Our purpose was to investigate the potential economic consequences should wind power lose various subsidies. The information found in this paper was collected from research articles found in various online journals. First, we investigated whether wind power was capable of profitability without subsidies, and if not, what subsidies were needed. Then we investigated the impact of wind energy deployment on job creation to date as well as projections. Finally, we attempted to forecast the effects of a potential removal of subsidies and the potential economic consequences. Our research is geared not towards wind energy developers seeking advice on what type(s) of projects to pursue, but rather to policy makers who need to determine, in a general sense, if any wind energy projects should receive various subsidies from the government. Our findings are that there is a moderate risk inherent in the construction of wind farms that depend upon subsidization, as the resulting economic growth is dependent upon a political commitment which recent events have shown may not last. This paper provides the reader with a direct link between subsidization of wind energy projects and the job growth that results. It is important for the reader to understand that as long as wind energy projects remain dependent upon subsidies, the jobs that result from wind energy initiatives also rely on subsidization. Keywords: EU, China, United States, Wind Energy, Subsidies, Jobs.
Energy has become an integrated part of both the individual and the business. Cutting emissions and cutting costs are the next stepping stones for further sustainability and development, leaving behind a reliance on the finite supply of fossil fuels. The transition from coal based, non-renewable power to the clean and environmentally responsible renewable energy is upon us. Renewables such as solar, wind, geothermal, and hydroelectric may be the future for sustainable energy production. The environmental impact of the switch from non-renewables to renewables is the catalyst for this development, and while the financial incentives serve as motivators, the inception of new and unfamiliar technologies and policies create uncertainty for investors. It is important for everyone to understand the risks and benefits of subsidizing renewable energy projects. In this paper, we focus on the effects of wind energy subsidization: the investment into subsidies used for wind energy expansion, the job growth that results, and finally, a doomsday scenario where subsidies are removed due to either fiscal constraints or a change in political attitudes. We feel that the growth of any potential green-energy bubbles should be monitored, and if possible, a risk grade should be attached to subsidization that causes the artificial growth of wind energy and its subsequent job growth. This paper will not attempt to create any risk grade itself, but will attempt to demonstrate the connection between subsidies and the artificial boost in the economy related to wind energy growth. Since the capacity to spend is increased by the creation of one job, it is important to remember that the capacity to earn is then granted to another.
In other words, as new jobs are created, so are new incomes that grow in response to the increased local spending by individuals employed as a result of wind energy projects. Taking this further, we should keep an eye on the inherent risk created by the growth of economic activity that results from the creation of new jobs that may not be sustainable should the financial assistance wind energy needs expire. Wind Energy Vulnerabilities, Subsidies, and Overall Viability The preponderance of wind energy among other substitute renewables poses a conundrum that involves the balance of harvesting, integrating, storing, and distributing. Wind is a seemingly infinite and natural product. The development of harvesting wind energy has evolved from its Greek roots, to their Tower Mill cousins in Spain, and now to industrial-sized electrical powerhouses that currently make up over 5% of the U.S. total energy production, according to the 2016 Energy Information Administration’s report. The average wind energy capacity of wind farms increased by about 28%, spanning a time frame of about fifteen years from 1996 to 2011. More than 90 commercial wind power installations totaling over 318 GW of capacity, providing approximately 3% of global electricity, were installed across the globe (Huang, Gan, & Chiueh, 2017). The surge in wind energy development helped push wind energy to become the largest renewable resource in the U.S.’ portfolio. The advancements in wind harvesting technology as well as other renewables (solar and hydroelectric) led to the integration of a concept known as flexibility; or more specifically, grid flexibility. The following graph indicates the wind power capacity from 2001 to 2020 around the world. Despite the risks, concerns, and uncertainty, wind energy has a definite place for the future generation of electricity. According to the research conducted by Frede Blaabjerg and Ke Ma (Ma, K., & Blaabjerg, F. 2016), the total wind capacity achieved 487GB, and 54GB added accordingly in 2016. Wind energy takes account for 55% of renewable energy capacity globally. Here are some European countries’ statistics, most of them reach the high portion of wind power penetration, with Demark (42%), Portugal (23.2%), Ireland (23%), Spain (18%), Germany (13.3%), and the United Kingdom (11%). Wind power also has significant shares in markets like the United States (4.7%), China (33%), and Brazil (3%) (Ma, K., & Blaabjerg, F. 2016).
