind power would cut emissions at an average cost of pound stg. 270 a tonne, he estimated, but meeting Britain’s greenhouse targets in this way would cost about pound stg. 78bn a year or 4.4 per cent of the nation’s GDP.

Note the last figure for the cost in GDP. To say that this is complete madness would be an understatement. As the report in the Australian points out, wind characteristics may vary between countries, making direct comparisons difficult, but the principles of the study carry over. I therefore have several questions about wind power in New Zealand:

  1. What is the real cost of wind energy in New Zealand, including indirect subsidies of wind power?
  2. How much is this going to cost businesses?
  3. How much is this going to cost consumers?

It may come as no surprise to find that the New Zealand Wind Energy Association has given a report arguing that wind power is a wonderful solution to New Zealand energy requirements. However, as is always the case with such reports, and as is pointed out in both the Civitas and GWPF reports, the pro-wind energy reports all have in common that they make completely unrealistic assumptions. As it is, the report was criticised by the New Zealand Climate Science Coalition, in a press release that can be found here:

“The report uses an economic model of New Zealand which is totally unsuited to analysing the effect of 20% energy generation from wind. Any model that does not take into account the intermittent and seasonal nature of wind and its effect on power prices and the fact that, in a dry year, hydro cannot backup wind, is worthless. The model makes no allowance for the fact that over peak demand periods, only about 10% of the wind generation can be relied on. It also does not consider the need for extra transmission lines and the poor efficiency of the gas fired power stations that must be built to back up wind. For example, one study in the United States showed that, in Texas, a large amount of wind energy results in a tiny reduction in carbon dioxide emissions.

“This flawed report reflects little credit on the Infometrics and on the New Zealand Wind Energy Association. It does not alter the fact that wind is expensive, requires backup, and has only a small effect on reducing emissions of carbon dioxide–which is, in any event, an entirely beneficial gas that causes plants to grow,” Mr Leyland concluded.

Notwithstanding this critique, where is the debate on wind power in New Zealand? Where is the equivalent of Civitas? The UK is slowly waking up to the idiocy of wind power, with this from Matt Ridley in the UK’s Spectator:

Even in a boom, wind farms would have been unaffordable — with their economic and ecological rationale blown away. In an era of austerity, the policy is doomed, though so many contracts have been signed that the expansion of wind farms may continue, for a while. But the scam has ended. And as we survey the economic and environmental damage, the obvious question is how the delusion was maintained for so long. There has been no mystery about wind’s futility as a source of affordable and abundant electricity — so how did the wind-farm scam fool so many policymakers?

One answer is money. There were too many people with snouts in the trough. Not just the manufacturers, operators and landlords of the wind farms, but financiers: wind-farm venture capital trusts were all the rage a few years ago — guaranteed income streams are what capitalists like best; they even get paid to switch the monsters off on very windy days so as not to overload the grid. Even the military took the money. Wind companies are paying for a new £20 million military radar at Brizlee Wood in Northumberland so as to enable the Ministry of Defence to lift its objection to the 48-turbine Fallago Rig wind farm in Berwickshire.

Wind energy is not a small issue. It is, in fact, an issue that can have profound and serious impacts upon every New Zealand family, and every New Zealand business. Look again at the figures for the cost of wind power in the UK, as measured in GDP. If the cost of New Zealand’s wind energy is even as low as half of the UK figure, it is an issue that impacts the whole of the New Zealand economy.When is New Zealand going to wake up from this madness that is so economically ruinous?

What really worries me is that there appears to be no will to take on anything which has a ‘green’ label attached to it. It is a situation in which no politician dares to go against anything that might be seen as anti-green. As such, rather than taking on a ‘green issue’, I suspect that the New Zealand politicians will remain silent, and allow this economically mad and economically ruinous policy of encouraging wind energy to continue.

Economic Impacts of Climate Change Policy

I have a couple of posts sitting half completed, but felt compelled to write on a fascinating and insightful analysis that I picked up from Climate etc. It is an extract from a blog post called Our Finite World, and the relevant material can be found here and here. The author Gail Tverberg is an actuary and her primary area of interest is oil supply. In the first post, Gail looks at energy use and GDP for both emerging and developing economies. She notes that world-wide energy intensity in relation to GDP has been flat, and then asks how it is possible that several countries have been decreasing the energy intensity of their economies:

We are dealing with a large number of countries with very different energy intensities. The big issue would seem to be outsourcing of heavy manufacturing. This makes the energy intensity of the country losing the manufacturing look better. Outsourcing transfers manufacturing to a country with a much higher energy intensity, so even with the new manufacturing, its ratio can still look better (lower). It is hard to measure the overall impact of outsourcing, except by looking at world total energy intensities rather than individual country amounts.

