Subsidies? In New Zealand? For wind power?
A conversation was under way here, sparked by my post on Germany’s “new dark age”. A reader (Andy) posed the question:
“I am intrigued by the NZ wind industry, because it seems, on the face of it, to be just about the only example in the world that is not surviving on subsidies (other than the ETS, of course). Am I missing something here?”
Now Bryan Leyland provides the startling information that NZ wind turbines do enjoy substantial public subsidies. He laid them out for me. I’ll start with the smaller ones and shock you with the biggest at the end.
First, they don’t have to predict in advance what the output will be. Of course, this would be a practical impossibility, like predicting the exact rainfall next month. But we are immediately alerted to one of the most serious drawbacks of wind generation.
To put it backwards, if you knew precisely the demand for electricity for your business or your city next month, you wouldn’t know if you could get it from a wind farm, because they don’t have to tell you (and they can’t anyway). So you would be forced to order it from a thermal or hydro station, just in case.
Wind turbines get free transmission. This means that, when connecting the wind farm to the national grid, if the local feeder lines need reinforcement to carry the load, it’s paid for from public funds. While it doesn’t happen often, it is certainly a subsidy.
They do have to offer their electricity to the market at only one cent per megawatt hour, so it’s not all beer and skittles.
What’s the biggest subsidy of all? Free backup. When their turbines must close down, for either too little wind or too much, they suffer no penalty, they make no refund and offer no compensation.
It doesn’t matter how expensive the replacement power is, how inconvenient for industry, hospitals, trains, malls tunnels or motorways; we just smile kindly and say: “You poor little wind farm! We’ll take the load off your puny shoulders and switch on our giant diesel and gas turbines. They’re reliable. They’ve actually been spinning along at full idle for weeks now, ready to step in at a few seconds’ notice, and we’ve been paying for that, too. But we don’t mind – you go and have a lie-down!”
Bryan comments:
“As the amount of wind power on the grid increases – and it’s now about 500 MW – backup will become more and more important and more difficult to provide. While it is often said that our abundant hydro resources can provide all the backup they need, in reality this applies only to a normal hydro year. In a dry year, when the system is is under stress, the hydro generators don’t have anything to spare for a few days – let alone weeks – of unusually low wind power. Hence, for the purposes of deciding when we need new generating capacity, we have to assume that wind power will be very low indeed.
Bryan Leyland is a well-known Consulting Engineer with special expertise in power generation. He’s also a tireless member of the NZ Climate Science Coalition, spending a lot of his own time, at his own expense, travelling the country, giving talks on global warming and related matters.
Views: 631
Well if Huntly goes down, who is backing that up???
There is no power station with a 100% uptime guarantee. And NZ’s wind farms are the best world wide when it comes to their overall production and reliability of the wind resource.
BTW China added about 14GW of wind power to their mix in 2009. And I don’t think you can blame subsidies for this. Its simple pragmatism over there. Wind works so well that the communists are now installing more GW annually than any other country…
This isn’t about guarantees, it’s about prudent public planning. Yes, the NZ experience with wind power production is among the best in the world, but wind power is still the worst to predict. Do you disagree?
The number of Chinese wind farms is impressive, but they are not being paid for by private investors. The communist government can do as it pleases, regardless of whether it’s economic. Do you suggest we follow their example?
You call it pragmatism; you might as well call it a sop to western environmental sensitivities.
Of China’s 874 GW total generation capacity, thermal generation still makes up three quarters of it (652 GW, 74.6%). According to my source, wind power capacity nearly doubled in 2009 to 16 GW (adding less than 8 GW, not 14 GW), but remains only 1.8% of the total. NZ generates 3.5% from wind, so we’re already doing better than China in that regard.
As a Kiwi living in the UK on a temporary basis, I understand that the UK experience with windpower (or nopower, more often that not) is a serious and worsening situation here, as the demand for electricity is growing rapidly due to a cooling climate and massive immigration, putting the UK government’s planning decisions under the spotlight of cruel reality.
