Centennial Institute POLICY BRIEF · Sloan * How Renewable Energy Mandates Pick Your Pocket Centennial Institute Policy Brief No. 2013-3 Page 0 OVERVIEW * CONTINUED Wind and solar

Centennial Institute

POLICY BRIEF

Bad Bargain How Renewable Energy Mandates Pick Your Pocket

Centennial Institute Policy Brief No. 2013-3 By Kelly Sloan

OVERVIEW: FAILING THE COST-BENEFIT TEST

The fading fad for state Renewable Portfolio Standards (RPS) has accomplished little but the transfer of vast sums of money from consumers to favored industries. Average electric rates in the 30 states with enforceable mandates for wind and solar are 21% higher than in the states without such mandates. Average electric rates in Colorado had risen only 20% in 14 years. After the state's enforceable mandate was passed, rates jumped 31% in six years. Electricity generated by wind and solar will always cost more because of intermittent availability, geographic limitations, and impracticality of storage. Higher unemployment in a state appears to be correlated with higher electric rates, which in turn are often correlated with enforceable mandates. Growth of gross domestic product in states with higher electric rates also lags by almost one full percentage point behind states with lower electric rates.

Between 2003 and 2012, residential electric rates rose nationally by 36%, half again as fast as the inflation rate at 24.8%, impacting low-income people the most.

Continued

Published as a public service by the Centennial Institute at Colorado Christian University

www.Centennialccu.org n 8787 W. Alameda Avenue, Lakewood CO 80226 n 303.963.3424

Sloan * How Renewable Energy Mandates Pick Your Pocket *Centennial Institute Policy Brief No. 2013-3 * Page 0

OVERVIEW * CONTINUED

Wind and solar received over $4 billion in government subsidies in 2010, more than 100 times the amount for coal, natural gas, and nuclear. Despite all the mandates, subsidies, tax breaks, and loan guarantees, wind and solar accounted for barely 4% of total U.S. electrical generation in 2012. Out of 36 states with a mandatory or voluntary standard in early 2011, only 14 had met their objectives or were on track to meet them. By early 2013, 16 states had legislation pending to roll back their mandates.

*** Recommended Policy Reforms ***

* Roll back or repeal RPS mandates

* Broaden the definition of renewables to include natural gas

* Move from an enforceable to a voluntary regime

* Require cost-benefit analysis

* End subsidies and tax breaks

* Remove barriers to nuclear power

CONTENTS

Introduction: What’s Fact and What’s Hype? ............................................................................ 1

How Much are Renewable Mandates Really Costing Us? .......................................................... 1

What is the Economic Impact of Higher Electric Rates? ........................................................... 8

What Price Government Favoritism? ........................................................................................ 12

How Effective are Renewable Mandates Anyway? .................................................................. 12

What Policy Reforms are Needed? .......... ................................................................................... 17

Conclusion: A Bad Bargain for Americans…………………………………………...……….. 18

Index of Tables and Charts……………………………………………………………….…….. 18


INTRODUCTION: WHAT’S FACT AND WHAT’S HYPE? Amid mounting concerns over climate change, greenhouse gas emissions, and air pollution – and under intense pressure from the environmental lobby – more and more states are legislating Renewable Portfolio Standards (RPS). Proponents contend that requiring utilities to generate an ever greater share of their electricity from so-called “renewable” sources – generally defined as wind, solar, biomass, and sometimes hydro-power – will reduce harmful emissions by displacing traditional sources such as coal and natural gas. But how much do these RPS mandates really cost? How do they fare on a cost-benefit test? In this policy brief, we will look at the true costs of renewable energy mandates, see what drives those costs, and assess their stimulative or depressive effect on the economy. We will compare retail electrical rates of states that have an RPS with those that don’t. We will analyze economic data from states with the highest and lowest electricity rates, as well as historical data. We will expose the hidden costs of renewable energy policies. By these steps we will come to a verdict on the overall effectiveness of Renewable Portfolio Standards as a policy tool, leading to recommendations for policymakers in the states.

HOW MUCH ARE RENEWABLE MANDATES REALLY COSTING US? Making cost comparisons between states on electrical rates requires caution, since rates are subject to many economic, demographic, and geographical factors. Nevertheless, an analysis of retail electricity rates between the states clearly shows that those states which have adopted enforceable renewable standards experience higher retail electrical costs than either those without a mandate, or those with voluntary goals in place of strict mandates. The average electrical rate of all 13 states without an RPS, based on figures provide by the Energy Information Administration (EIA), is 8.52 cents / kWh. This is 24% lower than the average of the other 37 states, at 10.57 c/kWh. If we include states with voluntary goals among states without an RPS, then the 30 states with enforceable renewable mandates claim an average retail rate of 11.07 c/kWh. This is 21% higher than all the states without a mandate.

If we go on to exclude Alaska and Hawaii (often done to prevent those states’ unique geographic differences from skewing the dataset), we find that the states within the contiguous U.S. with enforceable renewable mandates have average retail electricity rates 25% higher than those without.1 (See Table 12, page 19.)

