Like many states, Minnesota is on the bandwagon for renewable energy, especially wind power. Despite all of the hype about falling wind power costs, Minnesota's energy policy is starting to exert upward pressure on electricity prices, and it is notably failing at its chief objectives.
America's fixation on renewable energy dates to the energy crisis of the 1970s, when it was thought that oil and natural gas were quickly running out and that we needed brand-new energy sources. Today, we are told that we need to develop renewable energy because oil, gas and coal are not running out, but they threaten to choke the planet with global warming gases. In other words, while our energy outlook has shifted from shortages to abundance, the policy prescription remains unchanged.
Minnesota has met its political mandate of supplying 15 percent of electricity from renewable sources, but the effects of this target are disappointing and worrisome for the future.
First, Minnesota's notable electricity cost advantage has disappeared. For most of the last 25 years, Minnesota's electricity prices were about 20 percent below the national average. But over the last five years — when renewable capacity was expanded at a fast pace — Minnesota's cost advantage has rapidly disappeared, and in March for the very first time Minnesota's electricity prices rose above the national average.
This has happened at a time when electricity use has been flat, so the price pressure has not come from increased demand. If Minnesota's historic price advantage had stayed within its historic range, Minnesota consumers would have saved $4 billion.
Second, the real embarrassment is that renewable energy is not achieving significant reductions in carbon dioxide emissions. Between 2005 and 2014, Minnesota's CO2 emissions fell 6.6 percent (and much of this reduction was achieved by greater use of natural gas, not wind), while the nation as a whole reduced CO2 emissions by 9.3 percent. In fact, over the last two years, greenhouse gas emissions from electricity in Minnesota have risen, even as more wind power was installed. This is not unusual. Recently the New York Times reported that although Germany has spent $200 billion subsidizing renewable energy over the last 20 years, its greenhouse gas emissions are the same as a decade ago, and they have also started rising again over the last two years. Oh, and German electricity rates have doubled during that time, despite the heavy subsidies.
The reason wind power is failing to deliver significant reductions in CO2 emissions is that wind power is intermittent. It can reliably produce electricity only about 50 percent of the time. But the electricity grid has to be at full strength 100 percent of the time, so wind power has to be backed up with conventional sources. Minnesota's wind power is lowest when demand is highest — in the middle of summer. And the shortfall in summer wind production is being backstopped primarily by coal-fired electricity. This ought to be a matter of embarrassment for green-energy advocates, but most of them are blissfully unaware of this fact.
Very little wind power would be built without lavish federal subsidies. Unique among power sources, wind generators receive a production tax credit of 2.3 cents per kilowatt hour (compared with an average consumer price currently of 13 cents per kilowatt hour), which means wind power producers can underbid other sources of energy and still make lots of money.
Minnesota's renewable energy policy should rightly be thought of as "crony energy," and persisting with it risks higher costs for consumers and instability in the grid. The federal government ought to end the wind subsidies (they have tried a few times in the past, but the wind energy lobby keeps them going), and Minnesota should drop its mandates and allow an undistorted market to guide its energy investments.
Steven F. Hayward is the senior resident scholar in the Institute of Governmental Studies at the University of California, Berkeley, and co-author of "Energy Policy in Minnesota: The High Cost of Failure" for the Center of the American Experiment.