S&P Global's American Wind Outlook // Hidden Costs in MISO's Ambitious Transmission Plan // American Oil Producers Won't Expand Supply

S&P Global's American Wind Outlook

S&P Global just released its most recent report on wind energy in America. It provides a helpful overview of the current situation and how it will change. Let's dive in.

First up, here's a great map of operating wind capacity nationwide. Texas, Iowa, and Oklahoma are the biggest players in wind, though Texas has more wind capacity than the other two combined. S&P reports that wind is the leading renewable energy source in America, with about 138 GW of capacity installed as of this April.

But capacity isn't quite as important as capacity factor. For those who don't know, capacity factor, as the Department of Energy describes it, "measures how often a plant is running at maximum power." Nuclear's capacity factor in America sits at 92.5%. As we can see in the map below, wind tops out at 45% in the best-case scenario. According to S&P, the average capacity factor for wind in America is 35.5%, 11% higher than solar.

"At 337.7 million MWh, wind accounted for 8.4% of overall U.S. generation produced in 2020, up from 2.9% in 2011, as generation from the renewable nearly tripled in the interval," reports S&P.

Here's what we can expect for wind's future in America:

• America will grow its wind capacity by 87% to about 258 GW with this year's planned 128 GW of added capacity.

• "Operating wind capacity leader Texas also tops the nation in planned wind capacity, with nearly 16 GW in the pipeline, or more than 13% of the U.S. total."

• Arkansas, Louisiana, and Mississippi are newcomers to wind and have "a combined 580 MW in planned wind capacity."

It's worth noticing that gobs of wind are being added to places where capacity factors will always be low no matter how many turbines you build. Most of this is being encouraged through government subsidies. If anyone wanted to make an open and shut case on government misallocation of resources, this situation would go a long way.

Hidden Costs in MISO's Ambitious Transmission Plan

At the end of last month, the Mid-continent Independent System Operator, which oversees a portion of the US grid that stretches from Minnesota to Louisiana, announced a $10.2 billion plan to build out electricity transmission. MISO argued that "the transmission lines would yield $23.2 billion to $52.2 billion present value benefits over the next 40 years," writes Isaac Orr. "But there’s a catch."

Orr writes that the devil's in the details: MISO models its savings using "a 'baseline' future where there will be a massive 39 gigawatt (GW) retirement of coal-fired power plants (enough to power about 4.75 Minnesota’s on the average hour) between 2020 and 2039. During this time, the MISO grid would add 37 GW of solar and 19 GW of wind."

In other words, MISO benefits calculation has nothing to do with today's (mostly) coal, gas, and nuclear grid, but a future version of itself mostly made up of renewables and long transmission lines.

"Instead," he writes. "MISO’s calculation has everything to do with assessing the cost of building massive quantities of wind turbines and solar panels with and without the new transmission lines. This all means that the transmission simply brings down the cost of adding massive quantities of wind and solar; it does not reduce costs relative to today’s baseline."

Orr even corresponded with MISO to confirm the rationale behind their modeling. You can read that correspondence along with the rest of his essay here.

American Oil Producers Won't Expand Supply

If prices are so high, why aren't America's major oil companies shelling out for production? The world needs more supply, after all. And their earnings imply they could.

"Top shale oil and gas producers including ConocoPhillips, Pioneer Natural Resources and Devon Energy all unveiled a sharp increase in second-quarter profits this month as high crude and natural gas prices fill the industry’s coffers," reports the Financial Times.

So what gives?

Execs say Wall Street wants share buybacks and dividends, not reinvestment in production.

“Unless we have shareholders that come in and say, look, we absolutely — we do not like these big dividends. We do not like your share repurchase programme. We want you to go back to a growth model,” said Rick Muncrief, chief executive of Devon Energy, one of the shale patch’s biggest producers, in the Financial Times. “Until we see that, I see no reason to change our strategy.”

A lot of this mentality is a hangover from the shale boom in which cheap financing allowed for an explosion of growth in the gas sector. But by the mid-2010s, the jump-over-your-own-leg dance move of taking on debt to drill-baby-drill quit working. A reckoning swept over the sector and now buybacks have far outstripped capex.

"Besides the scars of history," writes Bloomberg, "the future is clouded by the twin challenge of climate change and energy security (another reason not to block new auctions)."

Uncertainty breeds uncertainty breeds high prices.

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Conversation Starters

• Germany Energiewende has returned the country to the 1800s. "Starting this week, German hard coal-fired power stations are restarting operations, which were being phased out because of the hugely detrimental climate impact on a world already ravaged by global warming," reports DW.

• Brien J. Sheahan, former chairman and CEO of the Illinois Commerce Commission, has written a biting op-ed in Utility Dive on the state of the American grid. I recommend it.

• Anas Alhajji, edit of the Arabic energy publication Ataqqa, recently appeared on Robert Bryce's Power Hungry podcast. Alhajji is one of the sharpest energy analysts out there, and seemingly immune to conventional wisdom. I highly recommend checking the episode out:

Crom's Blessing