1 This includes Vermont, which is often also excluded from calculations due to its unique hybrid RPS. If Vermont is excluded, then the electric rates of non-‐mandate states are 30% lower than those of mandate states. Further,

Prepare to pay 21% more

Does your state have an RPS? See page 19


TABLE 1. STATES WITH HIGHEST ELECTRICAL RATES (EIA, January 2012)

STATE RANKING AVERAGE

RETAIL ELECTRICAL RATE (cents/kWh)

MANDATE (M), GOAL(G), OR NO RPS(N)

DESC. OF RPS

Hawaii 1 25.12 M 40% by 2030 Connecticut 2 17.39 M 27% by 2020 New York 3 16.41 M 30% by 2015 New Hampshire

4 14.84 M 23.8% by 2025

Alaska 5 14.76 N N/A New Jersey 6 14.68 M 22.5% by 2021 Massachusetts 7 14.26 M 22.1% by 2020 Rhode Island 8 14.08 M 16% of sales Vermont 9 13.24 G 20% of sales by

2017 (goal) California 10 13.01 M 33% by 2020

TABLE 2. STATES WITH LOWEST ELECTRICAL RATES (EIA, January 2012)

STATE RANKING AVERAGE RETAIL ELECTRICAL RATE (cents/kWh)

MANDATE (M), GOAL(G), OR NO RPS(N)

DESC. OF RPS

Wyoming 1 6.20 N N/A Idaho 2 6.52 N N/A Kentucky 3 6.73 N N/A Washington 4 6.66 M 15% by 2020 Utah 5 6.94 G 20% of sales2 North Dakota 6 7.11 G 10% by 20153 Arkansas 7 7.28 N N/A West Virginia 8 7.45 M 25% by 20254 Nebraska 9 7.52 N N/A Oregon 10 7.56 M 25% by 20255

2 Voluntary program; first compliance year is 2025 – utility must complete Cost Efficiency Analysis before entering program 3 Non-‐binding, voluntary goal, retailer is required to complete economic evaluation to ensure cost efficiency is comparable to other sources. 4 WV includes natural gas and advanced coal technology in definition of “renewable”. 5 Oregon includes large-‐scale hydropower, wave, and tidal energy as “renewable”, and generates the majority of its electricity via such sources


Tables 1 and 2 show respectively the top 10 states with the highest and lowest average retail electrical rates as of 2010, the most recent year for which data are available, as provided by the Energy Information Administration. The tables also indicate whether each state has a renewable energy mandate, voluntary goal, or neither. While it should again be stressed that many factors contribute to average retail electrical prices, the correlation between a strict RPS and a higher price for electricity is difficult to ignore. The exceptions within the tables are also telling; West Virginia, for example, while it does have an RPS, includes both natural gas and advanced clean coal technology among its eligible “renewable” resources, a fact which helps keep that state’s electrical rates relatively low. Similarly, two other outliers, Utah and North Dakota, operate voluntary renewable goals, rather than enforceable ones, and both states require utilities to complete an economic efficiency analysis prior to entering the program, to ensure that cost efficiency is comparable to other sources. Although Colorado does not appear on either top 10 list of highest and lowest rates, as Centennial Institute’s home state it warrants a closer look. In 2004, Colorado became the 17th state to adopt an RPS in 2004 with the voter-approved Amendment 37. It subsquently increased renewable requirements in 2007 with House Bill 1281. The state’s average retail price of electricity had remained relatively steady in the 14 years between 1990 and 2004 (Chart 1). Rates increased an average of just 1.6% per year, and the total rate increase over that period was less than 20%. Then in just six years between 2004 and 2010, the retail rate skyrocketed by 31%. In the three years between the RPS increase in 2007 and 2010, the rate rose by 20% -- the same amount it took 14 years to do pre-mandate. Reasons for Higher Costs There are several reasons for the higher costs associated with renewables, particularly wind and solar. One of the principal cost factors is the intermittent nature of those resources. Since solar and wind technologies only produce power when the source is available, they need to be backed up by reliable fossil-fuel sources. Table 3 shows the Energy Information Agency’s latest projected estimates of levelized costs for competing-source types of power plants set to enter service in 2018. Levelized cost represents the current value, in real dollars, of building and operating a generating plant over the assumed

Sticker shock in Colorado was 31%


life and duty cycle6, converted to equal annual payments and amortized over expected annual generation from that assumed duty cycle.7 Although the most recent data indicate that the total system levelized cost for an onshore wind generator appears to have dropped below the cost for a conventional coal plant, it is important to note that direct comparisons are difficult between “dispatchable” technologies (those whose output can be adjusted by the operator to meet demand fluctuations) and “non-dispatchable” technologies (those which cannot be adjusted to meet demand, due to being dependent on intermittent sources.)8 Since the electrical grid requires a constant balance and continual monitoring and response to changes in consumer demand – in order to maintain the tight tolerances in frequency and voltage necessary to prevent damage to electrical equipment and prevent brownouts – dispatchable sources have more inherent value than non-dispatchable, and therefore defy direct comparisons. Another item to note is the capacity factor, represented as a percentage in the second column of the chart. Capacity factor is the ratio of a generator’s actual output for the year compared to its maximum potential generation.9 For example, dispatchable sources generally run more or less constantly, providing base-load generation, and therefore have higher capacity values.

