Energy the Color of Money

Walter Russell Meade has a piece on the collapse of the German solar power industry. This encouraged me to wonder, as often I do, whether solar power produces more or less energy than it consumes. That question is a very difficult one, since it would require a comprehensive analysis of wide number of costs. One of the reasons that the market is so fundamental to economics is precisely that it does that work for us, at least when we allow it to do so.

I did take a few minutes this afternoon to determine what solar energy actually costs. Proceeding on assumption that the real cost of a turtle is how much cash ends up in the hands of the turtle seller, per shell, I wondered how much consumers pay for a given unit of energy and how much other money producers get for various forms of energy generation.

The average price of residential electricity in the U.S. is about 12 cents per kilowatt hour but varies widely by state(Energy Information Administration). In South Dakota it is nine cents per gallon. In Alaska it is almost twice that and in Hawaii, three times that. Doing a quick conversion, Americans pay on average about $120 per megawatt hour for electricity.

That is not quite the price of electricity, for energy producers also receive state and federal subsidies. Add the subsidy to the retail price and you get a reasonable estimate of the real cost. The Institute for Energy Research calculated the cost of federal subsidies from the EIA's production reports.  [Hat tip to Powerline] I cannot find anywhere that the EIA actually tells us what we need to know here: subsidies per unit of energy produced.

The IER finds that in 2007 natural gas and petroleum liquids received about a $0.25 in Federal subsidies for every megawatt hour produced. Coal gets $0.44; hydroelectric, $0.67; and nuclear power gets $1.69. About 87% of our electricity is produced from those sources. Given that, the subsidies add up to considerable amounts of money. The total increase is still only a small fraction of the cost of the energy.

In 2007, subsidies for wind and solar power per megawatt hour were $23 and $24 respectively. That obviously dwarfs the subsidies for conventional sources and it means that electricity from these sources costs considerably more. A megawatt hour from coal would cost $120.44. A megawatt hour of wind or solar generated electricity costs $144.

That was back in 2007. As a result of the stimulus bill, subsidies to all sources of energy increased, but the subsidies for renewables ballooned. Here are the numbers for 2010:

For solar power, they were $775.64 per megawatt hour, for wind $56.29, for nuclear $3.14, for hydroelectric power $0.82, for coal $0.64 and for natural gas and petroleum liquids $0.64.

That means that wind energy is now costing over $170 per unit. Solar power is off the charts at almost $900. I admit some astonishment that the solar industry in the U.S. is not booming rather than wobbling. At that level of reimbursement, you'd think they'd be giving away whole house solar instillations for joining Netflix.

Proponents of renewable energy will argue that there are large costs involved in fossil fuels (environmental degradation, health, etc.). That may be true, but it gets the cart before the horse. One turtle may be cooler than another and one form of energy generation may be more desirable than another. That doesn't change how much the turtle or the megawatt hour costs.

It misses something else, equally important. Subsidies shift wealth from one place to another. Wealth shifted to renewables is wealth generated by non-renewables. As long as the subsidies last, they don't reduce the secondary costs of traditional energy.

What they do accomplish, with mathematical certainty, is to make energy more expensive in the short run. This is not ruinous only because the renewables produce less that 3% of our electricity. Of course, it may be that the subsidies will eventually kick in and wind and solar power will dramatically increase production while prices fall precipitously. Is there any sign that that is happening? How efficient would these machines have to become (10 times as efficient?) and how much turf would we have to cover with pinwheels and panels before these sources constituted 20% of electricity generation?

Wind power and solar power are pretty ideas. They have been the sources of the future for as long as the monorail has been the transportation of the future. Maybe one day they will really pan out. Right now, these industries are neither producing jobs nor economic growth. They are absorbing both.

Comments

[Stan Gibilisco]

This issue plays pretty hot in South Dakota right now, especially here in the Black Hills, where debate rages already about what might happen if an oil boom starts up in the northwestern part of this state.

I took a pro-industry stance on Madville Times ...

http://madvilletimes.com/2012/05/bakken-conference-needs-session-to-discuss-eviction-of-local-residents/

... and got some stiff criticism. But then I read the following little piece, which made me feel a bit better, if finding out that you have diabetes rather than pancreatic cancer really ought to make one feel better:

http://www.creators.com/opinion/john-stossel/keeping-nature-exactly-as-is-forever.html

While solar and wind power might not be effective yet on a large scale, they might yet work on a small scale for a few tweak freaks, a few nut cases, a few Diet Dew addicts such as myself. I find myself tempted severely by ads like the following:

http://www.cmpmontana.com/index.php/fuseaction/listings.detail/ID/2851

Maybe what won't work in the generality will work for the individual ... well, certain individuals. The composting toilet paradigm spooks me a bit, as does the fact that I'd need a pretty good size truck to haul water, and that truck would burn ... oh dammit.

[larry kurtz]

We can run but we can't hide, Stan:

http://wildfiretoday.com/2012/05/02/al-qaeda-magazine-encourages-forest-fire-arson-in-the-us/

[A.I.]

