Bloomberg Article Hypes Renewable Investment – Ignores Actual Energy Production

America is in the midst of an energy revolution. While coal use has fallen, natural gas and oil production have increased dramatically over the last four years. Conversely, despite massive amounts of subsidies, mandates, and media hype, renewable energy production has hardly budged. Glowing words for renewable energy investment shouldn’t outshine the real story about the market-driven boom in oil and gas production.

Data vs. Hype

The chart below shows the change in U.S. energy production (in quadrillion BTUs) over the last four years, according to data from the U.S. Energy Information Administration (EIA).

Source: IER calculations of data from EIA’s Monthly Energy Review March 2016

But one Bloomberg article had a different take on the recent trends in the energy sector:

Source: Bloomberg

Are wind and solar actually “crushing fossil fuels?” Hardly. Natural gas and oil production in the U.S. has increased 10 times more than solar and wind production between 2012 and 2015, even as wind and solar producers received billions of dollars more in subsidies.[1]

To be fair, Bloomberg’s article is about global spending on energy, but the headline and some of the rhetoric in the article belies reality. Higher spending can lead to more production, but articles like this miss the biggest energy-related story of the past 20 years: market forces are spurring massive amounts of new energy production (primarily through greater implementation of advanced techniques such as hydraulic fracturing and horizontal drilling). Moreover, the piece is misleading because it downplays wind and solar power’s reliance on government subsidies. Ultimately, real-world production matters more than mere investment.

Government or Markets?

Bloomberg acknowledges that government subsidies have helped wind and solar but argues that government funding isn’t very important anymore:

Government subsidies have helped wind and solar get a foothold in global power markets, but economies of scale are the true driver of falling prices: The cost of solar power has fallen to 1/150th of its level in the 1970s, while the total amount of installed solar has soared 115,000-fold.

However, claiming that subsidies are no longer the key driver for solar and wind overlooks one of the biggest energy developments from 2015: the extension of the wind Production Tax Credit (PTC) and solar Investment Tax Credit (ITC). The same Bloomberg author even previously argued that those tax credit extensions from last year “will give an unprecedented boost to the industry and change the course of deployment in the U.S.” The wind and solar industries still claim that subsidies are critical to renewable energy growth.

In addition, an analysis from Deloitte found that, without subsidies, wind and solar wouldn’t reach cost-competitiveness with electricity from other sources in the near future “except in certain markets possessing the most robust renewable resources and having relatively high wholesale power market prices.”

Furthermore, traditional ideas about economies of scale don’t necessarily fit with solar energy’s unique characteristics. Solar power will encounter significant challenges as more and more capacity is added to the grid. As MIT Technology Review notes, “solar reaches peak generation during sunny afternoons, but there’s a limited demand for such additional power during those times.” Because solar doesn’t fulfill peak demand, its value will actually decrease as installations increase.[2]

Bloomberg also argues against the continuing importance of fossil fuels around the world:

Meanwhile, fossil fuels have been getting killed by falling prices and, more recently, declining investment. It started with coal—it used to be that lower prices increased demand for fossil fuels, but coal prices apparently can’t fall fast enough. Richer OECD (Organisation for Economic Co-operation and Development) countries have been reducing demand for almost a decade.

Declining investment in coal isn’t happening merely due to market factors. Certainly, cheaper natural gas prices (driven primarily by technological innovation) are playing a role. Nevertheless, political actions, including onerous federal regulations in the U.S., are largely responsible for shuttering huge swaths of coal-fired generation capacity.[3] The Environmental Protection Agency’s (EPA) mercury rule is a major reason for the retirement of 40 GW of coal plants, and EPA’s carbon rule could push another 50 GW out of operation.[4] Similarly, in 2015, the United Kingdom announced a “new direction” for its energy policy, which would close all operating coal plants by 2025. Commentators have noted that the country’s meddling in energy markets has destroyed effective price signals.