6 EIA, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm 7 Institute for Energy Research, “Levelized Costs of New Electricity Generating Technologies, 2013 8 EIA, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013, 9 Heritage Center for Data Analysis (CDA) “A Renewable Energy Standard: What it Will Really Cost Americans” Kreutzer et al, 2010

Amendment 37

HB 1281

7

7.5

8

8.5

9

9.5

10

10.5

11

11.5

1990 1992 1994 1996 1998 2000 2002 2004 2006 2007 2008 2010

Price c/KWh

Year

Chart 1. Average Residengal Electrical Retail Rates in Colorado, 1990-‐2010 (EIA, November 2011)


Table 3

U.S. average levelized costs (2011 $/megawatthour) for plants entering service in 2018

Plant type Capacity factor (%)

Levelized capital

cost

Fixed O&M

Variable O&M

(including fuel)

Transmission investment

Total system

levelized cost

Dispatchable Technologies Conventional Coal

85 65.7 4.1 29.2 1.2 100.1

Advanced Coal 85 84.4 6.8 30.7 1.2 123.0 Advanced Coal with CCS

85 88.4 8.8 37.2 1.2 135.5

Natural Gas-fired Conventional Combined Cycle

87 15.8 1.7 48.4 1.2 67.1

Advanced Combined Cycle

87 17.4 2.0 45.0 1.2 65.6

Advanced CC with CCS

87 34.0 4.1 54.1 1.2 93.4

Conventional Combustion Turbine

30 44.2 2.7 80.0 3.4 130.3

Advanced Combustion Turbine

30 30.4 2.6 68.2 3.4 104.6

Advanced Nuclear

90 83.4 11.6 12.3 1.1 108.4

Geothermal 92 76.2 12.0 0.0 1.4 89.6 Biomass 83 53.2 14.3 42.3 1.2 111.0 Non-Dispatchable Technologies Wind 34 70.3 13.1 0.0 3.2 86.6 Wind-Offshore 37 193.4 22.4 0.0 5.7 221.5 Solar PV 25 130.4 9.9 0.0 4.0 144.3 Solar Thermal 20 214.2 41.4 0.0 5.9 261.5 Hydro 52 78.1 4.1 6.1 2.0 90.3 (EIA, 2013)


A conventional or advanced combustion turbine is typically only used to supplement generation at peak load duty cycles, and so is assigned a capacity factor of 30%.10 Non-dispatchable sources by definition cannot run at full capacity, full time, and therefore operate at lower capacity factors. As the EIA points out, intermittent sources are dependent on external factors, not operator control, and so capacity factors will not likely correspond to dispatchable duty cycles, making direct comparisons difficult.11 Even taking these factors into consideration, it is worth noting the considerably higher levelized costs associated with renewables, especially offshore wind and solar, when compared to dispatchable sources such as coal, natural gas and nuclear. The cost increment ranges from 44% to 161% higher. Perhaps even more importantly, the EIA’s levelized costs do not take into account the wider system costs incurred by the various sources. As mentioned earlier, the intermittent nature of renewables requires backup power generation to be provided at varying levels to maintain balance in the system. Increasing the amount of non-dispatchable generation (such as through Renewable Portfolio Standards) concurrently results in increasing the amount of back-up generation required to maintain a constant flow of electricity.12 This is generally accomplished, where possible, by the use of natural gas combustion turbines13, which offer the quickest startup times and highest ramp-up rates (see Table 4). These are, however, among the least efficient of dispatchable technologies (see Table 3), which further adds to the costs of increasing renewable energy percentages. Geography imposes another cost for renewables. Wind powered generators, for instance, need to be placed where they can best utilize the wind resource, which is often not close to where the electricity generated will be consumed, requiring additional transmission costs. This is even more pronounced in the case of off-shore wind power, where transmission costs are greater. But without exception, as shown in Table 3, transmission costs for all renewables are significantly higher than for traditional sources, with the exception of gas combustion turbines. In 2012, the Nuclear Energy Agency (NEA) of the Organization for Economic Co-operation and Development (OECD) conducted a study to quantify the grid level system costs of various energy sources in selected OECD countries. These are the above-plant-level costs associated with delivering electricity, including costs to producers, transmission operators, and consumers. Table 5 shows the results for the United States, which are in line with the results from other nations. The study looked at adequacy costs – defined as the system’s ability to satisfy demand constantly (including the need for backup generation) – as well as balancing costs (the ability to maintain

10 EIA, 2013 11 Ibid 12 CDA, 2013 13 Ibid.

Wind needs expensive backup


minute-by-minute system performance in face of fluctuating supply and demand),14 grid connection costs, and grid reinforcement and extension costs. The results of the study show that these hidden costs of renewable energy are substantial. For example, the total grid system cost of onshore wind generation, which is the most cost-efficient

(OECD Nuclear Energy Agency, 2012)

Table 5. Grid-Level System Costs in United States ($/MWh)

(OECD Nuclear Energy Agency, 2012)

14 Ibid.

TECHNOLOGYPENETRATION (%) 10 30 10 30 10 30 10 30 10 30 10 30BACK-‐UP COSTS (ADEQUACY) 0 0 0.04 0.04 0 0 5.61 6.14 2.1 6.85 0 10.48BALANCING COSTS 0.16 0.1 0 0 0 0 2 5 2 5 2 5GRID CONNECTION 1.56 1.56 1.03 1.03 0.51 0.51 6.5 6.5 15.24 15.24 10.05 10.05GRID REINFORCEMENT AND EXTENSION 0 0 0 0 0 0 2.2 2.2 1.18 1.18 2.77 2.77TOTAL GRID COSTS 1.72 1.67 1.07 1.07 0.51 0.51 16.3 19.84 20.51 28.26 14.82 28.27

NUCLEAR COAL GASONSHORE WIND

OFFSHORE WIND SOLAR PV

Table 4 Load-Following Ability of Dispatchable Power Plants

Start-up Time

Maximal Change in 30 Sec.