The focus on two important renewable energy policies that drive wind investments in the US are the federal Production Tax Credits Policy (PTC) and state Renewable Portfolio Standards (RPS) that provide the foundation for Renewable Electricity Credits (REC) markets. These policies led to an investment that currently subsidizes wind power at $23 per MW-hour during the first ten years of a new plant’s operation. This summed up a total of $12 billion in taxpayer money loaned out in the form of subsidies to wind farm operations (Eryilmaz & Homans, 2016). An important consideration for wind energy generation and distribution is the capability of the grid to handle different energy loads and electricity surges due to the varying demand from consumers or commercial end users. Flexibility is the ability or capability of the power system (grid) to be able to adapt and change to fluctuations in energy input and output (Ela, et al., 2016). With the current 4 trillion kWh that the U.S demands, the supply and the demand of power typically needs a highly flexible grid system. The response to a lack in flexibility led to the development of a three-dimension system used to determine overall flexibility and pinpoint target component areas for issues. These three components are: output capacity range (MW), speed of power output charge/ramp rate (MW/min), duration of the energy levels (MWh) (Hseih & Anderson, 2017). The energy currently produced from the wind sector of renewables is working on integrating the three-dimensional process. Although wind energy is abundant and easily accessible, the problems with grid incorporation due to flexibility issues, as well as a lack of infrastructure to support it, make development of wind turbines and farms less financially secure in both the eyes of the government as well as investors. The storage of electricity poses the current challenge for renewables, especially for wind energy farms. According to the American Wind Energy Association, of the total produced electricity in the U.S., only 2.5% is cycled through a storage system while other countries in Europe and Japan are hovering at 15%. Storage capacity for wind energy in the U.S. peaked at just under 400 MW in 2016. The energy strategy of the European union has been to increase the use of renewable sources of energy. During the early 2000s, the EU Directive 2001/77/EC imposed mandatory targets for renewable energy (Nicolini & Tavoni, 2017). This process has culminated in 2009 with the EU Directive 2009/28/EC, that sets the target of a 20% share of energy from renewable sources in the Community’s gross final consumption of energy (Nicolini & Tavoni, 2017).
Wind energy is currently the fastest growing renewable in China. Its large landmass and coastline make wind streams readily accessible and easily harvested and helped China to become the largest installer of wind energy in the world (Chunyou, Xiaoling, & Nathwani, 2014). Although there has been a large influx and push for wind energy in the mid to late 2000s, China’s large scale wind farms have proved that the current infrastructure may not be sufficient to make wind energy financially plausible. This has led to a curtailment effect in China’s wind power sector since 2011. The cut back of wind energy due to transmission capacity limitations has resulted in losses of $11.6 billion and an environmental impact equivalent to 13.4 million tons of CO2 emissions. Due to poor grid stability, the resulting bottleneck effect on the power grid continues to be a rising issue for industry profits since 2012 (Chunyou, Xiaoling, & Nathwani, 2014). The difficulties with harvesting wind energy for residential and commercial use lies in the ability of the power grid to absorb wind power generation. Positive feedback is an important aspect in creating a sustainable renewable in both wind and solar power. Although there have been advancements in solar energy with more efficient solar photovoltaic cells in both China and the US allowing for small scale replication, the positive feedback loop has not yet been fully established for wind power. The increasing difficulties that come with accessing wind power resulted in lagging expansion of Chinese wind farm capacity. The overly expanded wind power sector in China was an effect of bad planning resulting in stagnation in both current and added installations, redundant project, enterprise losses, and a diminishing investment climate (Chunyou, Xiaoling, & Nathwani, 2014). The uncertainty of wind power generation and implementation has a negative effect on renewable energy policies that ultimately affect decisions to invest in wind energy. The barriers of entry into the wind power sector include an uncertainty in future prices, new and changing technology, and the problem with using a more expensive substitute compared to the more reliable non-renewables, making wind energy not cost-competitive.
