AEI Economist Fumbles Big Time on Cost of Renewables

February 29th, 2012 by Stephen Lacey

This post was originally published on Climate Progress and has been reposted with permission.

Did you know that the landing on the moon was staged? Or that swallowing seeds will cause fruit to grow in your stomach? Or that the cost of solar power has gone up 63% since 2001?

If you are tied to reality, you’d know that all three of these statements are utterly false. And while most people know that the moon landing was real and that seeds don’t grow in your stomach, the last falsity is an easy one to slip by people who don’t follow energy — which is almost everyone.

In fact, the installed cost of solar has come down nearly 40% since 2001.

That ridiculous statement about solar comes from Dr. Ben Zycher, an economist with the Pacific Research Institute and visiting fellow at the American Enterprise Institute, who has a new book out about renewable electricity technologies. Last week, AEI held an event for Dr. Zycher to talk about his book, in which he claims to be conducting a “fresh analysis” and a “reality check” on clean energy.

It seems Dr. Zycher needs a reality check — some of his math mistakes have introduced errors that are off by a factor of 100! Below is a response to some of his claims.

According to the authoritative “Tracking the Sun IV” report from the Lawrence Berkeley National Laboratory, the installed cost of solar has come down about 40% since 2001, from $10 a watt to $6.2 per watt. And with a scale-up in manufacturing, the market price of modules has come down an astonishing pace, with prices declining from $7 a watt in the mid-80′s to under $1 a watt today. Some analysts predict that we’ll see solar module prices at 70 cents a watt this year.

Zycher also claims that “wind energy costs have been steadily rising even though the capacity to generate electricity has expanded.” He points to Department of Energy data showing an increase in turbine prices from 2001 to 2009.

It is true that the price of wind power increased slightly since 2001 due to a rapid scaling of global capacity, a shortage of product, and a huge jump in the cost of raw materials. (Steel doubled in price and copper quadrupled in price in the past decade.) But this is after a stunning drop in costs over the previous two decades:

Moreover, the DOE data shown below clearly shows that turbine prices and project costs are back on a downward trend:

And with the size and performance of wind farms improving substantially, the levelized cost of wind electricity continues to fall and nip at the heels of historically-low natural gas prices.

“The PPAs [power contracts] that people are pricing today in the best wind markets around the country…in the three cents per kilowatt-hour range. Wind is now back in a very competitively advantageous position,” Lawrence Berkeley National Lab Analyst Ryan Wiser said recently.



History has shown that every doubling of wind capacity has resulted in a 14% reduction in the cost of wind electricity, according to energy analysts at Bloomberg New Energy Finance. Based upon the consistent drops in the cost of wind, BNEF analysts say they “expect wind to become fully competitive with energy produced from combined-cycle gas turbines by 2016 in most regions offering fair wind conditions.”

Zycher also tries to claim that conventional fossil energy technologies don’t have an artificial advantage over new, emerging technologies.

By comparing current government subsidies per megawatt-hour of electricity from less-mature renewables to electricity produced from mature fossil energies with high penetrations, he finds that renewables receive hundreds of times more subsidies per unit of energy.

Of course, taking a one-year snapshot of every single expenditure during the height of stimulus spending doesn’t tell us much about the imbedded impact of historical energy subsidies that allowed carbon-based fuels to scale up. Zycher refers to figures from the U.S. Energy Information Administration prepared for members of Congress, who requested the 2010 snapshot data in order to make a case against clean energy.

But when the EIA issued the report, the agency admitted up front that the methodology (again,requested by wind opponent Senator Lamar Alexander) was skewed against renewable energy:

“Focusing on a single year’s data does not capture the imbedded effects of subsidies that may have occurred over many years across all energy fuels and technologies.”

So what if we actually compared subsidies to various energy technologies based upon historical data? A report from the venture capital firm DBL Investors did just that, and found that federal investments in oil and gas were “five times greater than the federal commitment to renewables during the first 15 years of each subsidies’ life, and it was more than 10 times greater for nuclear.”

Those aren’t the only tricks Zycher plays with the cost structure of renewables. He also claims that the cost of back-up power adds $368 per megawatt-hour of electricity produced. That’s more than 36 cents per kilowatt-hour.

Say what? That would make renewables like wind and solar so ridiculously cost-prohibitive, no one would invest in them. Well, Zychner seems to have made a math error that inflated his estimates by a factor of 100, according to an analysis of his data from the American Wind Energy Association:

In his calculations, Mr. Zycher claims that backup capacity is needed for 3-4.5% of the nameplate capacity of wind energy added to the grid, based on analysis done by the California grid operator. In addition, the DOE tables cited by Mr. Zycher indicate the cost of that backup natural gas capacity would be $648-984 per kilowatt of gas capacity. Taking those numbers at face value, multiplying 4.5% by the $984/kw backup cost indicates that the cost of backup capacity would add a mere $44.28 to the cost of each installed kilowatt of wind energy, adding just over 2% to the cost of wind energy, not the 250% that he claims. Thus, Mr. Zycher’s assumed cost for backup is wrong by a factor of at least 100. Even if drastically higher assumptions are used for the quantity of backup capacity needed and for the capital and operating cost of those reserves, the added cost for wind energy is still far less than a tenth of what Mr. Zycher claims it is.

And last year, the National Renewable Energy Laboratory modeled a 30% wind and 5% solar penetration on the Western grid, finding that a combination of high renewables, low gas prices and a carbon tax could displace coal generation and maintain grid stability. Assuming a price on carbon, wind and solar could add $46 per MWh in value to the Western grid. The chart below illustrates declining grid operating costs with higher penetrations of renewables:

Lastly, Zycher uses his dubious tools of analysis to make that case that renewable electricity will harm the economy because “decades of data show that higher electricity consumption correlates strongly with GDP growth and higher employment.”

Yes, electricity consumption in the U.S. has closely followed GDP on the national level. And assuming you believe Zycher’s astronomically gross inflation of the cost of renewable electricity, that might be a notable argument.

But here’s an important thing to keep in mind. Electricity consumption and GDP don’t have to correlate. Take California — a leader in renewable energy and efficiency — which has seen twice the growth in GDP per kilowatt-hour of electricity than the rest of the county. Because of real-time pricing, conservation and efficiency — all necessary compliments to renewables — the state has seen economic productivity increase 50% per unit of electricity, while the rest of the country only increased 15%:

Zycher’s “fresh look” at the “myths” of renewable electricity is nothing more than a re-hash of the same tired arguments against clean energy. When you look at the data and historic experience in the U.S., renewable electricity technologies are clearly coming down in cost, creating new economic opportunities, and not dramatically increasing grid operation costs.









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