The High Cost of Renewable Electricity Mandates

[herm]

You thought it was free?

Robert Bryce - MANHATTAN-INSTITUTE - February 10, 2012

What would you do with the money if you could lower your electric bill 31.9% ? --Ed.

Motivated by a desire to reduce carbon emissions, and in the absence of federal action to do so, 29 states (and the District of Columbia and Puerto Rico) have required utility companies to deliver specified minimum amounts of electricity from “renewable” sources, including wind and solar power. California recently adopted the most stringent of these so-called renewable portfolio standards (RPS), requiring 33 percent of its electricity to be renewable by 2020.
Proponents of the RPS plans say that the mandated restrictions will reduce harmful emissions and spur job growth, by stimulating investment in green technologies. But this patchwork of state rules—which now affects the electricity bills of about two-thirds of the U.S. population as well as countless businesses and industrial users—has sprung up in recent years without the benefit of the states fully calculating their costs.

Our analysis of available data has revealed a pattern of starkly higher rates in most states with RPS mandates compared with those without mandates. The gap is particularly striking in coal-dependent states—seven such states with RPS mandates saw their rates soar by an average of 54.2 percent between 2001 and 2010, more than twice the average increase experienced by seven other coal-dependent states without mandates.

Our study highlights another pattern as well, of a disconnect between the optimistic estimates by government policymakers of the impact that the mandates will have on rates and the harsh reality of the soaring rates that typically result. In some states, the implementation of mandate levels is proceeding so rapidly that residential and commercial users are being locked into exorbitant rates for many years to come. The experiences of Oregon, California, and Ontario (which is subject to a similar mandate plan) serve as case studies of how rates have spiraled.
A backlash may result that could even imperil the effort to protect the environment. Some of the renewable-energy projects being built in California are so expensive that “people are going to get rate shock,” according to Joe Como, acting director of the Division of Ratepayer Advocates, an independent consumer advocacy arm of the California Public Utility Commission. “In the long run,” he said recently, the approval of overpriced renewable energy will harm “the states’ efforts to achieve greenhouse gas reduction.

Given that the RPS mandates have not received enough study and that they appear to be posing risks to a fragile economy, the prudent course of action is to put the state programs on hold. Existing mandates should be suspended and new ones blocked pending a thorough cost-benefit analysis to determine responsible levels of renewable electricity.
In the meantime, where practical, natural gas, the cleanest conventional fuel as well as the least expensive, could fill any gaps in energy supply.

In 2010, the average price of residential electricity in RPS states was 31.9 percent higher than it was in non-RPS states. Commercial electricity rates were 27.4 percent higher, and industrial rates were 30.7 percent higher.
... [Read More]

[herm]

Gouged by the Wind - Renewable fuel mandates are raising electricity prices in the states.

http://online.wsj.com/article/SB1000...s_opinion_main

"Politicians keep promising to reduce energy prices, but they keep ignoring one easy step: repeal renewal energy standards. Twenty-nine states have these rules requiring local utilities to purchase between 20% and 33% of their electric power from renewable sources. They were enacted over the past decade when lawmakers bought into the fad about cheap "clean energy." Their real effect has been to force utilities to pay above-market prices for electricity, which means higher electric bills for consumers.
No state has learned that lesson the hard way more than Minnesota. In 2007 the legislature mandated that utilities ramp up their renewables to 12% this year and 25% by 2025.
The Minnesota Rural Electric Association, which represents about 50 small utilities serving about 650,000 rural residents, reports that its members lost more than $70 million in 2011 because of the high cost of wind power. "Right now we're paying for wind power we don't need, we can't use and can't sell," says association executive director Mark Glaess.
Utilities absorb some of the cost, but Mr. Glaess estimates that annual residential utility bills are between $50 and $100 higher per household due to the renewable mandate. That may be nothing to a $10,000 donor to the Sierra Club, but tell that to family of four living on $25,000 a year in Fergus Falls.

The costs will rise as the mandates tighten. An analysis by the Freedom Foundation of Minnesota found that Green River Energy utility had $22 million in losses in 2010, $35 million in 2011, and this year it is projecting another $35 million loss. A 2011 study by the Beacon Hill Institute, a think tank focusing on state polices, found that from 2016-25 the Minnesota mandate will raise electric costs for businesses and households by $15 billion. By 2025 the average family will pay $265 a year in higher utility bills.
And what are consumers getting in return? The environmental benefit is almost zero since no state can do much to alter the global volume of carbon emissions. The renewable mandate was also sold as a way to gain "green jobs" and, as the Environmental Protection Agency puts it, "stimulate market and technology development" in states. But the mandate fails that test too, because Minnesota imports much of its wind power from North Dakota.
A 2012 study by the Manhattan Institute compares states with renewable mandates to those that allow utilities to purchase the cheapest electricity available. The states with mandates paid 31.9% more for electricity than states without them. Residents of North Dakota, a state without a mandate, pay $7.63 per kilowatt hour for electricity. Neighboring Minnesota pays $10.76.
Minnesota's politicians could bring relief to rural residents, because the 2007 law stipulates that the rules can be eased if economic conditions aren't favorable. But no one wants to take on the not-so-jolly giant green lobby. The state's Division of Natural Resources is in denial, arguing that "compliance is generally cost effective for the utilities" subject to the mandate."

