Renewable Energy Standards: If It Ain’t Broke, Don’t Fix It

by Peter Fox Penner

When your local utility buys more renewable energy to power your lights and computers, what more do you get besides the power?  You get cleaner air, fewer respiratory health problems, and lower health-care costs.

You get local jobs building and maintaining green power plants and a better foothold in the fast-growing, multi-billion dollar global renewable energy industry.

If you use the power to charge the new plug-in electric vehicles now available, you reduce our imports of foreign oil and increase our energy security.

And finally, you reduce the greenhouse gases that are leading to the severe, threatening weather events spurred by global climate change.[i]

Twenty-nine states and the District of Columbia have laws that require utilities to purchase a percentage of their power from renewable sources, known as renewable portfolio standards. An additional nine states have voluntary renewable energy goals. Grover Norquist, head of Americans for Tax Reform, is now urging state legislators to repeal these laws, saying that they cause electricity prices to go up and “distort the market.” (See: Grover Norquist Spreads Lies About Renewable Energy Standards).

In his criticisms of renewable standards, Norquist never mentions – much less tries to measure – the health and environmental benefits of renewable energy standards.  The Center for Health and the Global Environment at Harvard Medical School estimates coal powered generation costs us $500 billion annually in health, economic, and environmental impacts.  (See also Economics Stunner: “Oil and Coal-Fired Power Plants Have Air Pollution Damages Larger Than Their Value Added”).

States are also beginning to take these health benefits into consideration when planning their electricity resource mix.  For example, Delmarva Power’s 2010 Integrated Resource Plan estimated that the health benefits of renewable energy were worth $1.8 to $4.3 billion to Delaware over the next ten years. Renewable energy offers a several other environmental benefits as well such as reducing hazardous waste and water use.

In the midst of the worst economy since the great depression, the worldwide market for renewable energy continues to provide jobs and investment. And states are recognizing these economic benefits when setting energy and environmental policies.  The nonpartisan Brookings Institution recently studied employment trends in the clean energy sector and found that, “though modest in size, the clean economy [in the U.S., which according to the study includes many sectors other than renewable energy] employs more workers than the fossil fuel industry and bulks larger than bioscience.” The study also found that the renewable energy sectors “added jobs at a torrid pace.”

For example, while the broader continued to shed jobs, U.S. employment in the solar industry grew by almost 7% from August of 2010 to August of 2011.

The renewable energy industry is projected to continue this strong growth as our energy-hungry world increasingly turns toward green power.  The International Energy Agency projects that over $811 billion will be spent on renewable energy by 2035 – more than will be spent worldwide on all coal and nuclear power plants combined.[ii] And in spite of the attacks on solar and clean energy in the media, the U.S. installed more than 1,000 MW of solar photovoltaic systems in the first three quarters of 2011, with the industry exporting nearly $5.6 billion solar products in 2010. [iii] That’s more than double the amount we imported from the top five countries.

Even Norquists’ main objection – that renewable standards raise electricity prices – is a misleading exaggeration.  Dozens of factors have played a part in the changes in each utility’s power rates during the last decade; separating the impact of renewable energy standards alone requires an analysis that Norquist has not attempted. However, we can be sure that the effect is minimal, because (as Norquist failed to mention) 26 states have incorporated cost containment measures into their renewable standard laws.[iv] A recent survey by Ryan Wiser of Lawrence Berkeley National Laboratories contains simplified rate impact estimates for 2009-10 that average less than 1%.

And because the price of wind energy without any subsidies or financial support is edging closer to the price of traditional power on a kWh basis, and solar prices continue to decline toward “grid parity,” the price impact of renewable energy standards in many areas are on a steady downward trend.

Electricity consumers are smart enough to know that they can’t expect to get something for nothing.  When asked to weigh the roughly 2 cents a day the average household pays for renewable standards versus their benefits, Americans consistently favor continuing or expanding current policies for renewables.[v]

A 2011 poll conducted by one of the largest utilities in Arizona – hardly a left-leaning state – found that 91% of all consumers were willing to pay a little more for renewable energy. The prestigious Rasmussen polling agency reported in January 2011 that “the number of voters who say investing in renewable energy resources is the best investment for America has reached its highest level since the beginning of 2010.”

