nuclear fuels. and what that means is that in order to exploit renewable energy, you have to have massive capital investment, particularly in terms of land use. so 1,000 megawatt gas-fired plant needs about 10 or 15 acres, 1,000 megawatt wind farm needs somewhere between 48,000 and 64,000 acres. a 50 or 100-megawatt solar thermal plant, which is around the biggest that we observe really needs about 1,250 acres. the land requirements are precisely the result of the unconcentrated nature of renewable power and create a bunch of problems that i'll talk more about in a few minutes. then there's the siting and transmission costs, coal plants, gas plants, can be sited in principle almost anywhere and fuel can simply be transported

to the plants. and that means that investment decisions on where to site the plants and how much transmission is needed and line losses and during transmission and all the rest can be optimized among all the various tradeoffs that are needed. that's not the case of wind and solar plants. they have to be sited where the wind blows and the sun shines with sufficient intensity and duration. and because of appropriate sites are limited and because the lowest cost sites are exploited first for obvious reasons, that means that at the industry level, it's virtually certain we're not going to see scale economies. because as we add more and more sites, we have to use sites that are increasingly unsuitable and costs rise. and we see that in the data which i think i'll get to in a minute. average in marginal costs renewal power have increased and will continue to do so. and that's why for the last 10

or 15 years, capacity factors, which essentially means the percent of a time the power plant could be producing electricity that it actually does produce electricity for nonhydroelectric renewables fell from 57% to less than 34% just a couple of years ago. again because we have to use sites that are increasingly unfavorable. for conventional power plants capacity factors are in the range of 85% to 90%. because of siting constraints, transmission costs are almost certain to be higher for renewable power, the literalture, the technical engineering literature is unanimous on this. if you look at the cost estimates from the energy information administration, transmission costs per megawatt hour are $3.60 for coal and gas plants, about $3 for nuclear plants,

now the intermittency problem emerges because the wind doesn't lways blow and the sun doesn' renewable plants cannot be scheduled or dispatched in the terminology of the industry and instead we have to have backup generation in case the wind farms and the solar plants aren't producing on a given day in order to preserve the stability of the grid and prevent brown outs and atackup almost always conventional, coal, gas, and nuclear. how much backup is needed? well, if you look at the technical literature, what you'll find is for a 20% renewable standard, 20% guaranteed market share, the backup capacity needed is about 4.5%, for a 33% rps, it's about 20%. in 2009 there were about 34,000 megawatts of wind and solar generation capacity in the u.s. if you assume a backup requirement of only 3% and use the eia estimates of capital and

operations costs for coal and gas, gas generation, that works out to be about $368 per megawatt hour for backup generation, and i'm going to return to that number in a few minutes. there's the further matter that plants have to be cycled up and down depending on wind and sunlight conditions. if the wind's blowing, you don't have to have the backup capacity up and running. if the wind dies down, cycle the plants up. that means backup has to be provided by gas turbemperaturur cycle plants which are inefficient so cycle up and down. what's the result? ironically enough, more rather than less air pollution. that's the finding of an engineering study of colorado and texas. so looking at this from sort of a general level, you know, we've achieved kind of a perfect green

trifecta. higher costs, less reliability, and more pollution. and we haven't talked about the environmental problems that are upon renewable power individually. you know, noise, flicker effects, unsightly use of large amount of land, dead birds, toxic metal pollution mainly in china now, but who knows in the future, et cetera. let me turn now to the central rationales for policy and support. the renewables, there are basically five of them, the industry argument, the level playing field argument, the sustainability argument, and then the green jobs argument, which i just want to talk about each of these briefly in turn. the industry argument essentially says that renewables can't compete until they have a sufficient market share to exploit economies and learning

efficiencies. the problem with that argument is there's lots of industries that are characterized by scale economies or cost efficiencies from experience, learning efficiencies, and capital, the international capital market invests in those industries and the expectation that costs will come down and returns will rise over time without subsidies or mandates. and so even without looking at the data, the argument -- you don't have to have subsidies to get learning efficiencies up and running. again, even without looking at the data. if we do look at the data, what we find is that really since about 2001, there are no further learning efficiencies that are available or that have been displayed by wind power. scale economies are important only for very, very small wind projects. less than 5 megawatts. scale and learning effects have basically disappeared for solar generation, both thermal and