For instance, the fossil-fueled generators are still more capable for both energy generation and maintenance costs. Experts and economists have offered a conclusion that uses an optimization framework along with an econometric model to study wind energy output in real world examples (Jeon, Lamadrid, Mo, & Mount, 2015). With the uncertainty in wind energy and renewables, using a more real-time market in countries heavily invested in the wind power market like China, or energy markets such as the National Electricity Market in Australia, may ease uncertainty due to its updated and highly accurate information about wind variability (Jeon, Lamadrid, Mo, & Mount, 2015). Moreover, extensive development of wind energy resources still has many challenges to overcome. For instance, the ideal locations for wind energy generation are remote areas, which are usually far from cities where the electricity is actually needed. Extensive transmission work needs to be done and more financial budgets should be issued to successfully transmit wind energy. Second, people’s acceptance and government’s attitudes are also factors that inhibit wind power projects. Take France for example: even though France is believed to be one of the leading countries that has worked on wind power generation for decades, the majority of French people still hold negative opinions against governmental wind projects. (Enevoldsen & Sovacool, 2016) Due to the potential risks and doubt of uncertainty, the concern of whether the implementation of wind project can truly replace old energy is understandable. Different points of view in other nations also appeared when it comes to wind projects. A study in Great Britain has shown that public attitudes towards wind turbines and landscape often cause a green or green dilemma. (Enevoldsen & Sovacool, 2016) Green or green represents two choices between local good, which means to reduce the concentration of CO2, and the local bad, with wind energy plants impact the landscape and environment (Enevoldsen & Sovacool, 2016). These examples show that the implementation of wind energy projects is far complex than imagined; the local opposition and uncertainty cannot be classified into a single factor. They are caused by a complex set of individual and collective preferences (Scherhaufer, Heltinger, Salak, Schauppenlehner, & Schmidt, 2017). Although China has the world’s highest wind power capacity, its main focus is on inland power which makes harnessing this energy less efficient.
Wind farms in China are located mainly in the northwest and northeast parts of China, very far from the majority of the electricity-consuming population. Due to the distance between the wind farms and the population that needs the energy, the full load hours, or rather the efficiency, of the farms has decreased in the past few years, therefore, it is vital that China begin to utilize offshore wind power (Zhang, Zhang, Cai, Ma, 2016). Government subsidies are currently able to hold wind power at a competitive stance in the market alongside larger coal plants and energy giants of the industry. Creating a competitive price among non-renewables is resulting in this large growth in wind farms in China, while the technology and infrastructure lags behind creating a gap between the financial and technological side (Chunyou, Xiaoling, & Nathwani, 2014). The resulting ambiguity leads investors to remain skeptical of government policies concerning wind power subsidies and funding, which ultimately could not last as long as intended. One way that China is confronting the issue with the reliance on government subsidies is through the use of Feed-In Tariffs or FITs. Feed-In Tariffs provide an incentive for renewable energy producers, whether commercial or private, to establish a feed-back loop that feeds the grid using either wind, solar, hydro, etc. sources in return for government payment, also known as Clean Energy Cashback (Wesseh & Lin, 2016). The real objectives for both subsidies and FITs in China are to cut the non-renewable energy costs associated with production, not only fiscally and financially, but also environmentally in order to internalize carbon dioxide emissions. The Chinese government has embraced feed-in tariffs in order to bolster wind energy production as well as adoption of wind as a primary source of energy. As a result, China could potentially cut CO2 emissions by 6.4% by 2020 as compared to 2005 (Wesseh & Lin, 2016). Using China as a model helps show how varying the rate of FITs and subsidies may be useful for future policy discussion and legislation, using a real options approach to provide further insights on wind energy viability and the robustness of FITs (Wesseh & Lin, 2016). At this time, subsidies have not yet led to industrial overcapacity, although there still exists the potential for industrial overcapacity in the future should subsidies remain too strong relative to market conditions (Zhang, Zheng, Ozturk, & Li, 2015).
