Sowing Confusion About Renewable Energy

Readers of The Economist may have been surprised to read in its 26 July 2014 “Free exchange” section on page 63, or in its online version, the “clear” conclu­sion that solar and wind power are “the most expen­sive way of reducing green­house-gas emissions,” while “nuclear plants…are cheaper,” so governments are foolish to boost renewables and mothball nuclear.

In each of the past three years, the world has invested more than a quarter-trillion dollars to add over 80 billion watts of renew­ables (excluding big hydro dams). That growth is accelerating: solar power is scaling faster than cellphones. Big European utilities lost €0.5 trillion in market cap, as an Economist cover story fea­tured, not because renewables couldn’t compete, but because they competed all too well, wiping out old power plants’ profits. The same is happening to some well-running U.S. nuclear plants, now facing closure as uneconomic just to operate.

Shouldn’t the runaway market success of renewables—soon to beat grid power on price, says Bloomberg , in most of the world—have raised a flag at the Eco­no­m­ist article’s conclusion?

That full-page article highlights a May working paper by Charles R. Frank, Jr. (economics Ph.D. 1963), a nonresident fellow at the nonpartisan and notably debate-friendly Brookings Institution. His background is in international development and finance. I daresay most experts on the economics of energy technologies and climate change had never heard of him—but they have now. As soon as The Economist featured his paper, their inboxes and Twitter TWTR -1.06% feeds lit up with incredulity: could his conclusions possibly be true?

They’re not (and yes, I’ve written The Economist a letter saying so). My detailed critique explains why, and cites two other reviews and a podcast. But for anyone who knows the subject, Dr. Frank’s con­clu­sions don’t even pass the giggle test. He finds that new wind and solar power are the least, and new nuclear power and combined-cycle gas generation are the most, cost-effective ways to displace coal-fired power—just the opposite of what you’d expect from observing market prices and choices.

How does Dr. Frank reach his contrarian conclusions? By using, apparently unwittingly, obsolete data and incorrect methods. He assumes wind and solar power half as productive and twice as costly as they actually are, gas power twice as pro­duc­­­tive as it actually is (but with no methane leakage or price volatility), and new nuclear power at half its actual total cost and con­struction time and one-fifth its actual operating cost. He also posits a need for new U.S. generating capacity and bulk electricity storage, but no efficiency oppor­tuni­ties worth mentioning. His strange method of assessing reliability suggests little under­standing of how power grids integrate, and their operators analyze, renew­ables.

So are Dr. Frank’s odd findings artifacts of errors in his methodology, his data, or both? Both, but there are so many mistakes that just nine data points can carry the whole load. My colleague Titiaan Palazzi reconstructed Dr. Frank’s spread­­sheets, reproduced his results, then simply updated the nine most egregiously outdated figures to those in the latest official historical statistics (not forward-looking projections) from the U.S. Energy Information Administration, Department of Energy, Nuclear Energy Institute, and similarly authoritative sources.

Presto! The conclusions flipped. Instead of gas combined-cycle and nuclear plants’ offering the greatest net benefit from displacing coal plants, followed by hydro, wind, and last of all solar, the ranks reversed. The new, correct, story: first hydro (on his purely economic assumptions), then wind, solar, gas, and last of all nuclear—still omitting efficiency, which beats them all.

Beneath Dr. Frank’s wrong answer, however, lurks a useful question. He adopts the distinguished economist Prof. Paul Joskow’s 2011 valid thesis that the way power-sector investments are chosen—lowest long-run eco­nomic cost—is incomplete, because different technologies generate power at different times, creat­ing different amounts of value. Of course value as well as cost should be con­sidered. But interestingly, this case suggests that if we use correct and up-to-date cost and per­for­mance data, the cost- and value-based calculations yield the same priorities, whether judged from the perspective of financial investment or climate-protection effectiveness. That is, adjusting for different resources’ time of genera­tion, though theoretically nice, doesn’t change the result; cost-benefit analysis gives the same answer as a simple cost comparison. The resulting best-buys-first sequence would also gain even more value if other hidden costs, risks, and benefits were counted too.

Making a splash—intentional or not—with a flawed analysis that doesn’t survive more careful scrutiny is nothing new. My esteemed Stanford colleague Dr. Jon G. Koomey cowrote a 2002 Annual Review of Energy and the Environment paper called “Sorry, Wrong Number: The Use and Misuse of Numerical Facts in Analysis and Media Reporting of Energy Issues.” Its abstract says: “Students of public policy sometimes envision an idealized policy process where competent data collection and incisive analysis on both sides of a debate lead to reasoned judgments and sound decisions. Unfortu­nate­ly, numbers that prove decisive in policy debates are not always carefully developed, credibly documented, or correct. This paper presents four widely cited examples of numbers in the energy field that are either misleading or wrong. It explores the origin of those numbers, how they missed the mark, and how they have been misused by both analysts and the media. In addition, it describes and uses a three-stage analytic process for evaluating such statistics that involves defining terms and boundaries, assessing underlying data, and critically analyzing arguments.” It’s a bracing read, with a nice summary and update.

The diligent Dr. Frank has collected not just one wrong number but a flotilla, together driving a false conclusion that gained a prominent platform in The Econo­mist. The ana­lytic lesson: rapidly changing data quickly pass their sell-by date.

It’s too early to guess whether prompt refutations will prevent the distres­sing phenomenon Dr. Koomey describes, whereby media and advocates fond of a false thesis (or who don’t know any better) keep repeating it long after it’s been de­cis­ive­ly debunked. Time will tell. But your ability to stay well-informed and to exer­cise your critical faculties can help build sound public discourse. If you hear a claim that sounds nutty, maybe it is. If it is, say so. As biologist Prof. E.O. Wilson wrote, “Some­times a concept is baffling not because it is profound but because it’s wrong.”

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