photovultaic. there is a smaller amount of data from the d.o.e. for solar only showing declining costs for 1998 through 2008. so if we put all of those data together, the conclusion i come to is that the assumption that their industry effects yet to be had is at best far from obviously correct. then there's the level playing field argument. and the argument basically is that conventional power generation gets subsidies. and so renewables can't compete without similar treatment. that's kind of a non se-- then ought to get rid of those rather than introducing a new

distortion of the market. but that aside, if you actually look at the eia data on federal subsidies per megawatt hour, these are the numbers you come up with. 63 cents for natural gas, 64 cents for coal, $52 and above for wind and $968 per megawatt hour for solar generation. we can argue about the methodology and argue about the numbers, but the differences in these magnitudes are so large it's really quite difficult to conclude that the level playing field argument would support additional subsidies for renewable power generation. so, again, i think with respect to average subsidies, the level playing field rationale is simply incorrect. what about marginal subsidies? if you look at gil metcalfe's work on effective marginal tax rates under current law for different forms of power generation, that's how many economists think about marginal

subsidies, coal and natural gas pay, you know, 35% or 40% marginal tax rates, nuclear gets the subsidy of almost minus 100%, hydro was not something he estimated. wind is an effective marginal tax rate of minus 164% and solar minus 245%, almost. so, again, i think the subsidy argument really the level playing field argument rather really doesn't work. then there's the argument. the argument is that coal and gas generation generate these negative environmental effects, externalties and their prices are low. and we need to subsidize renewable power so there's a level playing field in that dimension. well, if there's a large and i do mean large peer-reviewed literature, between 1980s and 1990s on the environmental costs

of different forms of power generation. and if you sort of look at that literature and summarize the findings, this is what you find. that the estimates for coal generation are between 1/10 of a sent a cent and 26 1/2. well, so, let's take the highest estimated figure for coal, which is 26 1/2 cents per kilowatt hour. from the previous slide recall that the backup costs for wind and solar power were $368 per megawatt hour or about 37 cents per kilowatt hour. so if all conventional generation was coal-fired, the backup costs alone imposed by existing renewables capacity would exceed the externality costs by about 40% even under the extreme assumption that current environmental policies, you know, the clean air act and

all the rest have been internalized. none of those externality costs, which is not a very reasonable assumption. but, in fact, coal generation is not 100% of conventional generation, it's about 45% of total generation. we use the highest estimates by fuel type and a couple slides ago the weighted average externality costs per conventional kilowatt hour is not 26 1/2 cents, but 15.5 cents. if we use the midpoint of those ranges, it's 7.8 cents per kilowatt hour. those numbers, i think, are sufficiently low to cast very heavy doubt on the externality rationale for subsidizing wind and solar power. current environmental policies must be the case that environmental policies internalize some nontrivial part of the adverse environmental effects of conventional generation. and there are state subsidies

and mandated market shares and the system average cost rate making by utilities that have the effect of subsidizing renewables even more and reducing any -- any artificial cost advantage further. then there's the sustainability argument, which is that without policy intervention, market forces will lead to an eventual exhaustion of such finite resources as natural gas and coal, and so the argument is basically that policy support for renewables is justified as a tool with which to slow the depletion of natural resources and to develop alternative technologies for future generations. i think that's a fair summary of the sustainability as i understand it. that argument is quite incorrect as a matter of basic economics. why? because the market rate of interest is the price that links the interests of the current generation and the future generation. if a resource is being depleted, the price is going to rise or

expected price is going to rise at that rate of price increase is higher than the market rate of interest, then the market provides a powerful incentive to conserve today and shift the consumption of that resource or some of that resource into a future period. that's what conservation means. if you own some oil and the market rate of interest is 2% and you think the price of oil is going to be higher by 10%, next year, what do you do? if you produce the oil and put the money in the bank, you earn 2%. if you keep the oil in the ground, you earn 10%. and so the market rate of interest provides an incentive for the market to allocate the use of resource over time such that the interest of future generations is reflected in the future prices. okay. so an equal librium, the raft of return to conservation other factors held constant. why? because the market rate of

interest is the price of current consumption in forgone future consumption. so market forces will never, never allow the depletion of an exhaustible resource as long as property rights are defined well and enforced. if not, true, you get the tragedy of the commons, but that's not what we're facing really in a natural gas or coal or oil context. and that's why just to pick one example model crude oil was used up decades ago. if the depletion argument were right, it would have been. i won't go through this. the sustainability rationale really is quite incorrect, and i think you shouldn't pay too much attention to it. as an aside, what do we mean by the interest of future generations? well, the epa about a year ago gave us this definition of sustainability, i don't think it's analytically very useful at all to be blunt about it. but let's put aside the

