Last week I posted a critique of an article about wind integration that had shown up in my Twitter feed, shared by David Roberts. The article dismissed concerns about the cost of integrating wind into our energy mix, based on a number of claims that I found questionable. Along with that critique, I mentioned another tweet by Roberts, which directed people to this article claiming that the “cost of adding tons of renewables to the grid has been almost zero, say studies.” This one, like the article on wind integration, raised some red flags based on my experiences over the last four years doing energy consulting.
The article is basically a Huffington Post-style repackaging of another piece from the Midwest Energy News (MWEN), which asked whether renewable portfolio standards were driving up energy rates. This article, which focuses specifically on Midwestern states, concludes that
the most comprehensive studies to date and the experience of utilities so far suggest that, by and large, renewable portfolio standards haven’t had a significant impact on customers’ bills. Still, there’s room for more study, and in some states, including Minnesota, there remains relatively little data about the ratepayer impact of renewable policies.
This conclusion acknowledges that there are plenty of studies on either side of the issue, and specifically mentions the following data points:
- Minnkota Power locked in wind contracts to cover its renewable energy needs for 25 years when Minnesota’s Renewable Portfolio Standard was passed in 2007. Since then, demand and market prices have both decreased, and it now has a surplus of wind that it is selling at a loss. According to the article, Minnkota is “making up the difference with with a half-cent per kilowatt-hour surcharge on its customers.”
- A 2008 Lawrence Berkeley National Lab study found the rate impacts of RPS programs in force in 2007 to be near or below 1% for the 12 states in which renewable energy credit (REC) prices could be used to estimate those impacts. LBNL is updating the report but does not expect the conclusion to change.
- A 2009 EIA study on a national RPS that MWEN said “projected no impact on rates through 2020, followed by a less than 3 percent increase by 2025. By 2030, however, it projected little difference in rates with or without a national renewable mandate.” More on this study below.
- A Minnesota Free Market Institute study that estimated a rate increase between 9% and 37% depending on the assumptions. This study criticized the EIA resource cost estimates as “a rather optimistic picture of the cost and generating capacity of renewable electricity, particularly for wind power.” More on this study below as well.
- Xcel Energy estimates a $0.003/kWh increase in 2025 from complying with Minnesota’s RPS, compared to the case in which it stops adding new wind capacity in 2012. Xcel projects 19% of its load will be met by renewables in 2012, most of the way to its 30% requirement in 2020, though that percentage will decline as load grows from 2012 – 2020.
- Representatives from Otter Tail Power and Minnesota Power estimated that renewable additions to date did not have a significant impact on power costs.
- Great River Energy in Wisconsin estimated a 1.8% rate increase due to wind energy purchases.
First, a few comments on some of the studies. The LBNL study looked at rate impacts in 2007 rather than over the life of the RPS requirement. This means that it only captures the effect of progress to date, which in many cases in relatively modest when compared to the final requirements of the RPS programs. The graphic below shows a summary of the binding requirement in 2007 for each state for which LBNL calculated a rate impact:
Given the relatively modest requirements in 2007 compared to the end goals of these RPS requirements, it is unsurprising that there has been relatively little impact on rates to this point. Though the modest rate impacts found by LBNL are favorable, it would be hard to argue that these rate impacts are truly indicative of the total impact once the full requirements are met.
The bigger problem is with MWEN’s characterization of the EIA study. While they got the percentages right, they failed to note the assumptions of the underlying case to which the national RPS was compared. The EIA study calculated that a 25% national RPS would have no impact on rates in 2020 relative to existing state RPS standards. The EIA predicts that existing state policies will result in 11% of the national mix in 2025, meaning that the national RPS would not actually increase renewable penetration at all in 2020. In 2025, when the RPS would increase national renewable penetration to 17% (if credits for efficiency programs are allowed) or 21% (if they are not), rates would increase by 2.7% or 2.9%, respectively. That is substantially different than the result implied in the MWEN article.
It’s also unclear the extent to which the EIA included the cost of transmission necessary to access these resources, though my reading of the study indicates that these costs were not fully included. Given the extensive transmission that will likely be necessary to connect remote renewable resources to load, this could have a significant impact on the cost of meeting these RPS requirements. This study conducted by Energy and Environmental Economics, Inc.^ for the California Public Utilities Commission estimates that new transmission for renewables increase the cost of those renewables by about 10%.
On the other end of things, the 9% to 37% range predicted by the Minnesota Free Market Institute relies on some questionable assumptions as well. The language isn’t totally clear (see page 16 of the report linked above), but it appears that they penalize wind for its lower capacity factor (relative to conventional coal and gas resources) despite the fact that this lower capacity factor is included in the levelized cost of wind. This would have a drastic effect on the cost premium for meeting the RPS.
So the MWEN story has some issues. My reading of the examples they cite is that there are mixed results so far: some utilities are seeing modest price increases, while others do not. But I would say that it hedges pretty well and avoids drawing big sweeping conclusions about the long-term impact of these RPS policies. But the repackaging of this article posted at grist is not so cautious:
Many states have “renewable portfolio standards” mandating that they produce a certain percentage of their electricity from renewable sources. Libertarian and tea bag-ish critics of these standards have said that they will cause electricity rates to “skyrocket.”
But the numbers are in, and guess what? Science says the critics are wrong.
There are a few problems with this. The first is that it confuses the small impacts seen so far with the impacts of the RPS policies when they are fully realized. The second (and much more significant) is that it takes the results of a regional look and implies that it holds for the nation as a whole. MWEN, as its name implies, focuses on energy news in the Midwest. The grist story makes no mention of the regional nature of this story, which is significant because the Midwest is likely to be the least affected by RPS policies due to the extensive wind resources in Minnesota and the Dakotas. This graph from the EIA study (page 8) I talked about above shows the regional impacts that compose the estimated 2.9% impact of a national RPS (RESNEC stands for “Renewable Energy Standard with No Efficiency Credits):
See that pink line that is way below all of the other ones? That shows the results for the Mid-Continent Area Power Pool, which is composed of Minnesota, most of the Dakotas, and parts of Iowa, Montana, and Wisconsin. Which, coincidentally, happens to be the focus area for MWEN. So it is very hard to argue that an article that says that RPS policies in the Midwest are not increasing rates is an indication that critics of RPS policies are wrong.
I don’t point this out because I think that we should abandon RPS policies and continue generating with the cheapest, dirtiest energy sources available. I point this out because I think that talking about these policies as if they will have no effect on energy prices is detrimental: when energy prices go up (which I believe they will), people will start blaming renewables that didn’t live up to their “no impact on rates!” expectations. This hurts the long-term viability of these policies, which I believe to be a very important step on the way to drastically reducing emissions and reducing the dangers of climate change. We’ve already seen some of this in California with Proposition 23 in 2010, though it was voted down.
We should not pretend that renewable policies are not going to have any effect on electricity prices. Instead, we should acknowledge that these policies will likely increase the cost that people see on their monthly electricity bills while arguing that the costs of inaction are significant enough to be worth it.
^ As always, I will point out that I worked for E3 and helped to put together this study. So take from that what you will.