Headwinds: Turbine Makers, like Solar Manufacturers, Could Be in for a Shakeout

Declining subsidies and double-dipping Chinese take their toll

4 min read
Headwinds: Turbine Makers, like Solar Manufacturers, Could Be in for a Shakeout

Energy guru Daniel Yergin tells a nice story in his latest book about how a Danish farm equipment manufacturer, Vestas, took advantage of California subsidies in the late 1980s to initiate a world revolution in wind generation.

Today, however, the pioneering wind companies like Vestas are running into the same headwinds makers of photovoltaic panels have encountered--the prospect of declining European and North American subsidies, combined with growing competition from low-cost Chinese manufacturers. Wind is much closer than solar to being commercially competitive, and so the situation is not quite as dire. But wind also, by the same token, has achieved higher penetration, which means that the best on-land sites are getting exhausted even as the ability of grids to keep absorbing more intermittent energy is increasingly challenged.

On Monday this week, Vestas shares fell one fifth, after the company issued a third-quarter earnings warning. Share values already had declined 50 percent from this year's high, largely because of reported delays in turbine projects and a German turbine factory.

Smelling blood, critics of high subsidies for renewable energy are going after wind. On Oct. 11, the Manhattan Institute--a neoliberal think tank in (you guessed it) Manhattan--issued a short article highly critical of wind's costliness and alleged climate benefits.

Though the Manhattan Institute often produces well-researched and strongly conceived reports that interest even people of sharply different ideological persuasions, its report on "the high cost of wind energy as a carbon-dioxide reduction method" is not one of its better efforts.

Author Robert Bryce asserts that getting 20 percent of U.S. energy from wind by 2030--a commonly stated goal--would cost $850 billion, yield greenhouse gas reductions equivalent to only 2 percent of projected global emissions, and consume 72,000 square miles of land.

Let's start with the least significant of those assertions, about land. It's often said that wind turbines consume a lot of land, but go bicycling in Denmark's countryside, and you see turbines everywhere right in the middle of plowed fields. The same is true in the North German plains.

So my counter-assertion is this: Wind turbines can consume a lot of land where land is cheap or worthless, say in parts of Texas, which happens to be Bryce's home state. But where land is immensely valuable--say in Germany's Mark Brandenburg, one of the world's great breadbaskets, or in Iowa-Illinois, another--turbines need consume virtually no land.

Regarding costs, Bryce bases his calculations on a historic cost for installed wind of $1.70/W and a projected cost of $2.43/W. Those postulated costs, specified in the text and in a footnote but nowhere justified, may be dubious. Seven years ago, Yergin's Cambridge Energy Research Associates estimated the cost of installed wind at slightly less than $1/W, based on historical data to date at that time.

Could average wind costs be higher now than seven years ago, and does it make sense to predict that they'll be still higher a decade from now? Actually, contrary to what Matthew Wald of the New York Times has said in response to Bryce's article, costs may indeed be trending higher. Even a decade ago most of the best wind sites in Germany had been occupied, forcing the country to move to more expensive sites offshore.  British wind developers are having to go offshore too because of intense local opposition to land-based wind farms.

The more important point, as I see it, concerns Bryce's claims about benefits. Here, simply put, he's putting his calculations in the wrong frame of reference: It makes little sense to consider reductions in U.S. emissions as a fraction of total world emissions. The United States is not morally required to solve the whole world's climate problem, and of course it is not in a position to do so. All it's required to do is address its part of the problem.

Simply put, if current coal generation were reduced from 45 percent of total U.S. generation today to 25 percent and wind generation were increased from 2 percent now to 22 percent a decade from now, the effect would be to cut U.S. greenhouse gas emissions by nearly a sixth--a big gain. (That because coal accounts for about a third of U.S. greenhouse gas emissions.)

Bryce complains that the cost of accomplishing that cut would be equivalent to a carbon tax of $45-54 per ton, about twice as high as a tax Australia will introduce next year or the current cost of carbon emission permits in the European Trading System. But everybody seriously concerned about climate change and greenhouse gas reduction knows that the ETS price is still far too low to induce desired changes in energy investment. Bryce's projected cost only seems too high to him because he understating the gravity of the global problem and overstating what the United States needs to do to address it.

Bryce calculates that the cost of obtaining 20 percent of U.S. electricity from wind by 2030 would be would be an increase in electricity prices of 48 percent in coal-dependent states. That's a high price for the states that generate most of their electricity from coal, to be sure--and I do not dispute it--but if the tax is made revenue-neutral and proceeds are fed back to those most severely affected by it, then it would be manageable.

Such a system is sometimes called a "sky tax" or "sky trust" and has been proposed by people like entrepreneur Peter Barnes and University of Massachusetts economist James K. Boyce. Revenue from a sky tax could stimulate economic development in historically coal-dependent areas and help such areas adopt 21st century technologies.

The tendency of U.S. policy in the Obama years has in fact been in that direction, but the administration has yet to fully embrace the idea of using proceeds from auctioned emissions credits or a carbon tax to catalyze desirable economic development and reduce social inequalities. Republicans and independents who once seemed interested in cap-and-trade systems--Lindsay Graham, John McCain, Joseph Lieberman--have all jumped ship.

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