The politicians here still have not realised that coal, oil and atomic power don’t have to have back-up power generators sitting waiting until they are needed but will operate on an as-needed basis with no requirement for redundant capacity. And now even bigger windmills are in the pipeline – where’s Don Quixote and his mate Sancho Panza when we need them?
Well, Coal and Oil have the downside of rapidly rising prices as we go down the other side of the Peak Oil curve and are unsustainable beyond the second half of the century due to severe supply side constraints. Oil is up again as you can see to the right at $90 US/barrel and that’s in the middle of the worst economic crisis since the great depression. If we should pull out of this recession Oil prices would instantly be in the three digit territory.
Wind produced about 9330 GWh of electricity in the UK in 2009. That is the equivalent of 4.7 million ton of coal or 5.5 million barrels of Oil.
https://restats.decc.gov.uk/cms/national-renewables-statistics/
“Wind produced about 9330 GWh of electricity in the UK in 2009.”
Did it produce on demand?
“Oil is up again as you can see to the right at $90 US/barrel and that’s in the middle of the worst economic crisis since the great depression.’
One analyst’s view: oil should cost just $10 a barrel
by Sebastian Blanco on Sep 1st 2010
[See spot price graph)
It wasn’t all that long ago that barrels of oil cost around $10 [circa 1998] One energy analyst quoted by CNBC, Peter Beutel, the president of Cameron Hanover, thinks that a fresh, crisp Alexander Hamilton is just about what a barrel is worth. His reasoning?
We have so much oil right now, more than we’ve had in 27 years. Why is it 27 years? Because that’s how far our records go back. It’s probably the most in 50 or 100 years. … We’ve got 50 million barrels of crude more than we had two years ago. We have 176 million of distillate. When I started in the business back in 1980 we used to think to ourselves: “Gee, we would love it if we had 140 million barrels of distillates to start the winter.”
The problem?
I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn’t be anywhere near where it is.
http://green.autoblog.com/2010/09/01/one-analysts-view-oil-should-cost-just-10-a-barrel/
There’s a down side to oil believe me. I was trading oil exploration shares and got wiped out by $10 oil in the late nineties.
“Well, Coal and Oil have the downside of rapidly rising prices as we go down the other side of the Peak Oil curve and are unsustainable beyond the second half of the century due to severe supply side constraints.”
As I said to 33noa333 in the Energy and Fuel thread in regard to oil (or coal or gas or energy for that matter)
There’s more than you think
3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation—25 Times More Than 1995 Estimate
https://www.climateconversation.org.nz/open-threads/climate/regions/usa/#comment-26901
The yanks will be drilling like crazy again onshore USA before long.
“due to severe supply side constraints”
The constraints are at the refineries and guess why the majors are not in any hurry to build more of those? Peak oil will be manufactured to maintain peak price whether by the majors or OPEC or anyone with a vested interest. Why kill the goose that lays the golden egg?
There’s also massive coal reserves around the world ($1bn lignite alone in NZ) so there’s no reason to panic on that account.
From a consumers perspective oil price suffers from supply-side mgt but there’s not the same opportunity for manipulation with coal, hence the reasonable prices. What would be insane is if an arbitrary and unnecessary carbon tax was imposed on coal.
Probably an insensitive observation at this time but the first extraction from Pike River should have been gas not coal.
In their haste to take advantage of Chinese steel mill demand the operators have foregone an economic opportunity and lost 29 miners in the process.
It has been known all along that the seam was a gas producer and its been a problem from the start. Just watching the difficulty in extinguishing the fire is testament to that. If they had extracted the gas first then there would be 29 men alive today instead of dead as they are now.
The home truths will come out in the inquiries but I doubt that the wasted energy will be an issue. This is a classic case of resource mis-management: they haven’t learned from the oil sectors gas flaring waste or the indecent raping of Californian oil fields in the early days.
There’s also this from Chiefio
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on December 1, 2010 at 9:48 am E.M.Smith
@Chuckles:
Yeah. “Resource Economics” is perfectly rational if you are trying to make production decisions as a company or as a national government with a socialist enterprise; but it completely baffles most folks when they try to use it to predict ultimate production or outcomes.