Wind energy projects received, on average, 53.8 million RMB in 2009 (Zhang, Zheng, Ozturk, & Li, 2015). Wind energy subsidies increased the following 2 years, and by 2013 had reached 103 million RMB after a slight drop in subsidies for 2012 (Zhang, Zheng, Ozturk, & Li, 2015). Economic Impact of Wind Energy Deployment If wind energy can be shown to have an economic vulnerability, then we should understand the impact wind energy deployment has had on the local economy. If we can determine the effects of wind energy deployment, then we can attempt to model the potential consequences should various wind energy projects fail. We decided to focus on the number of jobs, or potential jobs, that have been or will be created by wind energy deployment. With the addition of new jobs, the tax base is broadened, and aggregate spending is increased. Since modern economies are mostly consumption driven, analyzing job growth statistics is an effective method of gauging the economic impact of wind energy deployment. What follows are job growth statistics that include various countries from the EU, China, and the United States. According to a compilation of reports of job growth related to renewable energy, we found several EU states that experienced, or are expected to experience, a not insignificant amount of new job growth from wind energy projects (Dalton, 2011). From the reports: the UK, Germany, Denmark, and Spain appear to have the largest job growth numbers for jobs attained or expected to be attained by 2020, with 50,100, 80,000, 21,600, 31,500, respectively. We found that Portugal plans to consolidate various wind energy companies in order to provide the service needed to reach green-energy targets, which should create 100,000 jobs by 2020, in addition to the 35,000 current jobs related to green-energy production (Pe?±a, Azevedo, & Ferreira, 2017). The European Wind Energy Association (EWEA) estimates that by 2020, more than 520,000 people will be employed in the wind energy sector (Sooriyaarachchi, Tsai, Khatib, Farid, & Mezher, 2015). By 2030, EWEA estimates that the figure could rise as high as 800,000 jobs created across the EU (Sooriyaarachchi, Tsai, Khatib, Farid, & Mezher, 2015). In recent years China has become the largest market for wind energy, encompassing more than 26% of the world’s wind power market (Xie, Feng, & Qiu, 2013).
The rapid growth of this industry has created strong demand for wind-energy professionals. According to the Chinese Academy of Engineering, every 10 MW wind power can create 37 job opportunities (Xie, Feng, & Qiu, 2013). China’s annual new installed capacity will reach 13,000 MW by 2020. It means the wind power industry will create 48,000 new jobs every year from 2012 to 2020 (Xie, Feng, & Qiu, 2013). Due to a combination of geopolitical instability putting foreign energy reliance into question, job losses associated with the outsourcing of production, and environmental concerns, the United States has also pursued the development of wind energy farms. According to a series of Renewable Energy Policy Project (REPP) reports that were published in the mid-2000’s, nearly 43,000 firms across the United States operate in industries related to the manufacturing of components needed for renewable energy systems (Debbage & Kidd, 2011). The same reports also argue that the 20 states that suffered the most job loss due to outsourced manufacturing, are a close match to a group of 20 states that stand to benefit the most from investment in renewable energy. This benefit is due to the increase in manufacturing required to fulfill the needs of renewable energy projects, which means more jobs for American citizens. Of course, this is renewable energy as a whole, so this includes not only wind energy, but solar, geothermal, and biomass energy. North Carolina is ranked 10 in the list of states needed for manufacturing renewable energy components, and is forecasted to add as many as 28,544 new jobs to fulfill this need (Debbage & Kidd, 2011). Although the other states and jobs added are not listed here, it is reasonable to speculate that based on this information, the first 9 states in the list will add at least that many jobs, and the last 10 will add less. If the same number of jobs for the first 10 states are considered, this is approximately 300,000 new jobs that will be needed to fulfill renewable energy production needs. Of course, this theoretical job count does not include the amount of jobs added by the lower 10 states in the list. Unfortunately, those numbers were not found in the source we used. As far as we know the amount of jobs added for the lower 10 states could be much lower and consequently unable to give us an idea of job creation potential.
