Report: Wind and Ethanol – Economies and Diseconomies of Scale

Date: 5 Jul 2007 | posted in: Energy | 0 Facebooktwitterredditmail

Congress and most state legislatures have or are developing renewable energy policies with a single objective: get more renewables. Our July 2007 study by John Farrell, Wind and Ethanol: Economies and Diseconomies of Scale, finds that this single minded focus ignores the potential economic benefits from locally owned and more modestly scaled facilities. The focus should on better renewable energy projects not simply more.

With Congress currently writing a new energy bill, the issue is a timely and important one. “Typically, policy makers focus too much on the quantity of renewable energy production, but this study blows a hole in the assumption that bigger is better,” explains John Farrell, Research Associate for the Institute for Local Self-Reliance (ILSR) and author of the new report. “Large facilities have a special class of costs that small facilities don’t, such as shipping vast quantities of electricity or biofuels to distant markets.”

The study finds that these transportation-related costs may offset a large part of the reduced production costs from large wind farms and ethanol plants. For the owner of a large facility, a tiny reduction in production costs leads to significantly increased profits. “But renewable energy policy is not about maximizing profits to owners–it’s about maximizing benefits to society. And that occurs from locally owned and widely dispersed production units,” says Farrell.

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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.