Maximum Ramp Rate (%/min)

Open Cycle Gas Turbine (OSGT)

10-20 min 20-30% 20%/min

Combined Cycle Gas Turbine (CCGT)

30-60 min 10-20% 5-10%/min

Coal Plant 1-10 hrs 5-10% 1-5%/min Nuclear Plant 2 hrs-2

days Up to 5% 1-5%/min


of the renewables, if assumed to be 10% of the total electricity needed (penetration percentage, second line of chart) is $14.58 more per Megawatt hour than nuclear energy. It is $15.23 more per MWh than coal at that penetration percentage, and $15.79 more per MWh than natural gas. When the penetration percentage climbs to 30%, the cost disadvantage is even greater. Onshore wind cost then becomes $18.67 higher than nuclear, $18.77 higher than coal, and $19.33 higher than gas. Compounding the cost issues for renewables is the critical dilemma of storage. As yet, no efficient means exists to reliably store energy that is produced by solar or wind generators. Without this ability, non-dispatchable sources will remain fettered by their dependency on external circumstance (weather, solar cycle) and geography, and will continue to require backup generation capacity. Clearly, then, this combination of three factors – intermittency requiring backup generation, geographical limitations requiring added transmission costs, and lack of storage capability – will continue to keep wind and solar power expensive and capable of providing only a low percentage of the electrical power formula. And it will drive up the costs accordingly, in states where artificial levels of their use are mandated.

WHAT IS THE ECONOMIC IMPACT OF HIGHER ELECTRIC RATES? So it is established that Renewable Portfolio Standards result in higher costs being passed along to the consumer. The next question, logically, is what impact do higher electrical costs have on the economy? Effect on Employment As with retail electricity prices, caution must be observed in analyzing economic data such as unemployment and state economic growth in relation to electric prices. Many other variables, including (but not limited to) tax policy, demographics, available resources, geography, state fiscal policy, and regulatory climate, have a cumulatively greater influence on any state’s economy. Even so, a look at key economic data from the states with the highest and lowest electricity rates in the nation provides a snapshot that suggests a correlation between high energy costs and economic health. Unemployment, for example, averages higher in the states with higher electricity prices – most of which also have adopted strict renewable mandates (Table 6). One of the arguments in favor of an RPS is that enacting policies to encourage the expansion of renewable technologies will create jobs in those sectors. It is undoubtedly true that mandating a particular industry will help that industry hire more workers than it otherwise could.


But the important element that is often missing in such discussions is that of net job impacts; in other words, the number of tallied over here where the favoritism is given, versus the number of other jobs erased everywhere else due to the same policy. Renewable Portfolio Standards could result in net job losses in two ways: first, through the loss of jobs in industries competing with the favored one – for example, the jobs lost when a coal mine shuts down due to artificial reduction in demand created by an RPS that calls for an increase in the use of renewables in a state that is heavily reliant on coal for electrical generation. The second way is through the wider economic impact of resultant higher energy prices. Virtually every sector of the economy is affected by increases in electrical costs, but the impact may be most felt in the manufacturing sectors.15 Effect on Economic Growth High energy prices impact overall economic growth as well. As Table 7 shows, Gross Domestic Product of the states with the lowest electrical rates outpaces that of the states with the highest rates. Even if North Dakota, which is experiencing extraordinary growth due to oil production in the Williston Basin, is excluded from the figures, the lowest-rate states still outpace those with the highest by nearly a full percentage point. Rising electricity prices have other measurably damaging impacts on the economy. Over the last 10 years, electricity prices in the U.S. have risen faster than inflation 16 (Table 8). Average residential rates, for instance, rose 36% during that time, while the Consumer Price Index rose only two-thirds as fast, or 24.8%. This increase in the cost of electricity has its most harmful impact on lower-income Americans – and it comes at a time of high unemployment and record food-stamp usage.17 The similarly high increases for commercial and industrial end-users (26% and 31% respectively) are factors in suppressing growth and keeping employment numbers depressed, exacerbating the situation. While mandates requiring additional usage of renewable energy are not the only factor in rising energy costs, the fact that increasing the use of non-dispatchable sources correspondingly increases system costs (see above) means that they are a significant contributor – especially where their mandated use exceeds natural market tolerances.

15 Testimony of Paul N. Ciclo, President Industrial Energy Consumers of America, before the Subcommittee on Green Jobs and the New Economy, Senate Committee on Environment and Public Works. Feb 15, 2011 16 Robert Bryce, “The High Cost of Renewable-‐Electricity Mandates” Manhattan Institute, February 2012 17 Ibid.

