Intermittency has big costs: Brookings study

The Economist discusses a new study from Charles Frank of the Brookings Institution that uses a cost-benefit analysis to rank various forms of energy, going beyond levelized cost (click the image for a larger version):

energy costs brookings

Of particular interest to North Carolina policymakers should be this: Frank’s model tried to account for two things not accounted for in estimates of the levelized costs of energy sources. One is dispatchability — whether the source can be counted upon to generate electricity at the moment of need, or if it requires an additional source on standby for backup baseload generation.

The other is the ballyhooed “social cost” of carbon dioxide emissions. Frank used a very generous measure of avoided emissions — over five times the current price. Recall that panelists at the NC WARN/John Locke Foundation forum on energy all agreed (see the end) that trying to generate a “social cost” measure of carbon dioxide emissions was futile.

Even with that highly dubious assumption built in, however, Frank found solar and wind were incredibly expensive. And that is because of their nondispatchability:

If all the costs and benefits are totted up using Mr Frank’s calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit. But the most cost-effective zero-emission technology is nuclear power. The pattern is similar if 1MW of gas-fired capacity is displaced instead of coal. And all this assumes a carbon price of $50 a tonne. Using actual carbon prices (below $10 in Europe) makes solar and wind look even worse. The carbon price would have to rise to $185 a tonne before solar power shows a net benefit.

There are, of course, all sorts of reasons to choose one form of energy over another, including emissions of pollutants other than CO2 and fear of nuclear accidents. Mr Frank does not look at these. Still, his findings have profound policy implications. At the moment, most rich countries and China subsidise solar and wind power to help stem climate change. Yet this is the most expensive way of reducing greenhouse-gas emissions. Meanwhile Germany and Japan, among others, are mothballing nuclear plants, which (in terms of carbon abatement) are cheaper. The implication of Mr Frank’s research is clear: governments should target emissions reductions from any source rather than focus on boosting certain kinds of renewable energy.

At this point I would argue again that the top priority of energy policy is not “emissions reductions,” it is least-cost energy. The fact that the least-cost sources of energy are also, all things considered, least-cost emissions-reducing source is a coincidence that should impress policymakers, certainly.

But what should be their overall goal is an energy policy that allows utilities to generate from the sources that will allow them to charge consumers the lowest possible prices. Electricity is a basic household necessity.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

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