How about $15/gallon gasoline: http://www.alternet.org/environment/147842/gas_is_really_costing_us_about_%2415_a_gallon

[Stan Gibilisco]

Larry, I'm surprised that it took those bozos until now to see that "light."

I sure would not want to be a Muslim in Montana right about now.

Great way to turn our good old USA into the Fourth Reich. We should fear our own hearts the most.

There are a couple of places near Cody, Wyoming that might actually work better for solar and wind adaptation than the one in Montana.

[Donald Pay]

I think we've plowed this ground before. The subsidies for oil, coal, and nuclear when summed over the lifetime of each of these energy sources far, far outstrips the subsidies to the renewable sources. And that's not even adding in the security costs for oil and nuclear. If we're going to end subsidies to renewable sources now, how about making it fair by requiring a payback by the oil, coal and nuclear industries for all their past subsidies.

[Stan Gibilisco]

Just to view all this through a wide-angle lens ... I listen to BBC on NPR almost every midnight. Compared to the rest of the world, we're doing pretty well in these here good old U S's of A. No soldiers slitting the throats of 12-year-old boys ... no rockets landing in Spearfish ... no mass exodus of refugees to Wyoming ... no starvation or malaria epidemics in Texas.

Nonetheless (or nevermore!), one can only hear the distant but increasing roar of the inevitable hurricane. Unless humanity gets a grip on its population explosion, all of our other discussions will prove utterly meaningless. Mother Nature, Gaia, whatever you want to call Her (or It) will take matters into Her own hands. The geoimmune system, in its power and efficiency, will solve the problem for us. If we don't like Mother Earth, we cannot elect Her out of office.

I can't solve the world's problems, of course, but I really would like to find a way to "reduce my carbon footprint," not for any particular moral reason or sense of duty to humanity, but because it makes me uncomfortable to know that I am more a part of the problem than a part of the solution. In the environmental sense I realize that my impact on the Earth is negative. That in itself bugs me.

[Ken Blanchard]

Donald: Yes, we've plowed this ground before, and the same crop comes up. The cost of subsidies per unit of energy produced is the only meaningful measure here because it tells us which energy sources are net contributors and which are not. Yes, the subsidies for oil, coal, natural gas, and nuclear power are much larger in gross than those for wind and solar power. That's because the former supply about NINETY PERCENT of our energy and the latter A LITTLE OVER ONE PERCENT.

As I have pointed out here and many times before, a form of energy production that is dependent on subsidies requires another that produces a surplus. Do I need to explain that? The factories that produce wind blades and solar panels are not powered by the wind or the sun. The trucks and trains that transport materials from the green factories and move those gigantic blades along I 29 are powered by fossil fuels. So is the enormous crane required to erect and fit the wind towers. The energy required to extract and process fossil fuels is provided by fossil fuels.

The subsidies for coal and oil are largely the same subsidies available to any industry. Nonetheless, I am very willing to take your bargain. Let's eliminate all subsidies for all forms of energy. What do you think will happen? The wind and solar industries will collapse over night.

It is sheer fantasy to think that renewables can, in any foreseeable time frame, supply more than a marginal amount of energy. I submit that a rational energy policy ought not to be based on fantasies.

[Ken Blanchard]

ps. You and I are not so far apart on nuclear power as you might imagine. While it cannot be denied that nukes are a net contributor of energy, they are also net contributors to and products of big government. I am skeptical that they are really worth the cost. Of course, if you are really worried about global warming...

[Ken Blanchard]

Stan: I doubt very much whether your "impact on the Earth is negative" or positive. You start by breathing in and you end by breathing out. It makes all kind of sense to want to live mindfully and respect the environment, but maybe we have to focus more locally for that to have any meaning.

[Ken Blanchard]

A.I.: fossil fuels involve secondary costs, i.e., costs unrelated to production. The same is true for renewables. As long as the latter are so heavily subsidized, renewables inherit the costs of fossil fuel production.

The article you cite makes the case that those secondary costs are heavy, but talking about $15 a gallon gas intentionally (or ignorantly) confuses primary and secondary costs. If a gallon of gas were really being subsidized by more than $10, from where, precisely, does the subsidy come?

Listing the costs of fossil fuels is worth doing, but it can't add up to a case for massive investments in alternatives unless that investment can reduce the former. It can't. Sorry.

[Erik Sean Estep]

KB: Thanks for posting this analysis.

[Donald Pay]

The amount of energy produced today is simply a reflection of past subsidies and past governmental action, and not of anything inherent in the energy source.

I'd rather judge energy sources on their need for large government and/or government corruption. If you judge it that way, just think about how much government regulation, promotion and subsidy is required for the grid that is required for the coal and nuclear industries. Distributed energy is a lot more democratic and requires a lot less government.

[Ken Blanchard]

Donald: Do you really believe that the amount of energy produced by any source is "simply a reflection of past subsidies and past governmental action, and not of anything inherent in the energy source"? I have to say that that is the dumbest thing I have yet read in my comments section. If government subsidized astral shadows, would they suddenly begin powering Coleman lanterns? Once again I must ask: what color is the sky in your world?