Somehow they leap from the notion that we only have “50 years of oil reserves” to the notion that “we only have 50 years of oil”. It all hinges on that last little word…
The reality is that “50 years reserves” will, in fact, NEVER run out. As you approach the end point, prices rise. This does two things. It cuts demand; so even if it was a hard empty at ’50 years’ prior consumption rate, it now extends beyond 50… and It raises supply as it is now economical to produce oil that was not economic before. That could be finding a new field, or it could be just using nuclear electricity to power the pumps or even steam heat the existing field to get more out. (The original ’50 year’ number being based on the original non-heated extraction methods that leave about 1/2 the oil in the ground).
There is an amusing thing I’ve noticed. We ALWAYS have a “50 year reserve”. I don’t know why it’s that number, but that is the equilibrium number where reserves stabilize (and by that, I mean the economic reserves, not the actual total quantity of oil in the ground). I’ve got a book from 1919, an engineering text, that says there are only 50 years of reserves of oil left. In 1970 it was 50 years of resrves. In 1990 it was 50 years of reserves. And now? Yup. 50 years of reserves… Care to guess what the reserves of oil will be in 2020? …
My speculation is that when it’s above 50, no exploration happens. When it’s below 50, you get more exploration, more expansion of existing fields, and maybe a touch of a price rise so folks put in things like steam strippers in old wells. Then you end up back at 50 and that’s longer than anyone cares about, so investment slacks off again… but what I don’t ken is why it’s not, oh, 40 or 20? Perhaps because it can take 20 years to build out a field? Or maybe just because early on the Oil Majors had to report reserves and reported “50″ so now it’s a target? But it’s an odd curiosity.
[Snip]
We’re up to our eyeballs in energy sources and we can never “run out”. All that can happen is minor price shifts as we move from one supply to the other. (My personal favorite is Thorium. Treated as a contaminant in Rare Earth Metals mining. But enough to power the world for about 30,000 years… and it’s ALMOST economical. If only Uranium was not so cheap… and in about 10,000 years when U gets scarce, maybe the price will rise enough 😉
How folks turn that “natural abundance” into “running out” I’ll never understand…
http://chiefio.wordpress.com/2010/11/30/clathrate-to-production/#comment-9177
peter_dtm on December 1, 2010 at 12:21 pm
And not forgetting that petrol & light diesel are also ‘technically’ bi-products of the chemistry industry. IIRC it was around 1975 that ICI stopped throwing the light distillates away and started selling petrol !
Which is the other major problem with the current anti-oil stance; we don’t drill for the gasoline ! We drill for the chemical feedstock.
I am sure that most people conned into cutting back on their fossil fuel use would be horrified to realise just what a small part of the Oil industry gasoline production really is; and just how much of their everyday life is totally dependant on Oil based products !
E.M.Smith
@peter_dtm:
I think you may be a bit off on some of the dates, but yes, the use of petroleum has a long history of finding a use for the “waste product”.
The earliest Ford cars had a dual fuel carburettor. It was first designed for alcohol as that was a common fuel. Then someone discovered that this “waste product” from making kerosene for lighting could be used in an engine. Thus “gasoline” was born and they put on the duel fuel carb as gasoline was cheaper than alcohol.
That lead to the “waste product” of “light oil” that was too heavy for Kerosene lamps and too light for lubrication and way to heavy for Gasoline engines… so Dr. Diesel (who’s engine was invented to run on PLANT oils, in particular peanut oil) re-jiggered his engine to use this “waste product”… (eventually we developed catalytic crackers ‘cat crackers’ to turn the heavier fractions into gasoline).
The explosion of production of Gasoline and Diesel then lead to too much kerosene being left over (as we’d moved to electric lights). So when the aviation turbine came along it was designed to use this cheap “waste product” of Kerosene…
The earliest “petrochemicals” were made from “coal tar” and “coal oil” along with some coal gas ( eventually resulting in the terms “producer gas” and “synthesis gas”). When coal got a bit expensive, most of them converted over to petroleum (though Eastman Chemical EMN still uses coal) and we started calling the products “Petro”-chemicals.
