Little Effect on Power Prices in States with Big Renewables Goals

October 17, 2012 | |

Turbine blades wait for installation at the Community Wind South project in Minnesota. (Source: Wind on the Wires)

Three states with renewable energy standards similar to those in Michigan’s Proposal 3 are seeing little or no rise in electricity prices, undermining claims that the ballot measure will sharply increase energy costs.

Illinois, Minnesota, and Colorado require utilities to obtain 25 percent of their power, and in some cases more than that, from renewable sources by either 2020 or 2025—matching or exceeding Prop. 3’s renewable energy standard (RES).

These states are making swift progress toward their goals, and their stable electricity costs challenge the avalanche of TV and radio ads claiming Prop. 3 will spike electricity rates sharply, adding $12 billion to Michiganders’ power bills. The ads are financed in part by almost $6 million of ratepayer money from DTE Energy and Consumers Energy, and are produced by their nonprofit front group, CAREforMichigan.

CARE’s spots don’t mention Prop. 3’s job-creating ability, but the three states have had significant RES-based job growth and, in the case of wind development, hefty increases in local public and private revenue. The results echo a recent report by the U.S. Department of Energy that found counties with windpower development enjoy significant economic growth.

CARE claims Michigan’s growth would be trumped by high power rates caused by Prop. 3. But Michigan Energy Michigan Jobs, Prop. 3’s main sponsor, says the measure will not boost rates significantly for two reasons: renewables are steadily becoming less expensive, and the ballot measure constitutionally caps renewables-driven rate increases at 1 percent annually—one extra dollar a month on a $100 electric bill.

Michigan Energy’s main point, however, is that Prop. 3 would provide thousands of wind, solar, biomass, and hydro construction, installation, and operation jobs. A recent Michigan State University study estimated the proposal would create 54,000 so-called “job years,” plus 20,000 additional, long-term “green” manufacturing jobs because the mandate would create home-state markets and attract new investment to Michigan’s renewables industry. As of early last year, according to the Environmental Law & Policy Center, about 200 Michigan firms employing 10,300 workers are making renewables parts for the exploding global market.

Proponents say that CARE’s barrage of misleading ads about renewables-driven cost increases is blocking their jobs message and wearing down public support for Prop. 3, even as rising coal costs drive up DTE’s rates sharply, spur Consumers to ask for a significant rate increase, and over the past year, made Michigan’s commercial electricity rates the fastest-rising in the country between July 2011 and July 2012.

Meanwhile, a review of the progress the three states are making indicates that their aggressive standards are spurring big renewables investments, generating significant economic activity and only small increases in electric bills. The states have encountered a few problems, mostly due to moving more quickly than their specific RES requires.

Illinois: Holding at 8 Percent, Saving Money

Illinois lawmakers enacted a 25 x 25 renewables goal in 2007 as part of fixing problems with the state’s decade-old utility deregulation.

The legislation set yearly renewable energy goals for Illinois’ two largest utilities and dozens of small, alternative suppliers, with wind power a large part of the mix. By 2016, all utilities must get 6 percent of their renewables from sunshine and start including smaller-scale, distributed generation.

Alternative suppliers must purchase renewable energy credits to meet at least half of their requirement; that money, along with a surcharge levied by the two large utilities, is used to finance renewables development.

According to Arlene Juracek, acting director of the Illinois Power Agency, their RES is working well.

“We’ve been meeting our targets,” she said. “Right now, we are at 8 percent, which is [two percentage points] more than what’s required [for 2012].”

On April 1, Ms. Juracek’s agency released its annual report on the costs and benefits of the RES. It found the extra cost to customers of the state’s two large utilities customers ranged from 0.092 cents per kilowatt-hour (i.e., less than one-tenth of one cent) to 1.927 cents per kilowatt-hour—or a 0.05 percent to 0.83 percent rate increase.

The report observed that “the current price trend [for renewables] is downward” and that adding Illinois’ renewables to the Eastern Interconnection grid lowered locational marginal prices, which influence wholesale electricity costs, by more than 1.3 cents per kilowatt-hour—annual savings of $176 million.

“While this does not directly translate to dollar-for-dollar savings in consumer bills,” the report said, “it points out the magnitude of the benefits accruing to all consumers in lowered underlying electric energy cost drivers.”

“It’s been good,” Ms. Juracek said of the RES. “There’s a lot of renewable energy construction in Illinois; it’s created local benefits; farmers are making more money sometimes [on wind turbines] than on corn and soybeans. From the consumers’ side, it has caused prices to be lower.”

Illinois is also seeing significant RES-driven job growth.

A June 2012 Illinois State University report found that Illinois’ 23 largest wind farms created about 19,000 full-time equivalent jobs and a payroll of $1.1 billion during their construction. Now they provide 814 permanent jobs in rural areas, a $48 million payroll, $28.5 million in annual local property taxes, and $13 million in wind royalty payments to landowners.