In other words, Bloomberg completely misses the only market-driven trend that represents a real threat to coal-fired power plants: low-cost natural gas from new drilling and hydraulic fracturing. By lumping all “fossil fuels” together, the piece misses a crucial electricity market trend—specifically, that electricity production from natural gas-fired power plants eclipsed production from coal-fired plants for seven months in 2015.[5]

More Wind and Solar at What Cost?

In the past, a Bloomberg article correctly explained how increasing solar and wind generation erodes the economics of fossil-fuel generation (by lowering capacity factors and making it harder for sellers to recoup costs). As the Institute for Energy Research has previously articulated, what solar and wind are really doing is placing “imposed costs” on reliable power plants.[6]

Even if wind or solar could provide low-cost electricity at especially sunny or windy times, we will always need reliable power plants to match demand on a second-by-second basis. Hence, wind and solar production is really a nuisance to the grid, because it disrupts the economics of much-needed dispatchable power plants without obviating the need for them.

The piece also ignores the escalating cost of electricity across the country. Bloomberg is right that the current trend is toward more intermittent generation from wind and solar facilities and less from coal. However, this trend is terrible for American families’ power bills, because the existing coal resources that are prematurely retiring are some of the lowest cost sources on the grid. In other words, the government is picking winners and losers on the power grid and doing a lousy job on the economics—new wind and solar facilities are three to four times more expensive than existing coal resources.[7] Once subsidies are taken out of the mix and the full costs of intermittency are factored in, renewables are much less attractive options.

Coal, natural gas, and oil are far from being “crushed” by wind and solar. As the chart above shows, natural gas and oil are crushing wind and solar in terms of actual energy production, even though wind and solar benefit from energy mandates and receive billions more in government subsidies.

The long-term trend still looks favorable for reliable sources, too. EIA’s 2015 assessment predicted that reliable electricity sources like coal, natural gas, and nuclear power will continue to provide the vast majority of the electricity in the U.S. Furthermore, despite Bloomberg’s claims that coal power in China has “flattened,” recent evidence indicates that the country is focusing less on wind power and instead building coal plants at a rate of about one every two days.

Conclusion

Reliable energy sources remain essential for electricity generation in the U.S. and around the world. Despite the media hype surrounding wind and solar power, these intermittent sources of energy still heavily rely on government handouts and won’t overtake energy production from coal or natural gas anytime soon—if ever. A consumer-friendly approach where government doesn’t pick winners and losers is the best way for energy sources to prove their own value. Under the current framework of heavy subsidies for high-cost power, the only ones getting crushed are American families, who are ultimately paying for uneconomic wind and solar facilities.

[1] Although EIA’s analysis calculates subsidies for FY 2010–2013, the trend is still the same: renewable energy resources receive significantly more subsidies than oil and natural gas producers on a yearly basis. See, http://www.eia.gov/analysis/requests/subsidy/.

[2] See, Travis Fisher, Assessing Emerging Policy Threats to the U.S. Power Grid, Institute for Energy Research, p. 21, http://instituteforenergyresearch.org/wp-content/uploads/2015/02/Threats-to-U.S.-Power-Grid.compressed.pdf.

[3] See AEA, State Strategy for Responding to President Obama’s Carbon Rule, November 2015, pp. 8–9, https://www.americanenergyalliance.org/wp-content/uploads/2016/01/State-Strategy-for-Responding-to-President-Obamas-Carbon-Rule.pdf.

[4] See U.S. Energy Information Administration, Analysis of the Impacts of the

Clean Power Plan, May 2015, pp. 16–17, http://www.eia.gov/analysis/requests/powerplants/cleanplan/pdf/powerplant.pdf.

[5] See, EIA, Net Generation data from Electric Power Monthly, Table 1.1 http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_01.

[6] Thomas F. Stacy and George S. Taylor, Ph.D., The Levelized Cost of Electricity from Existing Generation Resources, Institute for Energy Research, June 2015, p. 9, http://instituteforenergyresearch.org/wp-content/uploads/2015/06/ier_lcoe_2015.pdf.

[7] The estimate for the levelized cost of electricity for solar energy is from a forthcoming update to the Institute for Energy Research’s report, The Levelized Cost of Electricity from Existing Generation Resources.