[Carcus]

This week I switched to all renewable electricity (wind). My rates changed from 8.7 to 8.8c/kwh (Texas).

/add, I put in 200 miles on my ebike last week (18 cents in electricity). .
//oh yeah,.......AND my electric bills last year averaged less than $50/mo on a 4/3/2.5.
///I reckon I'm lining up to be the greenest sumbich up in this forum.

[wick1ert]

This is interesting. I know rates here jumped over 50% in 2006, but that was when deregulation happened. Rates haven't increased too much over that time, although the transmission rates have. I'm at 9.9c/kwh + transmission. I could switch to 100% wind from my provider ("imported") but that would increase my costs by around 3c/kwh. I figure I'm doing pretty good with roughly 50% solar from my PV array for now.

[dr61]

More nonsense from a conservative think tank funded by big coal. Here is a counterpoint:

http://thinkprogress.org/climate/201...lectric-rates/

[herm]

Good article, but note that it comes from a very liberal source.. can we trust that it is unbiased?

[herm]

The expiring Fedreal tax credits are worth about $22 MWh

http://www.denverpost.com/business/ci_19387179

"The Colorado Public Utilities Commission on Monday approved a contract for Xcel Energy to buy 200 megawatts of wind power from a new wind farm in Limon.

The commission voted 3-0 to approve the deal, with members saying the fixed wind-power costs would be a hedge against volatile natural-gas prices.

The proposed wind farm, which will be built next year, would have the lowest wind costs the utility has ever paid, Xcel officials said.

The charge for the electricity from the Limon facility will start at $27.50 per megawatt-hour. Xcel's average purchase cost for wind since 2007 has been $42.16.

Over the 25-year contract, the price will increase about 2 percent a year.

The price is so low because Juno Beach, Fla.-based NextEra already is building another 200-megawatt wind farm for Xcel on the site and can take advantage of economies in building the second facility, company officials said.

The deal was challenged by the Climax Molybdenum Co., one of Xcel's largest customers.

Climax contended the extra wind power is not needed to either serve demand or meet the state's 30-percent renewable-energy standard by 2020.

Xcel has said that it will meet the standard by 2018 and be in compliance through 2029.

Commission Chairman Josh Epel voted for the project but said he found some aspects "troubling."

"This project is going to be the last alternative-energy project the commission deals with, and I find it lacking in imagination," Epel said.

In order to take advantage of expiring federal tax credits, Xcel had to sign the deal by Nov. 30, and NextEra has to have the wind farm running by Dec. 30, 2012."

[herm]

from the original post PDF, in page 20, the tax incentives given to wind:

Renewable Energy’s Additional Costs

While the costs related to renewable-energy
mandates will ultimately be paid by
consumers, there are other costs that will
not be found on electricity bills. Billions of dollars in
federal grants, loan guarantees, and tax credits have
been disproportionately lavished on renewable-energy
projects. Those subsidies are invisible to ratepayers but
are nonetheless a cost that affects the broader economy.
When measured on the amount of energy actually
produced, it’s apparent that the renewable industry is
getting subsidies that are far in excess of those given
to the hydrocarbon sector. For instance, the federal
production tax credit of $0.022 for each kilowatt-hour
of electricity produced by wind amounts to a subsidy
of $6.44 per million BTUs of energy produced. For
comparison, the current price of natural gas is less than
$3 per million BTUs. Put another way, the subsidy
provided to wind-energy producers is more than twice
the market price of natural gas.
In 2010, the EIA estimated total “subsidies and support”
for renewable-energy programs at $14.6 billion. Of
that amount, the biofuels sector collected the largest
sum, $6.6 billion. The wind industry collected $4.98
billion.76 Of that $4.98 billion, $4.8 billion was awarded
under section 1603 of the American Recovery and
Reinvestment Act (also known as the federal stimulus
bill). In all, between 2009 and late 2011, $9.8 billion
in cash grants was disbursed under the stimulus bill,
and the vast majority of that money—$7.6 billion—was
received by the wind-energy sector.77
Furthermore, an analysis of the 4,256 projects that won
grants from the Treasury Department under section
1603 shows that $3.25 billion in grants went to just
eight companies, all of which are board members of
the American Wind Energy Association (AWEA).78 Two
foreign companies, the Spanish utility Iberdrola and the
German energy giant E.On, were among the biggest
beneficiaries of the section 1603 grants: Iberdrola, which
has a market capitalization of $39 billion, collected $1
billion in grants; E.On, with a market capitalization of
$49 billion, collected $542.5 million.
The federal government has also provided loan
guarantees for renewable projects. And while the
failure of solar-panel-maker Solyndra—which had
a $529 million loan guarantee from the federal
government—is the most prominent example,
numerous other companies have also garnered
guarantees. One company, New Jersey–based NRG
Energy, along with its partners, has secured some
$5.2 billion in federal loan guarantees to build
solar-energy projects.79 The production tax credit for
renewable-energy generation has also imposed costs
on taxpayers. In 2007, the EIA estimated that subsidy
was costing $418 million per year.80
Perhaps the most controversial example of how
renewable subsidies are being captured by big business
is the $1.9 billion, 845-megawatt Shepherds Flat wind
project in Oregon, which is getting the bulk of its
funding from federal taxpayers. And that largesse will
provide a windfall for General Electric and its partners
on the deal, including Google, Sumitomo, and Caithness
Energy. Not only is the Department of Energy giving GE
and its partners a $1.06 billion loan guarantee, but as
soon as GE’s 338 turbines start turning at Shepherds Flat,
the Department of the Treasury will send the project
developers a cash grant of $490 million.81
The deal was so lucrative for the project developers
that in 2010, some of President Obama’s top advisors,
including energy policy czar Carol Browner and
economic advisor Larry Summers, wrote a memo
saying that the project’s backers had “little skin in the
game” while the government would be providing “a
significant subsidy (65+ percent).” The memo went on
to say that the project backers would provide equity
equal to only about 11 percent of the project’s cost,
even though they would receive an “estimated return
on equity of 30 percent.” That’s a huge return for the
utility sector, which has an average return on equity
of about 7 percent.82
The memo also pointed out that the carbon dioxide
reductions associated with the project “would have to
be valued at nearly $130 per ton CO2 for the climate
benefits to equal the subsidies.” That per-ton cost,
the memo said, is “more than six times the primary
estimate used by the government in evaluating rules.”83
Apart from the federal subsidies, renewable projects
have received tax breaks from numerous states.
Advocates of renewable energy often cite Texas
as a model for state policies toward renewables in
general and wind energy in particular.But a 2010
report by the Texas comptroller found that local
jurisdictions in the state are forgoing $712.3 million
in property-tax revenue because of exemptions given
to wind-energy developers.84 In one case, a company
operating a large wind facility near Roscoe, Texas,
was given exemptions worth $37.2 million over a 13-
year period.85 The tax revenue forgone by the local
jurisdictions must be made up by other taxpayers. The
property-tax-exemption program was so good for the
wind developers and local jurisdictions that the Texas
legislature effectively ended the program in 2009.
Oregon residents are also paying for the renewable
mandates in lost tax revenue. Using Oregon’s
Business Energy Tax Credit, some of America’s
biggest companies have avoided paying tens of
millions of dollars in state income taxes. In 2009, The
Oregonian reported that three companies—Walmart,
Costco, and U.S. Bank—“shelled out a combined
$67 million to avoid paying $97 million in Oregon
income taxes.” In 2008, Walmart paid $22.6 million
for the right to claim some $33.6 million in energy tax
credits. The cash was forwarded to several renewable
projects, including a pair of wind farms. In return,
Walmart pocketed the $11 million in tax savings.
But as Oregonian reporter Harry Esteve pointed
out: “The loser in the transaction is Oregon’s general
fund—which pays for public schools, prisons and
health care programs—because the state is out the
full $33.6 million in tax revenues.”
In 2007, the tax credit was costing Oregon taxpayers
about $10 million.87 But with numerous corporations
tapping the program, the costs quickly soared, which
forced Oregon legislators to place a cap of $300 million
on the credit for the 2009–11 period. In 2011, with
the state’s budget in tatters, the legislature effectively
ended the program by capping it at $3 million.

[ItsNotAboutTheMoney]

Besides the fact that quoting a percentage increase doesn't tell you anything, it's also not saying anything new. In most places right now renewable energy is more expensive so renewable energy mandates will raise rates. Duh.

The whole problem with the view of the article is that it assumes that if the price goes up it's a sign of a failure of energy policy.

My obvious question to all those who think that the price is the be-all and end all: what car do you drive?

[aca2983]

Originally Posted by herm

Good article, but note that it comes from a very liberal source.. can we trust that it is unbiased?

And the Manhattan Institute is unbiased? puh-leez.