The downside of renewables

Germany is experiencing rising costs, more coal use

MUCH HAS BEEN WRITTEN about New England’s electricity markets and the distortions caused by policy makers. There are many lessons that elected officials and bureaucrats can learn by looking overseas at several countries that are going “all in” on renewable power. The results are not good, at least if you are a major employer, manufacturer, or a residential ratepayer – or frankly anyone who uses electricity.

Let’s start with Germany, a favorite example for many renewable advocates. Germany embarked on its Energiewende (“Energy Transition”) in 2010. They established huge renewable energy targets, to be accomplished through the imposition of electricity tariffs and massive subsidies. In addition, Germany was determined to concurrently phase out its nuclear power. The result of this government imposed pricing and energy scheme has been massive deployment of wind and solar generation, but skyrocketing electricity costs.

Germany, like other European countries such as Denmark and Spain that embraced solar and wind, now faces some of the highest electricity prices in the world, at around 30 cents per kilowatt hour. These renewable generation resources require high upfront capital costs, very large investments in additional transmission infrastructure to move the power, and extensive investments in “backup” resources in case the sun doesn’t shine or the wind doesn’t blow. And when these renewables fail to produce, utilities and end users are usually paying higher prices in the spot market for electricity imports or fuel.

Of course, the bigger irony here is that in order to provide backup power, Germany has been building more coal plants. That’s right. Coal. Much of its natural gas generation has been mothballed because natural gas supplies in Europe are far more expensive and less reliable than coal supplies. As a result, Germany just issued a report on meeting its CO2 emissions goals and indicated it is unlikely to make its 2020 target, which may put its entire Energiewende endeavor in jeopardy.

Germany isn’t the only country that has taken this dangerous policy path. Australia has been gifted with incredible natural resources and energy supplies, especially in relation to its rather small population. Yet that hasn’t prevented elected officials in Australia from choosing policies that may wreck its energy infrastructure, raise electricity prices, and impair its economy.

Consider the state of South Australia. The local government decided to get rid of almost all its traditional baseload generation and rely on wind, solar, and two transmission interconnections to supply electricity to the region. What could go wrong? Well, in the past six months, South Australia has encountered a series of major blackouts due to the intermittency of the wind generation and grid instability when they suddenly stop producing electricity. The demands on the interconnections are too great and in some cases the entire state suffers power outages. Such an unreliable electricity infrastructure is unacceptable for a major manufacturer and should not be acceptable to anyone in a country blessed with massive energy supplies.

As if to emphasize this problem, in Queensland, Australia, there are fears that major electricity users such as smelters, mines, and manufacturers are shutting down because of the high costs of electricity. These high costs are not being driven by a lack of supply of fossil fuels, but by the growing incorporation of renewables and demands to shut down traditional baseload power. Virtually everywhere aggressive renewable mandates occur, higher (not lower) electricity prices are the result. While Australia has had relatively low unemployment rates over the past 20 years (just like New England) there are growing concerns that losing hundreds of jobs when an aluminum plant shuts down, or a mine closes, or a manufacturer moves overseas is due to expensive and unreliable electricity supplies.

Does this sound familiar? For the past 15 years, New England has been treading this same path. Our elected officials are pushing renewable energy policies which distort electricity pricing markets, push inexpensive baseload power out of the market, and make us more reliant on generation that does not have fuel on site. Wind and solar are at the mercy of Mother Nature. Natural gas supplies are limited by our refusal to expand pipeline capacity. As coal and nuclear plants shut down, we are becoming more like Germany and Australia. Their present may be our future.

Meet the Author

Michael Sununu

Owner, Sununu Enterprises Ltd.
If you use electricity, if you are a manufacturer, if you are a homeowner, and even our grid operator ISO-NE, be warned. When someone claims that more renewable power means cheaper electricity, remember the lessons we should be learning from overseas. Germany and Australia have shown that renewable energy is in fact expensive, threatens grid stability, and can create risks to businesses. The costs of high rates and unreliable power will be paid in jobs moving elsewhere and slower economic growth.

Michael Sununu is the owner of Sununu Enterprises LLC, a consulting firm focused on water, telecommunications, and energy infrastructure located in New Hampshire.