Potential Consequences from a Removal of Wind Energy Subsidies Government subsidies generally play a crucial role in pricing and the performance levels in energy saving induced by technological advancement (Le & Jiang, 2016). In this article, we discuss the impact on China. We use an input – output basis to analyze the consequences of removing subsidies that will affect income distribution. Studies show that removal of subsidies have a regressive effect. For example, Saboohi conducted a factual study on Iran in 2001 and discovered that removing energy subsidies would increase the cost of living for low-income households (Jiang, Ouyang, & Huang, 2015). Specifically, if energy prices were raised to the levels of their long run marginal costs, the living costs would be increased by 28.7% for an urban household, and 33.7% for a rural household. The above finding is supported by Coady, EI-Said, et al, who conducted the empirical study on fossil-fuel subsidy reform in the five countries of Bolivia, Ghana, Jordan, Mali and Sri Lanka (Jiang, Ouyang, & Huang, 2015). However, in recent years, there has been an increasing momentum to phase out certain types of energy subsidies that often fail to meet their intended objectives (Jiang, Ouyang, & Huang, 2015). Subsidies have proven to introduce fiscal burden on state budgets and cause environmental damage through increasing carbon dioxide emissions. A recent analysis from OECD indicates that phasing-out fossil fuel subsidies could lead to a 10% reduction in global greenhouse-gas emissions in 2050 compared with the scenario of business-as-usual (Jiang, Ouyang, & Huang, 2015). Removal of subsidies have different impacts on different types of energy.
The removal of oil subsidies will have the largest impact on the people and economy. The distributional impacts of removing energy subsidies will affect consumer’s expenditure and energy prices. The two ways in which it will cause an impact are: 1) Households relying on fuel will have to spend more money to obtain these resources because the prices will rise at an alarming rate. 2) Households will have to pay more for energy-intensive products because the factors of production will indirectly raise prices. Currently, China’s domestic energy prices are falling because of the subsidies. Removing these subsidies will only lead to higher prices for renewable energy which will affect the nation’s economy and can decrease the total GDP. Recommendations for Future Research Throughout our research, we found concrete examples of subsidies used and the effects those subsidies have had or will have on job growth. In determining the overall risk of wind energy projects, it is not enough to discuss the end results of wind energy subsidization policies. What is also important is to study the political realities behind these initiatives so that a potential change in the desire to support wind energy projects can be measured, and thus the overall risk in wind energy subsidization. As long as wind energy projects that require subsidization are able to maintain the level of support they currently possess, the job growth mentioned previously should lead to positive, lasting economic development. There is however always the possibility that political or economic realities could cause a change in what assistance the government is willing to guarantee. After all, who knows what voters may decide 5 to 10 years from now. Just a few years ago no one could imagine that Donald J. Trump would be the President of the United States. It was, at least for many of us, assumed that the current trajectory of a more progressive outlook with regard to energy policy would intensify, or at least maintain.
For now, it seems that wind energy support will remain, but for how long we can not be sure. American politics have become extremely polarized lately and the potential for drastic pendulum swings between the Left and the Right has intensified. In other words, major policy changes are just one election season away at any given moment. The EU is currently faced with a potential break-up should any more nations decide to leave the union as the United Kingdom has. The results of the Brexit referendum show us once again that the general political direction of a country can never be guaranteed, as again, many of us assumed that the Brexit vote would lose. The outcome of the vote was such a shocking surprise, that the resulting turmoil in exchange and stock markets caused a 15 percent devaluation against the dollar (Vasilios, Gupta, & Wohar, 2017). The point here, is that the subsidies wind energy currently relies on could be jeopardized by the further disintegration of the EU, and whether or not the EU will or will not disintegrate is not as predictable as many of us had previously assumed. China’s political situation is dissimilar from that of Western style democracies. Since the government is not as beholden to public opinion as the various nations of the EU and the United States, the policies pursued by the Communist Party of China (CPC) can only be halted by changes in the CPC’s agenda or economic constraints. As an export driven economy, their economic constraints are heavily dependent upon the ability of external customers to purchase goods produced in China. As long as the rest of the world’s economy remains stable enough to continue importing Chinese products, China should not have much of an issue funding any renewable energy initiatives. Ultimately, the risk in subsidizing wind energy projects is dependent upon the likelihood that the driving force behind subsidization changes.
Our research could be strengthened by an inclusion of data that accurately measures the political and economic realities of China, the EU, and the United States, and how those realities could lead to a removal in wind energy subsidization. We have three suggestions for the type of data that could be included in making a determination of the risk. The first would be measurements of the overall debt burden, and whether the country in debt will be able to service that debt. In the event that a nation is faced with an economic hardship, in which they are unable to service debt obligations, wind energy subsidies may find themselves on the chopping block. Since the event that may trigger a recession (and thus create budget tensions) in a particular country is difficult to predict, we should not rely on predictions of when a country may be unable to fund wind energy subsidies. Instead, since a country (at least, the countries/unions discussed in this paper) can go into debt in order to avoid budgetary shortfalls, it is simpler, and more reliable, to understand the country’s debt burden, since that is ultimately what will decide whether or not wind energy funding can continue. Our second suggestion is to include data on the likelihood that, when a country is faced with economic hardship, which programs are more likely to be cut first in order to meet budgetary requirements. The data required in making this determination will differ between China and the democracies discussed in this paper.