definition -- how we define the natural resource basin and ask instead what's the right way to think about the future the sh the interest of future generations? well, think about a baby born in a cave 1,000 years ago and an environment effectively untouched by mankind. at birth, that baby would've had a life expectancy of something on the order of ten years. and so suppose that baby would have been able to choose. would it have been willing to give up some part of the natural resource base and some environmental quality if it got in return, you know, better food, water, housing, medical care, et cetera, et cetera? the obvious answer is, yes, it would. and so more generally, what the future generation wants is not a maximized natural resource base. what the future generation wants is the biggest possible -- is to inherit the biggest possible capital stock from the previous

generation of which the natural resource base and the quality and environment are two important dimensions among many and among which there are always tradeoffs. if artificial -- in other words, if -- two minutes? oh, my goodness. you can wave your fingers. go right ahead. >> i may change the fingers i'm waving. >> it'll have the same effect. all right. i won't dwell on that too much. i think the interest -- the public discussion and the interest of future generations is just dismal. and we can talk about it further. then there is the green employment argument. which basically has two components. if we got more green employment, that would be a benefit for the economy. and, in fact, renewable subsidies will lead to that part. now, even putting aside the problems with defining what green employment is, in fact, and counterintuitively, green

employment would be an adverse effect, not a benefit of a renewable policy. again, as counterintuitive as that may seem. why? well, suppose president obama were to say my energy policies will increase the use of high-quality steel. tha that'd be great for the steel producers, but for the economy as a whole, the need for additional steal is a cost because those resources would no longer be available for use in other sectors. well, similarly, the creation of green jobs is a great deal for those who are hired or those whose wages rise as a result of the policies. but for the economy as a whole, that use of valuable labor is a cost. and so the resources used in the production of renewable electricity have to be taken from other sectors because resources are finite always and everywhere. >> let's see. i'm not going to go through that. there's no time.

yes, you can all talk to me about this later. if you look at the correlations between, you know, renewable subsidies will lead to less electricity consumption. if you look at these correlations, they're pretty positive between electricity use and employment and gdp. correlation is not causation. that's certainly true. but the correlations are sufficiently high to make it reasonable to hypothesize that policies that force uneconomic reductions in electricity use will reduce the employment. i'm working on a paper on that now for aei. let's see. the labor intensiveness argument, i've never seen any data on that. i've seen a lot of assertions. it did you want matter anyway. why doesn't it matter? well, let's suppose that we had a policy that we dig ditches not with heavy equipment, but instead with shovels or if we channel milton friedman with spoons.

the labor intensiveness of ditch digging would go up and a lot of jobs would be created. would that be a good or dumb idea? well, there's no -- that question answers itself. there's no analytic difference between inefficient ditch digging and inefficient electricity generation used as tools in the pursuit of expanded employment, green or any other color. none. and i don't have time today to talk about the european experience with respect to renewable power and employment, suffice it to say it is not salutary. okay. let's see, the eia projections, future natural gas prices have collapsed in the last -- just in the last year because of the fraccing and all the rest. that means that the competitive environment for wind and solar power to put it mildly is not improving. okay. so you've all heard what i've said, i don't need to summarize

it. blah, blah, blah, and thank you very much. notwithstanding bipartisan hype. thank you very much. . >> a very adept bridge to the future. for those not familiar with the milton friedman quote. he was expressing china. they were expressing how high the unemployment rate because they had everybody digging with shovels. he would you can decrease it even more if everybody addition with spoons. >> another tidbit. >> gaining vengeance by not mentioning the fact i have a series of studies on green jobs. you can find them on the website. i surveyed the experiences of europe to try to implement green energy green jobs agenda. we're going to give kate the opportunity to bat cleanup. jimmy will be our next speaker.

