My name is Robert J. Michaels. I am Professor of Economics at California State University, Fullerton and an independent consultant. I hold an A.B. Degree from the University of Chicago and a PhD from the University of California, Los Angeles, both in economics. My past employment as an economist includes the Institute for Defense Analysis and affiliations with consulting firms. I am also Senior Fellow at the Institute for Energy Research and Adjunct Scholar at the Cato Institute. I attach a biography to this testimony. The findings and opinions I am presenting today are entirely mine, and they are not the official views of any of my professional or consulting affiliations.
For over 20 years I have performed research on regulation and the emergence of markets in the electricity and gas industries. My findings have been presented in peer‐reviewed journals, law reviews, and industry publications and meetings. I am Co‐Editor of the peer‐reviewed journal Contemporary Economic Policy, an official publication of Western Economic Association International with a circulation of 2,800. I am also author of Transactions and Strategies: Economics for Management (Cengage Learning, 2010), an applied text for MBA students and advanced undergraduates. My consulting clients have included state utility regulators, electric utilities, independent power producers and marketers, natural gas producers, large energy consumers, environmental organizations, public interest groups and governments. My services have at times entailed expert testimony, which I have presented at the Federal Energy Regulatory Commission, public utility commissions in California, Illinois, Mississippi and Vermont, the California Energy Commission, and in three previous appearances before other House committees.
II. Background and Purpose
The Committee today is exploring the economics that underlies H.R. 2915, and in particular the consequences of repealing the Western Area Power Administration’s (WAPA) $3.25 billion borrowing authority under The American Reinvestment and Recovery Act of 2009. That Act authorizes borrowing to construct new or upgraded transmission lines interconnected with WAPA, and specifically mentions lines “delivering or facilitating the delivery of power generated by renewable energy resources.“1 Numerous individuals and agencies have alleged that the increased investment in “renewable” sources of power is a worthwhile national objective on two grounds:2  it will provide environmental and climate benefits that outweigh their higher costs, and  these investments will favorably impact employment, particularly in a time of recession. If these statements were even approximately true, they could justify support and subsidization of renewable power. Unfortunately, they are not.
My testimony addresses the realities of renewable electricity. It first addresses the very minor contribution of renewables to the nation’s power supply, and how that contribution reflects subsidies and regulations rather than market factors. It continues with a summary of the actual subsidies to various power sources, showing that some renewables receive highly disproportionate treatment that is unjustifiable on economic grounds. The third part questions the logic behind any policy that purports to “create jobs.” Even if government can create them, energy policy is one of the poorest possible vehicles with which to do so. Renewables are seldom sources of durable jobs, and their actual importance for the nation’s employment is negligible. On closer examination, most of the millions of frequently touted “green” and “clean” jobs have little to do with either existing or proposed energy policies. I conclude that federal policies toward renewables are due for a complete rethinking, and that the WAPA authorization may be a useful starting point for that process.
III. Renewables and reality
A. Renewables in the U.S. power supply
Exhibit 1 shows the amounts of the nation’s power coming from various sources. In 2010, 44.9 percent came from coal, 23.8 percent from natural gas, 19.6 percent from nuclear, and 4.1 percent from renewables (excluding hydropower).3 Note the recent drop in production from coal, the longer‐term increase in production from gas and the remarkable constancy of nuclear generation. Renewable power is a small fraction of today’s total, but its contribution was even smaller in the past — 2.1 percent in 1990 and 2.2 percent in 2005, when its current growth began. Exhibits 2 and 3 show that the mix of renewable sources has changed substantially over the past 20 years. In 1991, over 95 percent of renewable electricity was from geothermal sources, biomass and waste burning. These technologies were viable because their unsubsidized power was (and still is) competitive with fossil‐fuel generation in a few areas. They were also dispatchable, operable when their power was valuable and left idle when it was not. All three of them have since stagnated. In 1992 they produced 70.5 million kilowatt‐hours (gigawatt hours or gwh) and in 2009 slightly more, 72.2 gwh. Solar power remains a minor presence despite its substantial subsidies. Its 1993 output of 0.45 gwh grew to only 1.29 gwh in 2010, under 1 percent of renewable power and 0.03 percentof all U.S. power. Exhibit 4 shows that the growth of renewable electricity since 2000 has been almost entirely in wind power, which by 2010 accounted for over half of all renewable generation capacity. Explaining that growth is our next task.