The reason being, is that since China is not as beholden to the wishes of the public as western style democracies, the decision to remove wind energy subsidies will rely more on the economic consequences rather than simply a reprioritization that is based on meeting voter demands. To make this clearer, in the United States there is a fairly strong resistance to allowing the federal government to fund special projects, especially green-energy projects. The decision to cut funding for wind energy may begin with an economic hardship causing budget cuts, however, the demands of the voting public may force the government to overlook the economic consequences in favor of satisfying the will of the people. Our third and final recommendation would be that research should examine alternatives to wind energy, and determine the likelihood that the government may overstimulate the growth of an obsolete industry. One of the reasons that a government will begin subsidizing an industry, is that the industry shows promise of becoming viable on its own, and thus becoming a net contributor to the economy.
In order to transition from dependency to surviving on its own in a free market, the industry must attract private investment. Considering the reality of opportunity costs, wind energy must stand on its own against alternatives and come out on top as an intelligent decision for investment. If technological breakthroughs render wind energy obsolete, the government will be left holding the bag on this investment. Conclusion The implications with the wind energy sector have shown that with current standards of technology, grid stability, and government policy, wind energy is in a state of stagnation. Although there is a strong demand for wind energy, especially in China, that is generating job growth in the industry in the EU as well as the US, the reliance on subsidies may be a burden to the industry’s overall success and is unattractive in the eyes of investors or policy makers. This is not to say that wind energy is not a feasible method of renewable energy. One direction that scientists have decided to experiment with wind energy is through the construction of offshore wind energy plants, specifically a collaboration between Denmark, Germany, and the Netherlands dubbed the North Sea Wind Power Hub project (Deign, 2017).
The goal of this offshore wind farm project is not only to install more wind turbines in the North Sea, but primarily to establish a facility on the Dogger Bank (a large North Sea sandbank) that would house the necessary space and hardware to create a power transfer station that will be able to handle and store up to 100 gigawatts of wind energy. It is intended to act as a staging post for turbine operations and maintenance crews, and directly feed in electricity between Denmark, Germany, Holland, Norway, and the U.K. The 1.5 billion euro North Sea Wind Power Hub project is looking to help add to the current North Seas’ 72% installed offshore wind farms in Europe (Deign, 2017). A power-to-gas storage technique may be implemented as well to utilize high volumes of wind generation. Power-to-gas, in terms of wind energy, is the conversion of wind power, to electricity, to a gaseous energy carrier like hydrogen or methane. This new technological concept is proving to be an interesting tool in the energy transition from production to end user as the gas infrastructure can more easily accommodate large volumes of electricity converted into gas. This is especially important in case the supply of renewables is larger than the electricity demand, or what the grid can handle. According to the European Power to Gas Platform, Projections of the offshore wind farms in Europe could generate over 100 GW of electricity by 2030, and with the adoption of the hybrid power-to-gas method, this could be achieved in a much more cost optimal manner. Though electrolysis (power-to-hydrogen), electricity is converted into hydrogen gas.
This approach opens the possibility of using a much more developed and stable grid system (gas grid) that can improve transportation and storage. In recent years, these concepts have been modeled through demonstrations and pilot plants showing potential for a plausible techno-economic improvement (Gillessen, Heinrichs, Stenzel, & Linssen, 2017). Under an optimal framework, large-scale renewable power plants designated to run power-to-gas systems with renewable electricity may be feasible. This approach utilizes much more conservative alternative to conventional wind power that could ultimately avoid additional cost for electric-grid-connection and potential grid congestion issues (Gillessen, Heinrichs, Stenzel, & Linssen, 2017). The curtailment of wind energy subsidies could be a possible outcome from the adoption of power-to-gas methods. With diminishing to non-existing subsidies, the wind energy sector could support a much more reliable and dependable market, leading to improvement in job growth and security within the sector.
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