In both of the posts, Gail fills the pages with charts, data and analysis, so I cannot do justice to her work in a summary. However, there are two points (of three) that I found to be of particular interest, and I quote these below:

1. The industrialization of Southeast Asia has allowed importers from around the world to reduce their energy intensity of GDP, but much of the savings has been offset by greater energy use (largely coal) in Southeast Asia. On a CO2 basis, we are likely  worse off, because of this transfer.

2. There is no evidence that the Kyoto Protocol reduced worldwide CO2 emissions. In fact, to the extent that it encouraged outsourcing of industrial production to the Far East and made goods from the Far East more competitive, it may have contributed to rising world CO2 emissions. It would appear that a different approach is needed that recognizes the fact that fuels are part of a world market. Fuel savings in one part of the world are not necessarily helpful for the world as a whole.

I have not read much else from the blog, but I would guess from the general discussions that Gail is on the ‘warmer’ side of the climate debate. However, she is capturing something that I (from a skeptic standpoint) have always been concerned about. In some respects, the negative economic impact of climate change mitigation upon the developed world has been discussed before. For example, this UK economics blog discusses the issue of the original Climategate emails in the context of economics, and cites an article from Christopher Booker (I have not found the original) as follows:

The real gain to Corus from stopping production at Redcar, however, is the saving it will make on its carbon allowances, allocated by the EU under its Emissions Trading Scheme (ETS). By ceasing to emit a potential six million tonnes of CO2 a year, Corus will benefit from carbon allowances which could soon, according to European Commission projections, be worth up to £600 million over the three years before current allocations expire.

But this is only half the story. In India, Corus’s owner, Tata, plans to increase steel production from 53 million tonnes to 124 million over the same period. By replacing inefficient old plants with new ones which emit only “European levels” of CO2, Tata could claim a further £600 million under the UN’s Clean Development Mechanism, which is operated by the UN Framework Convention on Climate Change – the organisers of the Copenhagen conference. Under this scheme, organisations in developed countries such as Britain – ranging from electricity supply companies to the NHS – can buy the right to exceed their CO2 allocations from those in developing countries, such as India. The huge but hidden cost of these “carbon permits” will be passed on to all of us, notably through our electricity bills.

It is all fairly obvious really; if you enact these carbon dioxide emission schemes in a lopsided way, energy usage will shift to those countries that are low cost. In essence, these schemes are a driver of the hollowing out of developed country energy intensive manufacturing, and have no doubt been a contributor to the rapid growth of emerging economies. The great thing about Gails’ posts are that they present the case with such startling clarity.

The broad economic impacts of this shift in energy intensive manufacturing from developed economies are fairly obvious; negative impact upon balance of trade and less economic growth than would be the case if Kyoto had not been enacted.

This is all well and good to point out, but it is another element of the impact of this shift that worries me. Manufacturing jobs employ large numbers of workers who earn a good wage in comparison to service industries, for example in compared to shop workers. In particular, manufacturing tends to develop highly paid skilled workers, and this is a concern I would like to highlight. When policy such as Kyoto are enacted, they have real impact on both the economy but also the potential for ordinary people in a developed economy to have a better standard of living.

The trouble is that, for most people, their main source of news is a media that has accepted the climate alarmist story, and often reports on climate change in a way that is clearly biased towards alarm (I have written several posts on this subject). They entirely neglect the potential for negative consequences, even though those consequences will eventually impact upon their readers/viewers. There are a few lonely voices such as Christopher Booker who point out these real impacts but most people will never hear of such impacts (unless it is their job that is being lost).

Instead, what we have is promises of ‘green jobs’ and the media seem to go along with this. However, as every country is using the same promise, we come to a point where it becomes impossible for every country to generate enough of these ‘green jobs’ to offset the losses. More disturbingly, if those jobs (e.g. manufacture of wind turbines) are reliant on intensive energy use, they will in any case end up being outsourced to developing economies. As such, it is interesting to find that five out of the ten largest manufacturers Chinese and Indian, and that they together have a large market share. They are getting the benefits of these ‘green jobs’ but with none of the associated pain. And that pain is the loss of highly skilled, well paid manufacturing jobs in developed economies.

Note: For this post, I am not going into some of the complexities of the knock on impacts of loss of manufacturing,  or how the impacts of ‘green’ policy are calculated/considered, as I want to keep the post focused.