RPS can mean net job losses


Table 6. Economic Data for States With Highest Electrical Rates State Unemployment

Rate (rank) GDP Growth in 2012

RE Mandate (M), Goal (G), or none (N)

Hawaii 4.6% (5) 1.60% M Connecticut 8.1% (37) -0.10% M New York 7.5% (33) 1.30% M New Hampshire

5.2% (9) 0.50% M

Alaska 6.1% (15) 1.10% N New Jersey 8.7% (45) 1.30% M Massachusetts 7.0% (25) 2.20% M Rhode Island 8.9% (48) 1.40% M Vermont 4.4% (4) 1.20% G California 8.5% (41) 3.50% M Average 6.9% (26.2) 1.40% (U.S. Energy Information Administration, January 30, 2012) and (Bureau of Labor Statistics, 2013) Table 7. Economic Data for States With Lowest Electrical Rates State Unemployment

Rate (rank) GDP Growth in 2012

RE Mandate (M), Goal (G), or none (N)

Wyoming 4.6 (5) 0.20% N Idaho 6.4 (17) 0.40% N Kentucky 8.4% (39) 1.40% N Washington 6.8% (20) 3.60% M Utah 4.7% (8) 3.40% G North Dakota 3.1% (1) 13.40% G Arkansas 7.3% (31) 1.30% N West Virginia 6.1% (15) 3.30% M Nebraska 4.0% (3) 1.50% N Oregon 7.9% (35) 3.90% M Average 5.93% (17.4) 3.24% (U.S. Energy Information Administration, January 30, 2012) and (Bureau of Labor Statistics, 2013)


Table 8. Average Retail Price of Electricity by End-use Sector, 2003-2012 (cents/kwh)

Period Residential Commercial Industrial Transportation All Sectors Annual Totals 2003 8.72 8.03 5.11 7.54 7.44 2004 8.95 8.17 5.25 7.18 7.61 2005 9.45 8.67 5.73 8.57 8.14 2006 10.40 9.46 6.16 9.54 8.90 2007 10.65 9.65 6.39 9.70 9.13 2008 11.26 10.36 6.83 10.74 9.74 2009 11.51 10.17 6.81 10.65 9.82 2010 11.54 10.19 6.77 10.57 9.83 2011 11.72 10.23 6.82 10.46 9.90 2012 11.88 10.12 6.70 10.05 9.87 % Increase 36.2% 26.02% 31.1% 33.3% 32.7%

(EIA, July, 2013)

Table 9. FY 2010 Electricity Production Subsidies and Support (million 2010 dollars)

Direct Expendi-tures

Tax Expendi-tures

Research & Develop-ment

Federal & RUS Electricity Support

Loan Guarantee

Total

Share of Total Subsidies and Support

Coal 37 486 575 91 0 1,189 10.0% Natural Gas and Petroleum Liquids

1 583 15 56 0 654 5.5%

Nuclear 0 908 1,169 157 265 2,499 21.0% Renewables 4,178 1,347 632 133 269 6,560 55.3% Biomass 6 54 55 0 0 114 1.0% Geothermal 115 1 72 0 12 200 1.7% Hydropower 17 17 51 130 0 215 1.8% Solar 409 99 287 0 173 968 8.2% Wind 3,556 1,178 166 1 85 4,986 42.0% Unallocated Renewables

75 0 0 0 0 75 0.6%

Transmission and Distribution

461 58 222 211 20 971 8.2%

Total 4,677 3,382 2,613 648 555 11,873 100% (EIA, July 2011)


WHAT PRICE GOVERNMENT FAVORITISM? Renewable Portfolio Standards also cost the economy and the taxpayer in other, less visible ways. Renewable technologies remain heavily subsidized18, and tax preferences are heavily weighted towards renewables.19 In terms of direct subsidies, as Table 9 shows, renewables receive by far the greatest amount of government funding of any electricity source. Specifically, the wind industry was awarded the bulk of direct government subsidization in 2010, the latest year for which data is available, receiving over $3.5 billion in direct payments. Solar received nearly half a billion dollars in the same year. Altogether, renewables raked in more than $4 billion in direct subsidies, compared to $37 million for coal, and just $1 million for natural gas – and $0 for nuclear. That’s a factor of 100 to 1. On the tax expenditure side, renewables also receive the lion’s share. The Congressional Budget Office reports that renewables were allocated 68% of all energy-related tax exemptions, deductions, and credits, the bulk of which went to biofuels, such as ethanol (Chart 2). The CBO report also puts the oft-repeated claim about petroleum and natural gas “tax breaks” in context, showing that while all of the renewable energy tax expenditures are in the form of credits, the majority of tax expenditures for natural gas and petroleum are tax deferrals related to operating expenses.20 Government loan guarantees are another cost associated largely with renewables, most going towards solar industries. U.S. Department of Energy loan guarantees obviously cost the taxpayer when the borrowing entity goes bankrupt, as happened with several high-profile solar recipients including Solyndra ($535 million), Abound Solar ($60 million), and Beacon ($9 million). But loan guarantees hurt the economy in other, less dramatic ways as well; because the government guarantees the loans, thereby reducing the lender’s exposure, that lender may be more inclined to allocate funding to a project that they otherwise would not, reducing the amount of total funds available for other, market-based lending – in effect misallocating resources that could have gone to other, more financially solid projects. 21

18 EIA, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, Table 9. 19 CBO, Federal Financial Support for the Development and Production of Fuels and Energy Technologies, March 2012, Charts 1 & 2 20 EIA, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, Jul 2011, Table 3 and table 6. 21 Veronique de Rugy,Testimony Before the House Committee on Oversight and Government Reform | Jun 19, 2012. “Assessing the Department of Energy Loan Guarantee Program. Courtesy the Mercatus Center.

