Wind Power Investors Should Also Be Transmission Investors

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 |  Includes: FAN, GEX, ICLN, PBD, PBW, PUW, PWND
by: Tom Konrad, CFA

I published my rebuttal to John Petersen's recent article "Gone With The Wind – Debunking Geographic Diversity" on November 1st last year.

That article had two parts. The first part focused on electric vehicles, and argued that the problem with the electric car was not electric propulsion, but the car paradigm. I concluded that electric propulsion makes considerably more sense for electric bikes, trains, and buses. John clearly understood that section, because he published an article just last week showing how a recent report from Lux Research confirmed my ideas that electric bikes, and heavy vehicles (delivery trucks, buses, and train locomotives) would be the dominant electric vehicles for the next decade.

Trapped in an Invalid Paradigm

The second part of my "Paradigm" article was headed "Wind and the Grid," and it appears that John stopped paying attention at this point. He certainly missed the sentence where I said "critiques of wind power's variability implicitly assume that nothing can be done to make the electric system more accommodating to wind, when in fact there is much that can be done," as well as the steps I outlined to address the problem.

Let's dissect how John's paradigm leads him to invalid conclusions.

John analyzed wind production data from five widely dispersed regions, finding that his model grid produced less than 12.5% of rated capacity 18.5% of the time, less than 6.25% of rated capacity 1.6% of the time.

That sounds pretty bad, doesn't it? He clearly thought it was bad, because he concluded, "wind power will never be stable or reliable enough to serve the needs of an industrialized society."

I find this conclusion a little hard to swallow. If he had said "never be stable or reliable enough to serve all the needs of an industrialized society," I would not have a problem with his statement. But he's trapped by the paradigm that says the only useful electricity is either always on (baseload) or dispatchable (on-demand.) Even with geographic diversification, wind and solar are neither, but they do serve the highly useful function of allowing us to conserve precious dispatchable resources (hydropower, some biomass, natural gas, energy storage, and demand response) to fill in the gaps when they are not available. This function does not serve all the needs of society, but it does free up valuable resources to serve those needs at other times.

Rated Capacity: The Wrong Yardstick

John's use of "rated capacity" of wind farms to measure shortfalls in production is also an artifact of the conventional power paradigm that exaggerates the lows in wind power production. With baseload resources such as coal and nuclear, which are often operating at full rated capacity, measuring output in comparison to rated capacity makes a certain sense, although even coal would not stand up to the test that Petersen expects wind to pass. A typical coal plant has a capacity factor of 80% to 90%. About 10% of the time, the coal plant is not operating at all (it may be down for maintenance, coal supplies may be delayed, or there may be some mechanical problem which forced it to shut down.) By Petersen's apparent logic, if coal plants are not operating at all 10% of the time, they must not be stable or reliable enough to serve the needs of an industrialized society.

This, of course, is bogus. Coal plants are useful, because most of the shutdowns are predictable enough that other resources can be made available to fill the gap in electricity supply. With planning, coal plants can even be shut down during periods when seasonal electricity demand is low, and electricity production from wind is high.

Wind is less predictable than coal, but weather is not random, especially over large regions a few hours in advance. With good weather prediction, the gaps in wind power can also be filled with other resources.

Maximum Production

Returning to "rated capacity," wind power produces on average between 20% and 40% of rated capacity, while a coal plant's average production (capacity factor) is between 80% and 90%. Comparing actual production to average production might bias the numbers in favor of wind, just as comparing actual production to rated capacity biases the numbers in favor of coal. A fairer comparison falls in between: comparing actual production to maximum production. For dispatchable and baseload resources, maximum production and rated capacity are the same. For a diversified portfolio of variable resources, maximum capacity is considerably lower than rated capacity.

For the portfolio of four widely dispersed wind turbines I discussed in my article "Why Geographic Diversification Smooths Wind Power" the maximum production was 93% of rated capacity. That was for a portfolio of four widely dispersed turbines.

Petersen collected much better data than my own, so I asked him for a copy of his spreadsheet. He gathered wind production data for five widely dispersed regions, each of which contains hundreds of turbines. Over such a large region and so many turbines, maximum production will be far below the rated capacity of the system. In particular, the maximum production from his 16 GW-rated supergrid was only 7 GW, well below half the rated capacity.

Compared to the maximum output of 7 GW, the electricity production from Petersen's supergrid looks much more stable.

Supergrid Jan 2010.pngClick to enlarge
(Click to enlarge)

Supergrid July 2010.pngClick to enlarge
(Click to enlarge)

The two graphs above show distributions of the wind power production during six hour intervals over the two months for which Petersen collected the data. I created them by sorting each month's worth of intervals by total power production during the interval.

As we can see from the graph, wind power production in January is fairly well behaved. Minimum production was 900 MW, or 13% of the system's maximum production. July production falls well short of 1 MW for two six hour periods, when it is 468MW and 356MW, or 5% and 7% of maximum production. While these lows in production are not good, comparing them to notional rated capacity (more than twice maximum production) creates the illusion of a much greater shortfall in production than actually exists.

Below, I've prepared a histogram of wind output for Petersen's supergrid. I found the relative consistency of wind output in January 2010 particularly striking, with wind production being between 3 GW and 4 GW over 40% of the time.

Supergrid Histogram.pngClick to enlarge
(Click to enlarge)

Conclusion

Variable resources like wind cannot substitute for dispatchable power, but they can produce valuable energy cheaply when they are available. The less variable the wind power resource is, the less dispatchable power is needed to back it up, and the most economical way to reduce variability is geographic diversification.

To see just how effective geographic diversification can be, compare the above histogram of the wind power output of Petersen's supergrid with the equivalent histogram below of one of the supergrid's five components: the wind output from the Bonneville Power Association (BPA) region.

BPA Histogram.pngClick to enlarge
(Click to enlarge)

If we want to see large-scale integration of inexpensive wind power, producing no global warming emissions and requiring no water, we'll also need to greatly enhance our electric grid. Wind power investors should also be transmission investors.

Data & Charts

The spreadsheet I used to create all the charts above is available here as an Open Office spreadsheet and here in Excel.

Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

This article was first published on AltEnergyStocks.com as "Petersen's Wind Power Paradigm Paralysis."