But ‘petrol’ was well in use as a motor fuel long befor 1975 and was not then thought of as a ‘waste product’. That was more like 1910-30 IIRC.
At any rate, the Arab Oil Embargo of about 1973-4 caused a big ‘re-think’ of using oil for electricity and petrochemical production (at least in the USA) and most all the ‘oil’ generation facilities were converted to either natural gas or coal. At the same time, our domestic “petro”chemical industry cut over to making things from Natural Gas as we were up to our eyeballs in the stuff. So from about 1980 to date we’ve made most of our “chemicals” from natural gas, not oil. (Other countries will have different histories depending on relative availability of the different feed stock options.)
But we could use any of: coal, oil, natural gas, trees, garbage, anything with carbon in it. (“soylent chemicals” anyone?…)
FWIW, Rentech RTK has a pilot plant making chemicals from trash and Syntroleum SYNM has one using chicken processing waste. So this isn’t a theoretical…
But yes, I can think of no field of endeavor that better illustrates the truths of “One man’s trash is another man’s treasure” and “Everything is a resource” than the history of motor fuels and “petro”chemicals…
Oh, and another honorary mention goes to Ford for using plastics made from peanuts (and perhaps soy?) in the earliest cars they made. Ford and George Washington Carver were modestly close friends and both worked together to demonstrate plant based plastics. IIRC it was various knobs and a rear rumble seat door that were made that way.
Ah, yes:
http://www.history.com/this-day-in-history/george-washington-carver-begins-experimental-project-with-henry-ford
says it was soybeans. And that Carver made a workable synthetic rubber from the Goldenrod weed.
Another person who realized that EVERYTHING is a resource… just not always a reserve…
peter_dtm on December 1, 2010 at 2:53 pm
@E.M.Smith
ah yes – UK v USA manufacturing/industrial history
Imperial Chemical Industry – ICI used to flare off or just throw away the ‘light’ distillates until – probably the Arab embargo – then they just burst on the scene; literally form nowhere as a petrol station (gas station) owner operator and supplier. Some accountant finally did the maths and showed it was cheaper to make the distillate waste into ‘petroleum spirit’ and dispense it to the public. They could have saved money even if they had given it away free !
Have a look at SASOL in South Africa as well; taking a WWII German technique to convert almost coal (brown coal) into Petrol and Diesel. The waste product from that process (which was a strategic sanctions busting operation in Apartheid SA) was Synthol – which was then sold on as Marine bunkers – Redwood 300 ‘light bunkers’ at the time costing some $400 per ton; waste product from SASOL costing some $10 per ton to get to SA ports sold at .. $390 of course !. The early 1990′s break even for SASOL was Brent oil at $30-$40 per bbl. Needless to say it’s a roaring commercial success; taking a ‘waste’ *not quite coal* mineral…….
And of course here in the UK we used to ‘make’ gas from coal – Town Gas – the ‘waste’ product from that went to steel works …. until North Sea gas arrived in the late 70s
As you say; most things that are considered ‘waste’ are highly valued in some other time/place.. (guano anyone … ?)
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The post is “Cathrate to Production” and is well worth a read comments and all, lots of outside-the-square topics
H/T Andy
The hat tip should really go to Richard North, from whom I originally saw the link.
http://eureferendum.blogspot.com/2010/12/what-energy-shortage.html
The irony here is that this post also has a video of a wind turbine breaking up.
Richard C,
This is fascinating information. A few days ago I had a quick look for recent crude oil and gas/condensate discoveries. This was an informal search of news media that didn’t last long. Once I found half-a-dozen references I stopped looking.
Just this year, in eleven months, there have been either discovered or newly assessed reserves of about 61.5 billion barrels (Bbbl) of oil equivalent. Where only a flow rate was given for a couple of small fields, such as for a new Taranaki discovery announced in November, I calculated 20 years’ production at that flow rate.
Present global oil consumption is about 85.1 million barrels (Mbbl) per day, or 31 Bbbl per year, so the latest discoveries are about two years’ worth of global demand. Most of this comes from only two giant discoveries: Brazil, 25 Bbbl, and Iran, 34 Bbbl.