he has a quite long bio, co-founder and executive vice president at clean line energy, participates in all aspects of the country's portfolio. he has worked for more than 20 years in public and private sectors. as i said i'm not going to challenge my reading skills going through his entire biobut it's available in conference materials. since we're running tight on time and we want to have time for q&a, jimmy, the floor is yours. >> thank you very much. thanks for having me. this is a good issue to be talking about now. we have for the last decade or so and probably will have the same debate in the next decade. let me get some ground rules set here. i am a republican. i'm from texas. i worked in the bush administration in texas. i worked up here. i worked for a republican congressman. i'm a believer in free markets. i like wind. wind is a tremendous economic driver in many red states in the

middle of the country. we have republican governors that are clamoring for the development of wind in their states because of the jobs and economic development associated with them. governor brownback in kansas. governor branstad, governor fallon, governor perry in texas. these are all republicans and they are all wanting the development of wind. so this is not necessarily a wind versus natural gas story. this is an economic development story in the middle part of the country. i want to commend these gentlemen for their research. their research poses a lot of good questions. i don't think they are answered in the right way. in the most part. so i'm going to go through that pretty quickly. i think mr. cons dine's research except the cost is not $300

megawatts an hour. th that skews the sbentire picture he's trying to portray here. we're seeing electricity prices 3 megawatts an hour. that's a far cry. we have to get real data. ei data is a love-hate relationship. you use it when you like it. when you don't you still use it. but you know, you get what you get. the fact of the matter is, there have been dramatic changes in the price of wind in the last two or three years. it has come down. it has not gone up. if you look at the price of natural gas and wind ei projects, they are both wrong. you ask any economist what will the price of wind be in five

years, what will the price of gas be in five years, they will both be wrong. i know economists and academics have to find a place to start. ei data is not a good place to start. when you have wall street and rate cases at the state level and at the federal level that have real numbers that go into real rates. for wind that's in the $30 megawatt hour range. the one other thing about your research, i didn't quite understand why the oil and gas drilling component of the study was included in the electricity piece. i agree california should drill but i don't think they will. i don't think it's a likelihood. if they stop all imports into the california, what they would be eliminating is hydrofrom the pacific northwest, the lowest form of energy going into california today. as well as some of the coal

plants built where power shifted into the los angeles basin. so the second study, i don't know where to start to be honest with you. i have found -- in fact, my paper shows just while mr. zycher was talking i have so many more things to say. i'm going to try to get through it in six minutes. i think there's three areas i'll focus on, land impacts, cost of renewables and integration costs. land impacts, 60 some-odd,000 acres for a wind farm is assinine. the base of a wind farm is a 20 by 20 pad, 30 by 30 pad with distribution transformers. you can farm under it. you can graze under it.

can you do either things providing economic values under neat it. underneath transmission lines and wind lines. what that means is that you're not taking it out of service for a small amount of electricity. if you were taking it out -- if you were taking 60,000 acres out of service just for the development of wind farms, kind of like you would for a gas plant, which is 10 to 20 acres, i would agree that correlation was right but it's not. cost of renewables. as i said, it's come down dramatically. i'm a believer in free markets. i suspect everybody here is a believer in free markets. the reason why the price of electricity produced by wind wen up a couple years ago is the same reason why the price of natural gas went up a few years ago. as there's more demand than supply. so the price of turbines went up. this is where eia stops their

numbers because they haven't correlated in 2011, 2012 numbers for the price of turbines. the price of electricity from wind, as i said earlier, has come down dramatically for a number of reasons. first of all, parts are produced here. the supply chain for wind products and components has dramatically moved over to the u.s. reducing the cost for transportation. 60% of the wind turbine is built here in the united states versus 30% five or six years ago. secondly taller towers and longer blades means that the capital cost that you put in to build a turbine will yield a greater amount of electricity. so the same capital cost, getting more electricity, more energy produced, capturing more energy, means that the price will be driven down. another reason is we are moving

from -- this is another area where i'm not quite sure i agree. really the area where we produced wind today have not been the best sites. if you look where wind is, where wind farms are now, ohio, indiana, that's not where the best wind is. the best wind is in the middle of the country. it's transmission constrained. what we need to do as a country is what my company is trying to do, build a transmission infrastructure in order to get that cheapest wind to markets in the east and the west. if you had a burger king and you only had one road to it, i promise you the price of a burger, whatever they have there, a whopper would be much higher than if you had four roads leading to it. it is the same principle in power. you need a robust transmission infrastructure to allow generation technologies to compete, and that drives down the cost of energy. finally i want to talk about

integration costs. i think the integration costs used are $375 an hour. it defies conventional wisdom, uiso, wisdom of rate cases from public service of colorado, doe, all the companies involved in the eastern wind interconnection study. the numbers are much lower. the numbers puts it $6 to $8 per megawatt hour, we have a private study that says 10%. black and beach says 10%. so it's not $300 a megawatt hour. first of all, let me tell you why. that is because you do not need a new gas plant for every megawatt you're building of a wind farm. there are gas plants around the tr