Lion’s share goes to wind and solar


Chart 2

(Congressional Budget Office, March, 2012)

Chart 3

(Congressional Budget Office, March, 2012)

68%

15%

10% 4%

2%

Allocagon of Energy-‐Related Tax Preferences in Fiscal Year 2011, by Type of Fuel or Technology

Renewables Fossil fuels Energy efficiency Nuclear Other


The true cost of government subsidization of renewables is more accurately represented when looked at in relation to how much energy is actually produced – in other words, what the taxpayer is receiving for their dollar (Table 10). When broken down by that measure, we find that solar (in particular) and wind receive significantly more taxpayer money per unit of energy produced than other sources, far more than do fossil fuels or nuclear energy. The multiple over coal and natural gas is more than 80 for wind, more than 1500 for solar.

Table 10. Energy Source Subsidy per kwh

Coal $0.0006 Natural Gas and Petroleum Liquids $0.0006 Nuclear $0.0031 Renewables $0.0154 Biomass Power $0.0020 Geothermal $0.0125 Hydroelectric $0.0008 Solar $0.9680 Wind $0.0525

(Todd Myers, National Center for Policy Analysis, November, 2011)

HOW EFFECTIVE ARE RENEWABLE PORTFOLIO STANDARDS ANYWAY?

The argument could be made that the benefits from renewable mandates still outweigh the cost – in terms of higher electricity prices, economic constriction, and market distortion – if they attain their goal in terms of the increased use of favored energy sources and the corresponding decrease in greenhouse emissions, pollution, and other ill effects. Here again, however, the data do not support proponents’ hopeful claims. Despite over half the 50 states’ having adopted an RPS in the last 10 years, despite the high levels of subsidization and other public policies designed to increase their use, renewables still only provide a small fraction of the electricity generated in the U.S. According to statistics compiled by the EIA, renewables – including hydropower, which is often not included in the RPS mix – accounted for only 12% of total electrical generation in 2012. (Table 11 and Chart 3). That year, wind power – the most promising of the non-hydro renewables – made up less than 4% of generation, while solar contributed just 0.12%.


Table 11

The RPS concept is hardly a roaring success, and its momentum is slowing. A study by the Institute for Energy Research found that as of January 2011, only 14 of 36 states had met, or were on track to meet, their individual state renewable objectives22 (Indiana has since adopted a voluntary standard, bring the total number of states with an RPS to 37.) In addition, as of March 2013, over half the states where enforceable RPS mandates are in place (16 out of 29) had bills in front of their legislatures to repeal or roll back those mandates in the face of rising costs.23 Could this be an idea whose time has come and gone? Indeed, there is evidence that mandates are not even necessary to encourage use of renewable energy. According to the Department of Energy, the state that gets the highest percentage of its power from renewable sources has neither an enforceable mandate nor even a voluntary RPS goal. That state is Idaho, which produces 100% of its electricity from renewables. Idaho’s topography allows it to generate approximately 75% of the need from hydropower, and most of the remainder comes from biomass.24 And yet the state is one of the 13 without an RPS.

22 IER, “The Status of Renewable Electricity Mandates in the States” 23 Wall Street Journal, “States Cooling to Renewable Energy” March 28, 2013 24 http://energy.gov/maps/renewable-‐energy-‐production-‐state

RPS momentum is slowing


Coal, 37%

Natural Gas, 30%

Nuclear, 19%

Petroleum, 1%

Hydropower, 6.72%

Wind, 3.36%

Biomass Wood, 0.96%

Biomass Waste, 0.48%

Geothermal, 0.36%

Solar, 0.12%

Renewables 12%

SOURCES OF U.S. ELECTRICITY GENERATION, 2012

Chart 4 (EIA, March 2013)

Similarly, Nebraska and Florida, neither of which has an RPS, both generate large percentages (61% and 41% respectively) of their electricity from renewable biomass.25 Elsewhere in the nation, government policy has not been able to replicate what natural factors such as geography and topography have accomplished in these states. It is not even clear that increasing the mix of renewables such as solar and wind is effective at reducing emissions. A 2010 study by Bentek Energy in Colorado determined that increasing the use of wind generation, as required by the 2004 and 2007 RPS legislation, actually increased the amount of sulfur dioxide (SO2), nitrous oxides (NOx), and carbon dioxide (CO2), three primary pollutants. This was because the backup generation required by the additional wind input needed to be accomplished by coal cycling, as few gas turbines were in operation. Coal plants are designed to operate steady, base loads, and do not efficiently accommodate cycling.