B. Costs of power and costs of reliability
Wind power is both intermittent and expensive, and official expectations are that it will remain so. Exhibit 5 shows the U.S. Energy Information Administration’s (EIA) projections of the levelized cost per megawatt‐hour (mwh) of various technologies (including fuel where applicable) for plants expected on‐line in 2016 (in 2009 dollars). The three most costly sources are solar thermal ($312/mwh), offshore wind ($243) and solar photovoltaic ($211). The cost of onshore wind is $97/mwh. Compared with a conventional (not an advanced) combined cycle gas‐fired generator ($66/mwh) the cheapest intermittent source is almost 50 percent more expensive. Intermittent renewables are even likely to be poor investments under a carbon tax or cap‐and‐trade system. The costs of carbon capture and sequestration (CCS) technology are still highly uncertain, but EIA estimates that adding it to a combined cycle gas unit still leaves it 8 percent less expensive per mwh than the cheapest wind turbine. At carbon prices typically projected for cap‐and‐trade regimes the wind plant still loses.
Technology and economics both tell us that intermittent wind capacity carries costs that will likely exceed those the same dispatchable fossil‐fueled capacity. Small amounts of wind can easily be integrated into a regional grid because a sudden calm is operationally indistinguishable from a minor outage. Larger amounts of wind capacity, however, require costlier backup arrangements, including operating reserve generators. In most regions wind blows most strongly when its power production is least valuable. In 2006, California had 2,323 MW of wind capacity and was operating under record loads in early summer. Wind’s average on‐peak contribution (over the diverse northern and southern climates) was 256 MW.4 For system planning purposes, ERCOT, the Texas grid operator, currently sets a wind turbine’s “effective capacity” at 8.7 percent of its nominal amount for planning purposes.5
Because wind requires fossil‐fuel generation as backup we cannot simply conclude that a mwh of wind power eliminates the pollutants in a mwh of conventional power. Research by gas marketer Bentek Energy found that in some areas additional wind power has strikingly perverse consequences. Bentek found that large increases in Texas and Colorado wind capacity indeed led to less coal‐fired generation. Emissions of EPA “criteria pollutants” from these plants, however, actually increased, and CO2 emissions were unchanged.6 Operating data showed that wind’s variability required numerous quick adjustments by coal‐fired units, which were responsible for the added pollution. Bentek’s controversial conclusion was that the total load in the area could have been served with lower total emissions had the wind units never existed.
C. Who gets what subsidies?
Subsidies and regulations can explain wind power’s rise quite graphically. The American Reinvestment and Recovery Act (ARRA) extended wind’s sporadic production tax credit (PTC, now also applicable to some other renewables) through the end of 2012. Before the PTC’s first enactment in 2000, only 67 megawatts (MW) of wind capacity were built. That figure grew to 1,697 MW during its initial year of 2001. For 2002 (credit not in effect) and 2003 (in effect) the figures are 446 and 1,687 MW; and for 2004 (off) and 2005 (on) they are 389 and 2,431 MW.7 Many other factors influence investment, but total investment in years with the tax credit was 544 percent greater than in years without it. (We cannot go beyond these years because subsequent extensions have included retroactivity provisions that investors may have come to expect. ) There is, however, no evidence of changes in market conditions that would diminish the importance of subsidies, as was recently noted by the American Wind Energy Association (AWEA). In mid‐2010 it claimed that ARRA’s subsidy provisions (which included an investment tax credit option) had been responsible for an increase in small turbine installations: