13 Aug (FORBES BLOGS) – Although blades on the 150-foot wind turbines at the new German offshore Riffgat power plant nine miles off the North Sea island of Bokum are finally turning, there is one big problem.
by Larry Bell
They are doing so only because they are being powered by onshore fossil-fueled generators to prevent the rotors from corroding in salty air. And why might that be? Well although they otherwise function perfectly, the underfinanced grid operator hasn’t yet connected a power line because of problems attracting investor financing. Prospective investors attribute their reluctance to a lack of market confidence.
While half a dozen wind farms are still being built in the North Sea, there are no follow-up contracts. As Ronney Meyer, managing director of Windenergie Agentur (EWE) based in the northern port city of Bremerhaven said, “The market has collapsed.” EWE developer Riffgat reportedly doesn’t plan to invest in any more offshore turbines.
There is little mystery regarding a clear lack of clamor for wind in the energy marketplace. Namely, taxpayers and ratepayers are recognizing that the subsidy-dependent and performance-costly industry makes no economic sense.
Politicians are getting the message. Plans for a cap on electricity prices proposed by pro-business Economics Minister Phillip Rosler and Environment Minister Peter Altmaier have made wind investors jittery. This could reduce existing guaranteed feed-in tariffs that wind operators require to prevent consumer costs from skyrocketing even more than they have already.
Speaking at a June 12 energy conference in Berlin, Chancellor Angela Merkel called for reduced scaling back renewable energy subsidies to contain spiraling costs which have now reached around $27 billion per year. The chancellor noted that “If the renewables surcharge keeps rising like it did in recent years, we will have a problem in terms of energy supply.”
Merkel faces September parliamentary elections where big energy bills imposed upon households and businesses are a hot issue. Even traditional energy providers have turned up the heat. The German energy industry group BDEW has said that the next government must make energy policy reform a top priority. They warn that the surge of renewables is increasingly clogging the power grid and eating into profits of large power stations.
The German government has previously increased incentives for electricity from offshore wind several times in efforts to blow life into the industry. Wind farm operators now get 19 cents for each kilowatt-hour fed into the grid over the first eight years following construction. This is more than twice as much paid for power from terrestrial wind turbines. Offshore turbines have been heavily promoted on premises that the wind blows constantly at sea and that the installations don’t consume valuable land areas. They do, however, encounter lots of opposition from North Sea island resort residents and businesses who fiercely object to visual impacts.
Der Spiegel reported that until last year, the construction of wind farms was widely perceived as an opportunity to regenerate declining economies along Germany’s coast. An estimated $1.3 billion has been invested in port and factory facilities to boost ailing shipbuilding and fishing industries in cities such as Bremerhaven, Cuxhaven and Emden.
However in Cuxhaven, where the state of Lower Saxony kicked in $165 million in harbor improvements, only seagulls now land there. That is where the foundations for the first offshore wind farm were being built. The grounds of Cuxhaven Steel Construction which was to weld them together …an area as large as 70 soccer fields hasn’t seen any work since operations shut down. Almost all of its 450 employees have been laid off.
The Problems Aren’t Just Blowing Offshore
Even popular mainstream Der Spiegel has recently run a number of articles scorning high taxpayer and consumer cost penalties of failed green energy policies. The country has already invested more than $250 billion in “renewable energy”, and a phase out of nuclear plants in a knee-jerk reaction to Japan’s Fukushima disaster compounds the self-inflicted economic injuries.
German households pay the second highest power costs in Europe. Only the Danes pay more, and both countries pay roughly 300% more for residential electricity than we Americans do. If this isn’t bad enough already, Denmark, which allegedly produces between 20- 30 percent of its electricity from wind and solar (estimates vary), hopes to produce half from those sources by 2020. Germany now gets approximately 12% of its electricity from wind and solar, and plans to increase that proportion to 35% by 2020.
Why do I say “allegedly? Because there’s a big difference between the amount of electricity produced, and the amount that makes a difference in meeting consumer demands when needed. To illustrate this, a 2009 study reported by CEPOS, a Danish think tank, found that while wind provided 19% of the country’s electricity generation, it only met an average 9.7% of the demand over a five year period, and a mere 5% during 2006.
Since Denmark can’t use all the electricity it produces at night, it exports about half of its extra supply to Norway and Sweden where hydroelectric power can be switched on and off to balance their grids. Still, even with those export sales, government wind subsidies cause Danish customers to pay the highest electricity rates in Europe.
Worse still, German wind has produced only about one-fifth of its installed capacity. Ironically, since shutting down some of their older nuclear plants in response to the nuclear accident in Japan, they now have to import nuclear power from France and the Czech Republic. To help compensate for this shortfall, they placed their hopes on offshore wind which is less intermittent than onshore installations, but even more expensive due to much higher construction, maintenance and power transmission costs.
In 2011, U.K. wind turbines produced energy at about 21% of installed capacity (not demand capacity) during good conditions. Under freezing winter conditions the output can be miniscule because very cold weather and high winds require turbines to be shut down to avoid damage. As in Germany, unreliability in meeting power demands has necessitated importation of nuclear power from France. Also similar to Germany, The government is closing some of its older coal-fired plants–any one of which can produce nearly twice more electricity than all of Britain’s 3,000 wind turbines combined.