Therefore, the near term result of increasing the percentage of wind-generated power in Colorado was to actually increase the emission of key pollutants. 26

25 Ibid. 26 “How Less Became More: Wind, Power and Unintended Consequences in the Colorado Energy Market”, BENTEK Energy LLC, 2010


WHAT POLICY REFORMS ARE NEEDED?

Rollback or Repeal: Based on the available data, it would appear to make a great deal of sense for states, particularly those with higher than average retail energy prices, to begin rolling back or even repealing their Renewable Portfolio Standards. Add Flexibility: Or in lieu of outright repeal, allowing greater flexibility within the existing RPS framework would help to control costs. For instance, including certain amounts of dispatchable energy, especially natural gas, as qualified sources under the various plans, would help alleviate some of the costs associated with backup generation. Why not Natural Gas & Nuclear? The inclusion of natural gas would permit electrical generators and distributors to meet moderate goals, and account for backup costs. The inclusion of nuclear, or other alternative sources that are less costly than non-dispatchable renewables, would also help bring costs down. More Voluntary: It is also clear from the data that an RPS based on voluntary goals is more economical and cost-efficient than one relying on enforceable mandates. Establishing a voluntary goal helps utilities manage their generating needs more efficiently, and the flexibility built into such an approach helps take into account regional differences. Less Arbitrary: Some states will be better suited to hydropower than others, some are amenable to a higher percentage of wind generation than others, and so forth. For all the reasons outlined in this policy brief, setting arbitrary percentages without regard to the unique topographical and resource characteristics of a given state will only serve to drive up costs with zero net benefit. Measure Cost-Benefit: In conjunction with more inclusive, voluntary, and flexible standards, any RPS should also be linked to cost-benefit analyses and economic impact assessments. Such assessments are imperative to help policymakers take into account the full-system costs of renewables, alongside any examination of other externalities such as greenhouse gas emissions. End Favoritism: Subsidies for renewable energy sources should also be rolled back. Legislators and bureaucrats are foolish to attempt to manipulate the market through subsidization of any energy source. Nor should we use the tax code to pick winners and losers in the energy market. Nuclear is Carbon-free: Finally, bureaucratic and political obstacles to the expansion of nuclear technology should be drastically reduced. Nuclear power can provide carbon-free, efficient electrical generation at a much lower cost than non-dispatchable sources like wind.

No more picking winners and losers


CONCLUSION: A BAD BARGAIN FOR AMERICANS

Bottom line: The enthusiasm in recent decades for using government policy to artificially support more costly energy sources such as wind and solar has not proved out. The only result has been to pick most Americans’ pockets to the advantage of a favored few. Whatever long-term importance these sources may have is best left to the market to determine. The inherent challenges of intermittency, transmission cost, and lack of storage capability prevent them from being any sort of near-term solution, much less a panacea for our energy production concerns. Solutions to America’s future will only be achieved by taking a realistic look at the economics and interactions of our entire energy complex.

INDEX TO TABLES & CHARTS

Table 1: States With Highest Electrical Rates ………………………………………………….. 2

Table 2: States With Lowest Electrical Rates ……………………………………………….….. 2

Table 3: U.S. Average Levelized Costs for Plants Entering Service in 2018 …………………. 5

Table 4: Load-Following Ability of Dispatchable Power Plants ……………………...……….. 7

Table 5: Grid Level System Costs in U.S. ………………………………………………………. 7

Table 6: Economic Data for States With Highest Electrical Rates ………………..…………. 10

Table 7: Economic Data for States With Lowest Electrical Rates ………………...…………. 10

Table 8: Average Retail Price of Electricity by End-Use Sector ………………….………….. 11

Table 9: FY 2010 Electricity Production Subsidies and Supports ……………...……………. 11

Table 10: Energy Source Subsidy per kwh ………………………………………….……...….. 14

Table 11: U.S. Electricity Generation by Fuel, All Sectors……………………………...…….. 15

Table 12: State Electricity Rates 2010, with RPS Status 2013 ………………………….…….. 19

Chart 1: Average Residential Electrical Retail Rates in Colorado 1990-2010 ……...………… 4

Chart 2: Allocation of Energy Related Tax Preferences in FY 2011 …………………………. 13

Chart 3: Energy-Related Tax Preferences by Type of Fuel ……………………………….….. 13

Chart 4: Sources of U.S. Electricity Generation ……………………………………………….. 16


Table 12

STATE ELECTICITY RATES WITH RPS STATUS

Rates Current 2010, compiled 2012 (EIA) n RPS Current 2013 n Click each state to see its EIA Profile

Red= states without RPS Green= states with voluntary goals Blue= states with mandates

Name Average Retail Price (cents/kwh)


Alabama 8.89 Maine 12.84

Alaska 14.76 Maryland 12.70

Arizona 9.69 Massachusetts 14.26

Arkansas 7.28 Michigan 9.88

California 13.01 Minnesota 8.41

Colorado 9.15 Mississippi 8.59

Connecticut 17.39 Missouri 7.78

Delaware 11.97 Montana 7.88

District of Columbia

13.35 Nebraska 7.52

Florida 10.58 Nevada 9.73

Georgia 8.87 New Hampshire 14.84

Hawaii 25.12 New Jersey 14.68

Idaho 6.54 New Mexico 8.40

Illinois 9.13 New York 16.41

Indiana 7.67 North Carolina 8.67

Iowa 7.66 North Dakota 7.11

Kansas 8.35 Ohio 9.14

Kentucky 6.73 Oklahoma 7.59

Louisiana 7.80 Oregon 7.56

Pennsylvania 10.31 Vermont 13.24 5,594,833 Rhode Island 14.08 Virginia 8.69 113,806,135