But dwarfing these is the US Green River formation in Colorado, under the Rocky Mountains. Known since the 1930s, a recent official survey claims it to be the largest oil reserve in the world – 2 trillion barrels in over 16,000 square miles of oil shale, owned by the US government.
“That’s more than all the proven oil reserves of crude oil in the world today,” reports The Denver Post.
When the crude oil price rises somewhat, investors become attracted to the economics of exploiting such resources. Simple, really.
So we always have 50 years to go! Amazing.
Oh, forgot: To get the oil out of the porous shale, all you do is heat the rock, such as with steam. It’s simple, but really expensive. Hence the need for a higher oil price.
Steam?
There’s steam at Yellowstone National Park: in Wyoming north of Colorado.
http://www.yellowstonepark.com/regions/ShowRegions.aspx?sid=6
Yellowstone National Park: Steam Vents
http://www.yellowstoneparknet.com/geothermal_features/steam_vents.php
Just need some lagged pipes and we’re in business.
Thread is me – I’ve been doing some threading.
Wasn’t the electricity sector de-regulated in favour of market forces?
Those reforms have had the unintended consequence of electricity striding ahead of other groups in the Consumers Price Index, see Water, Wind and Kilowatts:-
http://www.stats.govt.nz/browse_for_stats/industry_sectors/energy/water-wind-and-kilowatts.aspx
A large part of that increase is due to a race-to-the-top in pay rates for upper level executives and monopolistic pricing.
See “Power boss’ $1.3m top Govt pay”
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10682249
Wind power is a dream come true for CEO’s remunerated commensurate with revenue growth due to relatively low initial investments and short lead times. They would be foregoing a golden opportunity if they did not avail themselves of a beneficent regime. In that light though, why should there be any free ride for wind?
In recent times the task of economic selection of a project (or projects) from a number of options has been made easier by the benign climatic conditions so selecting the easy wind option is a no-brainer but the odd hydro project is still being commissioned.
Come a cold climate and economic growth over the next 30 years and that selection becomes more difficult and the hard options must then be undertaken because wind is not a base load option. Equally, de-commissioning Huntly is not an option because there is no replacement for 1000MW running full blast. and on demand. With nuclear out of the question in NZ, what’s the next easiest option in order? Gas, geothermal, hydro, coal. But which options produce the goods (as China, USA and Germany know full well) when economic growth is to be satisfied under geographic constraints? Gas and coal.
Richard and Bryan,
Thanks for taking the time to answer my question.
The question of subsidies is often bogged down in semantics. In the UK, the subsidy is in the form of Renewable Obligation Certificates (ROCs). These are not direct subsidies, but in effect mean that UK wind operators make money even when not generating power at all.
This form of subsidy is not present in NZ. The indirect subsidies mentioned in this article also exist in the UK, so in effect, we could probably deduce that NZ is less subsidised than the UK overall.
The next question I have, then, is why are NZ operators building wind farms at all?
Is it a byproduct of the deregulation of the energy sector? i.e if company A deploys a wind farm, makes a guaranteed profit after so many years with no service level agreement with the grid, then surely it makes absolute sense to build one, if company B is providing the backup generation. (i.e there is no overall business plan between company A and company B)
An analogy might be that I, as a contract software developer, agree to provide a service to a company, at a certain hourly rate. However, I will provide no guarantees on how many hours I will work in any given week. The company requires a certain level of support for its products, therefore needs to employ a full-time staff member to do the work. Every so often, I breeze in (pardon the pun) and do some work, tell the full time guy to read the paper, and send in my bill that is twice the full-time guys hourly rate.
Who would buy that?
“The next question I have, then, is why are NZ operators building wind farms at all?”
My answer to that here
https://www.climateconversation.org.nz/2010/12/nz-wind-farm-subsidies/#comment-31274
“Is it a byproduct of the deregulation of the energy sector?”