But further development is on hold since Illinois’ formula for financing investment in renewables is linked to electricity prices and sales figures, which are currently falling, and because utilities are two years ahead of their RES timelines.

“At some point in time it will make sense for them to add more resources. But you don’t tell a corn farmer to plant more when prices are low,” Ms. Juracek said. “But overall, we’ve done remarkably well—we have plenty of renewable resources already online to take us through the next few years.”

Minnesota: On Target at 14 Percent

Minnesota lawmakers first proposed an RES in 2001, and enacted one in 2007 by a near-unanimous vote. The RES is unusual: It requires all but Xcel, the state’s largest utility, to provide 25 percent renewables by 2025; Xcel’s goal is 30 percent.

Lawmakers passed the mandate after realizing that the state has excellent wind, a technical study revealed the grid could handle lots of wind energy, and studies indicated costs would be reasonable.

Last year, with many utilities outstripping their mandate timelines and renewables supplying 14 percent of the state’s power, Midwest Energy News and the Izaak Walton League, a conservation group, analyzed reports from 14 utilities and found that most Minnesotans see little price effect from renewables.

Xcel said renewables lowered its rates by 0.7 percent. Ten other firms reported rate increases of less than 1 percent, no rate increase due to the mandate, or increases of tenths or hundredths of a cent per kilowatt-hour.

However, three utilities—Minnkota, Dairyland, and Southern Minnesota Municipal Power Agency—saw significant prices increases.

An official at the Minnesota Department of Commerce Division of Energy Resources, who asked not to be identified, said several companies made mistakes.

“At least one utility, you could say, made kind of a bad bet,” he explained. “It decided to front-load all of its renewables acquisitions, paid too much, and [when demand and power prices began falling] was unable to sell its renewable energy at the same rate that they are producing it.

“Those companies that have gone about this more systematically,” he said, “have found it is possible to incorporate renewables and have not had the pricing problems they expected.”

Information on job creation is scarce. However, the American Wind Energy Association, an industry trade group, said that in 2010, Minnesota wind farms paid more than $6 million in property taxes to counties and township, and more than $7 million in royalty payments.

The tax revenues will grow as wind power expands. Minnesota’s Southwest Economic Development Commission recently predicted, based on wind revenues to date, that turbines in its region would pay $4.185 million in taxes in 2012—two-thirds of the entire state’s earlier, 2010 wind total. The Worthington Daily Globe reported counties and townships largely spend the revenue on road and other infrastructure, but are also using it to hold down property taxes.

“Indirectly, it benefits the county in many different ways,” Pipestone County Administrator Sharon Hansen told the Globe. “It’s an indirect benefit to all of our departments. We think it benefits property taxes at the end of the day, and that’s what we use it for.”

Colorado: Speeding to 15 Percent

Colorado was the first state where a ballot initiative installed a RES, in 2004, requiring 10 percent by 2015. Tweaked twice, it’s now 30 percent by 2020 for large utilities and 10 percent for small ones, including 3 percent from small-scale, distributed or customer generation, and a strong solar component.

The state’s utilities must contain rate increases to 2 percent for meeting those goals, among America’s most aggressive.

Last year Colorado reached 14 percent renewables, two points higher than required for 2011. Xcel subsidiary Public Service Company of Colorado, the state’s largest utility, is doing even better. Spokesman Mark Stutz said PSCC is at 17 percent—five points higher than required. He said his company set a record one windy April evening: Wind produced 56 percent of the company’s load.

But the program attracts some criticism. PSCC and the state’s other major utility are spending above the 2-percent limit, recording internal deficits to be recovered when their renewables boom slows and the companies apply their RES premium to the debt.

That may already be happening: The state marked PSCC’s deficit at $53 million early this year, but Mr. Stutz said it now stands at about $40 million and that the company expect to eliminate it by 2017.

Some dislike that approach. Rich Mignogna, a former Colorado Public Utility Commission staffer who blogs about and advises businesses on renewables technology and policy, doesn’t think customers should pay the interest on utility company deficits, and wants more state oversight.

He believes utilities should have waited longer for renewables prices to fall before locking in so many long-term contracts far ahead of the required pace.

“It is a good idea,” he said of Colorado’s 30 x 20, “but the devil is in the details.”

PSCC’s Stutz, however, said that with the unpredictability of the federal wind power tax incentives, signing contracts quickly before the incentives could expire was the right thing to do.

Meanwhile, a state agency said that, in 2011, Colorado had about 11,600 RES-related jobs—in solar, wind, biomass, hydro, and smart grid manufacturing, construction, and operation. And a 2008 study by the National Renewable Energy Laboratory, in Golden, Colo., said that Colorado’s first 1,000 megawatts of wind energy were, at that time, generating $4.6 million in annual property taxes and $2.5 million in extra income for landowners.

The state now has more than 1,800 MW of wind power in operation.

Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at [email protected]

About the Author

Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at [email protected].

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