If the European romance with increasing reliance upon renewables isn’t being strained enough by painful electricity costs, power blackouts are adding to buyer’s remorse. As millions of consumers turn lights and appliances on and off, power generators and grid operators must match supply to demand to ensure that current is moving across wires at proper frequency to avoid power failures, brownouts and other failures.
This is much less of a problem when there are reliable backup sources such as hydropower, coal and nuclear plants to meet base load demands. Unfortunately, Most of Europe lacks the former, and is intentionally cutting back both of the latter. As the balance of supply shifts increasingly to intermittent wind and solar, so does the demand-response inequity problem.
The E.U.’s Network of Transmission System Operators President Daniel Dobbeni noted this problem in an April 17, 2012 letter to the European Union Commissioner Gunter Oettinger. He said that grid operators are “deeply concerned about differences in speed between the connection of very large capacities of renewable energy resources and the realization in due time of the grid investment needed to support the massive increase of power flows these new resources bring.”
Dobbeni also expressed great concern “about the potential destabilizing effect of outdated connection conditions for distributed generation that are not being retrofitted fast enough.” To address these problems, the International Energy Agency estimates that Germany will need to invest between $62.9 billion and $96 billion in transmission and distribution upgrades over the next decade.
Lessons for America?
Thanks to natural gas, coal and nuclear, America, unlike Europe, very fortunately has excess power generating capacity and generally adequate transmission and distribution systems. However, as our older nuclear plants are decommissioned and new EPA regulations shutter coal-fired plants, states such as California that are increasing renewable requirements are likely to resemble Europe in more ways than even they wish to emulate.
According to 2012 EIA figures, slightly more than 42 % of U.S. electrical power came from coal, 25 % from natural gas, 19 % from nuclear, about 3.4 % from wind, and about 0.11 % from solar. Since 2009 American taxpayers have shelled out $14 billion in cash payments to solar, wind and other renewable energy project developers. This includes $9.2 billion to 748 small and large wind projects, and $2.7 billion to more than 44,000 solar projects, which will add just 48 terawatt- hours of electricity.
Just as in Europe, without all that help, U.S. wind and solar wouldn’t have survived, and very likely won’t in the future. In December 2010 the Wall Street Journal reported American Wind Energy Association CEO Dennis Bode warning that without the extension of the Federal 1603 grant program investment credit, the wind industry would “flat line” or slope downward.
Despite all of the sequester hype, the Obama administration’s Department of Energy has awarded more than $1.2 billion in charity to 435 new renewable energy projects since January 1, including 381 solar awards. In addition, DOE is pressing ahead with plans to throw in $150 million more for renewable projects… money “left over” from a separate 48C tax credit stimulus program.
At least one green energy developer recognizes that these stimulus subsidy programs have a record of doing more harm than good, and he isn’t reluctant to say why. Patrick Jenevein, CEO of the Dallas-based Tang Energy Group, posted a Wall Street Journal article arguing that “the sequester offers Washington a rare opportunity to roll back misguided subsidies and maybe help reverse wind power’s stalling momentum.”
Jenevein noted that since 2009, wind farm developers like his company have been able to get a cash grant or tax credit covering up to 30% of their capital investment in a new project, and that through May 2012 Washington had spent $8.4 billion on cash grants. He welcomes the fact that the cash-grant program will be cut back 8.7% between March 1 and September 30. Viewing this as a positive policy change, he wrote: “Government subsidies to new wind farms have only made the industry less focused on reducing costs. In turn, the industry produces a product that isn’t as efficient or cheap as it might be if we focused less on working the political system and more on research and development.”
Patrick Jenevein points out that: “After the 2009 subsidy became available, wind farms were increasingly built in less-windy locations… The average wind-power project built in 2011 was located in an area with wind conditions 16% worse than those of the average… Meanwhile, wind-power prices have increased to an average $54 per megawatt-hour, compared with $37 in 2005.”
Jenevein continued: “If our communities can’t reasonably afford to purchase and rely upon the wind power we sell, it is difficult to make a moral case for our business, let alone an economic one… Yet as long as these subsidies and tax credits exist, clean-energy executives will likely spend most of their time pursuing advanced legal and accounting methods rather than investing in studies, innovation, new transmission technology and turbine development.”
And what about helping to address that dastardly carbon-caused climate crisis we keep hearing about? In June President Obama launched a sweeping new national campaign including tens of billions of dollars in likely new subsidies for solar, wind and bio-energy projects. Yet according to results of a two-year-long a National Research Council study, those types of subsidies are virtually useless in quelling greenhouse gasses. They have done little or nothing so far, and are unlikely to do much more before 2035, the study’s research horizon.
If there is one central lesson to be gained from the European debacles, it is that wind, solar and other so-called “alternatives” aren’t alternatives at all in any credible sense. This doesn’t rule out special places and cases where they may eventually have legitimate, if limited niches in the national energy mix. In any event, the only real sustainable alternative is to let consumers and investors, not politicians and bureaucrats, pick the winners.