Economist demonstrates that wind energy is economically counter-productive

Mar 22, 2010


Gabriel Calzada Alvarez
Dr. Calzada Álvarez testifying before the United States Congress

Calzada Alvarez et al., “Study of the Effects on Employment of Public Aid to Renewable Energy Sources” (2009)

The Study, released March 2009, is a report card on wind energy’s impact on Spain’s economy. (If your kid brought home this report card, you would not be pleased.)

Spain was Europe’s Pied Piper for wind energy, beginning in the mid-1990’s with massive government subsidies and other incentives. Now it’s time, says Calzada Álvarez, to dispense with the wishful thinking and squishy green rhetoric, and to measure with a clear, steely eye the real-world economic repercussions of Big Wind. Calzada Álvarez et al. draw numerous parallels between Spain’s experience and what they forecast will be America’s (Obama’s) similarly hopeless love affair with wind energy. Divorce from this big-spending economic whore, they warn, is inevitable.

The following are the chief findings, quoted verbatim from the Study. Click here for a copy of the report. (“Using European Commission data and two different economic models, the authors [Calzada Álvarez et al.] concluded that the U.S. would lose a net of two jobs for every job created by a green jobs program,” Steven F. Hawyard, PhD, Statement to House Committee on Energy and Commerce, Subcommittee on Energy and Environment: Hearing on ‘Green Jobs’ and Energy Investment. See also Spain Is Tilting at Windmills.)

1. As President Obama correctly remarked, Spain provides a reference for the establishment of government aid to renewable energy. No other country has given such broad support to the construction and production of electricity through renewable sources. The arguments for Spain’s and Europe’s “green jobs” schemes are the same arguments now made in the U.S., principally that massive public support would produce large numbers of green jobs. The question that this paper answers is, “at what price?”

2. Optimistically treating European Commission partially funded data, we find that for every renewable energy job that the State manages to finance, Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.

3. Therefore, while it is not possible to directly translate Spain’s experience with exactitude to claim that the U.S. would lose at least 6.6 million to 11 million jobs, as a direct consequence were it to actually create 3 to 5 million “green jobs” as promised (in addition to the jobs lost due to the opportunity cost of private capital employed in renewable energy), the study clearly reveals the tendency that the U.S. should expect such an outcome.

4. At minimum, therefore, the study’s evaluation of the Spanish model cited as one for the U.S. to replicate in quick pursuit of “green jobs” serves a note of caution, that the reality is far from what has typically been presented, and that such schemes also offer considerable employment consequences and implications for emerging from the economic crisis.

5. Despite its hyper-aggressive (expensive and extensive) “green jobs” policies, it appears that Spain likely has created a surprisingly low number of jobs, two-thirds of which came in construction, fabrication and installation, one quarter in administrative positions, marketing and projects engineering, and just one out of ten jobs has been created at the more permanent level of actual operation and maintenance of the renewable sources of electricity.

6. This came at great financial cost as well as cost in terms of jobs destroyed elsewhere in the economy.

7. The study calculates that since 2000, Spain spent €571,138 to create each “green job,” including subsidies of more than €1 million per wind industry job.

8. The study calculates that the programs creating those jobs also resulted in the destruction of nearly 110,000 jobs elsewhere in the economy, or 2.2 jobs destroyed for every “green job” created.

9. Principally, these jobs were lost in metallurgy, non-metallic mining and food processing, beverage and tobacco.

10. Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.

11. These costs do not appear to be unique to Spain’s approach but, instead, are largely inherent in schemes to promote renewable energy sources.

12. The total over-cost—the amount paid over the cost that would result from buying the electricity generated by the renewable power plants at the market price—that has been incurred from 2000 to 2008 (adjusting by 4% and calculating its net present value [NPV] in 2008), amounts to 7,918.54 million euros (approx. $10 billion USD).

13. The total subsidy spent and committed (NPV adjusted by 4%) to these three renewable sources amounts to 28,671 million euros ($36 billion USD).

14. The price of a comprehensive energy rate (paid by the end consumer) in Spain would have to be increased 31% to being [begin] to repay the historic debt generated by this rate deficit, mainly produced by the subsidies to renewables, according to Spain’s energy regulator.

15. Spanish citizens must therefore cope with either an increase of electricity rates or increased taxes (and public deficit), as will the U.S. if it follows Spain’s model.

16. The high cost of electricity due to the green job policy tends to drive the relatively most energy-intensive companies and industries away, seeking areas where costs are lower. The example of Acerinox is just such a case.

17. The study offers a caution against a certain form of green energy mandate. Minimum guaranteed prices generate surpluses that are difficult to manage. In Spain’s case, the minimum electricity prices for renewable-generated electricity, far above market prices, wasted a vast amount of capital that could have been otherwise economically allocated in other sectors. Arbitrary, state-established price systems inherent in “green energy” schemes leave the subsidized renewable industry hanging by a very weak thread and, it appears, doomed to dramatic adjustments that will include massive unemployment, loss of capital, dismantlement of productive facilities and perpetuation of inefficient ones.

18. These schemes create serious “bubble” potential, as Spain is now discovering. The most paradigmatic bubble case can be found in the photovoltaic industry. Even with subsidy schemes leaving the mean sale price of electricity generated from solar photovoltaic power 7 times higher than the mean price of the pool, solar failed even to reach 1% of Spain’s total electricity production in 2008.

19. The energy future has been jeopardized by the current state of wind or photovoltaic technology (more expensive and less efficient than conventional energy sources). These policies will leave Spain saddled with and further artificially perpetuating obsolete fixed assets, far less productive than cutting-edge technologies, the soaring rates for which soon-to-be obsolete assets the government has committed to maintain at high levels during their lifetime.

20. The regulator should consider whether citizens and companies need expensive and inefficient energy—a factor of production usable in virtually every human project—or affordable energy to help overcome the economic crisis instead.

21. The Spanish system also jeopardizes conventional electricity facilities, which are the first to deal with the electricity tariff deficit that the State owes them.

22. Renewable technologies remained the beneficiaries of new credit while others began to struggle, though this was solely due to subsidies, mandates and related programs. As soon as subsequent programmatic changes take effect, which became necessary due to “unsustainable” solar growth, its credit will also cease.

23. This proves that the only way for the “renewables” sector—which was never feasible by itself on the basis of consumer demand—to be “countercyclical” in crisis periods is also via government subsidies. These schemes create a bubble, which is boosted as soon as investors find in “renewables” one of the few profitable sectors while when fleeing other investments. Yet it is axiomatic, as we are seeing now, that when crisis arises, the government cannot afford this growing subsidy cost either, and finally must penalize the artificial renewable industries which then face collapse.

24. Renewables consume enormous taxpayer resources. In Spain, the average annuity payable to renewables is equivalent to 4.35% of all VAT collected, 3.45% of the household income tax, or 5.6% of the corporate income tax for 2007.

U.S. Congresswoman Michele Bachmann (R-MN) discusses Calzada Álvarez’s presentation to Congress

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