My answer to that here
https://www.climateconversation.org.nz/2010/12/nz-wind-farm-subsidies/#comment-31274
Also some stuff on the economic risk of wind investment in the corporate context
https://www.climateconversation.org.nz/2010/12/nick-smith-heed-german-dilemma/#comment-31282
The profits (economic or accounting) are not guaranteed but it certainty makes sense to build them if you’re a CEO being rewarded for revenue growth given the special privileges of the wind sector.
Costs deflate windy issue
The Manawatu Standard 06/12/2010
Palmerston North Mayor Jono Naylor says it is taking an “absurd” amount of time for a Government board of inquiry to decide if the Turitea Wind Farm should go ahead.
Manawatu is still awaiting a result on the contentious proposal after a hearing spanning nine months finished nearly nine months ago.
Figures obtained by the Manawatu Standard show the process has also cost millions of dollars.
Mighty River Power, which wants to build a wind farm of up to 104 turbines on the Tararua Range near Palmerston North, disclosed that the hearing to decide the matter cost the company more than $1.5 million.
The cost to Palmerston North City Council of making sure residents’ interests were protected was more than $800,000.
Some submitters also paid lawyers and brought in experts for the hearing, as well as often giving up their own time to be there.
http://www.stuff.co.nz/manawatu-standard/news/4426572/Costs-deflate-windy-issue
Some more info on Palmerston North wind farm here:
http://palmerstonnorth.blogspot.com/
Youza! – I just clicked on the image.
Something that gets lost in the issue is the access roads. They’re not sealed or kerb-and-channeled that I know of and due to the nature of wind power they of necessity carve up hillsides. Anyone with an iota of experience in road maintenance knows what water can do in that situation especially when there’s a deluge.
There’s also cable trenches to wash out depending on how the trenches have been orientated and backfilled. I suspect that the cables are laid along the access roads so doubly vulnerable.
Water has a nasty habit of doing the unexpected to the best laid plans of mice and men.
There will have to be constant maintenance and I note in TrustPowers report that rising maintenance costs are an issue but how much of that is attributable to wind I don’t know.
See an access road photo here
“An unspoilt environment? ”
http://visitwalesnow.org.uk/environment-in-wales.htm
Bonus snippet
To date it has been assumed as self evident that wind generated electricity will save carbon. There is very little evidence that this is the case and indeed mounting evidence that wind generated power is not carbon friendly. Current available figures bring us to conclude that during its lifetime one 3MW turbine will “save” 6,356 tonnes of carbon and “cost” somewhere between 27,213 and 40,773 tonnes of carbon
Why is ‘peak oil’ seen as a market failure requiring Government intervention, with taxes, subsidies, regulations, central plans, etc?
IF and when the markets (not a bureaucrat or consultant) detect that the price of oil or any other commodity is rising above the cost of a substitute, then suppliers will shift to the alternative. Not always and everywhere, but where it makes commercial sense and is therefore bankable.
When central planners take over, the banks know the ‘market’ demand is contrived – and the political risk goes through the roof. When a major capital investment is dependent on political will, who knows when the subsidies will dry up? Look what’s happened in Spain and Germany in recent months, and it is easy to see why all these artificial ‘green energy’ schemes have become un-bankable without an explicit Government guarantee.
What is the energy balance of a wind turbine with a 15% load factor?
If 30% of the nameplate CO2 savings goes in backup, what happens if actual windflow is lower (or higher) than expected? Do backup emissions per kwh double if the load factor is unexpectedly halved?
Then there is a question of the energy (or CO2) content of the Chinese materials and freight involved in construction. These might be fully offset by the CO2-free energy produced in a 15-year lifetime at nameplate capacity. But how much of that pre-invested energy will be recovered if the load factor is only half the level used in planning?
Extract from today’s ‘ECONOMIST’:
Paradoxically, the very size of the required subsidies may make firms reluctant to invest, says Peter Atherton, a utilities analyst at Citigroup, a big bank, out of fear that the government may not honour the commitments if voters start to complain. “After all, the build time of a wind farm or a nuclear plant is longer than the lifetime of a parliament,” he points out. He cites experience in Europe, where generous German and Spanish subsidies for renewable energy were hastily clipped once it became apparent how popular (and therefore costly) they were