South Carolina 8.49 Washington 6.66 90,379,970

South Dakota 7.82 West Virginia 7.45 32,031,803 Tennessee 8.61 Wisconsin 9.78 68,752,417 Texas 9.34 Wyoming 6.20 17,113,458 Utah 6.94 U.S. Total 9.83 3,754,486,282

Red= states without RPS Green= states with voluntary goals Blue= states with mandates

REFERENCES

U.S. Department of Labor Bureau of Labor Statistics, Local Area Unemployment Statistics, July 2013

Bureau of Labor Statistics, Consumer Price Index

Institute for Energy Research (IER), Renewable Energy Mandates and Goals, 2010

IER, The Status of Renewable Electricity Mandates in the States

National Renewable Energy Laboratory, State of the States 2010 — The Role of Policy in Clean Energy Market Transformation

U.S. Department of Commerce Bureau of Economic Analysis, GDP by State, June 6, 2013

Energy Information Administration (EIA), Annual Energy Outlook 2013

EIA, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010

EIA, Energy in Brief, May 2013

EIA, Electric Power Monthly, Data for May 2013

EIA, Electricity Monthly Update, May 2013

EIA, The Status of Renewable Electricity Mandates in the States

EIA, http://www.eia.gov/cneaf/electricity/epa/average_price_state.xls

EIA, State Electricity Profiles, Data for 2010, Release date January 30, 2012

EIA, State Renewable Electricity Profiles, data for 2010, Released March 2012

Organization for Economic Cooperation and Development (OECD), World Energy Outlook 2012

OECD Nuclear Energy Agency, “Nuclear Energy and Renewables: System Effects in Low Carbon Electricity Systems”, 2012

Bureau of Economic Geology, Dr. Tinker, Global Energy pdf.

Congressional Budget Office, Federal Financial Support for the Development and Production of Fuels and Energy Technologies

National Center for Policy Analysis, Which Energy Source Receives the Largest Subsidy?

Mercatus Center, George Mason University, “Assessing the Department of Energy Loan Guarantee Program” Testimony Before the House Committee on Oversight and Government Reform, Veronique de Rugy | Jun 19, 2012


Wall Street Journal, “States Cooling to Renewable Energy” March 2013

U.S. Department of Energy http://energy.gov/maps/renewable-energy-production-state

Bentek Energy LLC, “HOW LESS BECAME MORE: Wind, Power and Unintended Consequences in the Colorado Energy Market” 2010

The Global Subsidies Initiative, Relative Subsidies To Energy Sources: Gsi Estimates

Testimony of Paul N. Cicio, President Industrial Energy Consumers of America, “Green Jobs and Trade”, Before the Subcommittee on Green Jobs and the New Economy, Senate Committee on environment and Public Works, February 15, 2011

National Renewable Energy Laboratory: Including Alternative Resources in State Renewable Portfolio Standards: Current Design and Implementation Experience, Nov 2012

NREL, State Rankings by Total Renewable Energy Generation, 2009

Heritage Center for Data Analysis, “A Renewable Electricity Standard: What it Will Really Cost Americans”, Kreutzer et al, 2010

Manhattan Institute, Energy Policy & the Environment Report: “The High Cost of Renewable-Electricity Mandates” Bryce, 2012

BAD BARGAIN: HOW RENEWABLE ENERGY MANDATES PICK YOUR POCKET By Kelly Sloan Centennial Institute Policy Brief No. 2013-3 Author: Kelly Sloan is a public policy analyst and communications consultant based in Grand Junction, Colorado. A regular contributor to the Colorado Energy News and a columnist for the Business Times, he has years of experience in the oil and gas industry. A native of Alberta, Canada, Sloan took a degree in criminology and history from Mount Royal University in 1994 and served six years in the Canadian Armed Forces. He is a Centennial Institute Fellow in Energy and Environment.

Publisher: Centennial Institute is Colorado Christian University’s think tank, established in 2009. The director is John Andrews, former Senate President. We sponsor research, events, and publications to enhance public understanding of current issues. By proclaiming Truth, we aim to foster faith, family, and freedom, teach citizenship, and renew the spirit of 1776.

Contact: 8787 W. Alameda Avenue Lakewood CO 80226 Tel: 303.963.3425 [email protected] www.Centennialccu.org Date: October 1, 2013

Documents

Centennial Institute POLICY BRIEF · Sloan * How Renewable Energy Mandates Pick Your Pocket *Centennial Institute Policy Brief No. 2013-3 * Page 0 OVERVIEW * CONTINUED Wind and solar

Centennial Institute POLICY BRIEF · Sloan * How Renewable Energy Mandates Pick Your Pocket Centennial Institute Policy Brief No. 2013-3 Page 0 OVERVIEW * CONTINUED Wind and solar