As to distorting the market, credit Norquist with this accurate observation: energy markets are distorted by the exclusion of many unpriced externalities, as well as individual fuel credit and subsidy programs.  As reported in The New York Times, the fossil fuel industries have received far larger subsidies over time than renewables, though renewables are starting to catch up. But the greatest distortion of all, and the one we should fix most urgently, is the absence of a price on greenhouse gas emissions.  The sooner we enact a strong, sensible nationwide climate and energy policy, the sooner we might consider whether added renewable mandates are unnecessary.

Renewable energy standards may not be perfect, but they are an energy policy with benefits that the vast majority of American citizens recognize as worth their small cost. Legislators across America should turn their attention to our tremendous fiscal, social, and environmental challenges rather than trying to “fix” renewables standards that, relatively speaking, just aren’t broken.

Peter Fox Penner is Principal and Chairman of the Brattle Group, and is focused on economic, regulatory, and strategic issues in network industries.

[i] There are other benefits omitted from this list for brevity.  For example, renewable energy has no fuel price volatility, so it forms a natural hedge against higher coal, gas, or uranium prices.   As with all energy forms, renewable energy also carries its own set of costs and risks; see Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities, Chapter 9, for a nontechnical discussion of electricity resource planning.

[ii] The $811 projected investment in renewables includes biomass, hydro, wind, geothermal, solar PV, CSP, and marine technologies.  Wind and solar alone total $542 billion, which is still higher than coal and nuclear, combined.  For more information see the 2011 International Energy Agency World Energy Outlook.

[iii] Total U.S. exports for all solar energy products in 2009 amounted to $2.3 billion.  Net exports totaled $723 million. For more information see “U.S. Solar Energy Trade Assessment 2010” prepared by GTM for the Solar Energy Industries Association.

[iv] The USCUSA RPS database has logged 26 different states with a cost containment provision built into their RPS.

[v] The figure is derived as follows:  typical bill of 1000 kWh/month, 50% for generation, ten cents retail a month, is $50 generation service per month.   If the RPS raises this by 1%, that’s $0.50/month or almost 2 cents a day.

7 Responses to Renewable Energy Standards: If It Ain’t Broke, Don’t Fix It

  1. fj says:

    Described as opportunists — like raccoons rummaging in garbage heaps — the fossil fuel industry will do whatever to save the $billions required to accommodate normal human decency by spending $millions not to do so — a very good deal (at least, for sociopaths lacking empathy and such feelings of pain) with profit margins on the order one thousand times — here or there spreading confusion, undermining good governance and most dangerously the advance of civilization and the extreme effort required to address the dire climate change crisis now at wartime speed.

  2. Turboblocke says:

    Elsewhere renewables lead to a fall in the cost of electricity. That’s because as they come on-line the most expensive conventional plant is not needed. It’s called the merit order effect. Why doesn’t it work like that in the USA?

    Here’s a clear explanation from Australia of how it works…

    Aparently it also works in the USA…

  3. davea0511 says:

    What the world needs is a “real cost of energy” (RCOE) metric in terms of $/kWh, taking all these things into account, averaged over the next X years. Then when discussing energy options it can be described in terms of that metric. It could be a metric as simple as RCOE30(real cost of energy $/kWh over 30 years). At a minimum PV for example should be spread out over a long enough time to cover the expected life of the modules. It should also be done with respect to best practices … ie – you don’t compare the cost of burning coal in Pennsylvania with the cost of PV in Pennsylvania, but with the cost of PV in the southwest.

    Until these metrics are tied down and made more standard, and those standards enforced, then we stand to lose as a nation both environmentally and financially.

  4. davea0511 says:

    Not to mention comparing grid with grid instead of onsite. $/W in a utility PV installation are much lower than for a residential roof install and the utility numbers should be what’s used for comparison against for example Coal. The other thing that should be taken into account is base load vs. on-demand power. Coal is as high as $0.30/W in California during mid-day summers, while the costs remain constant for solar. Until peak rates are not an issue, this is the standard against which solar should be compared (not base-load rates). It also behooves us (and Utility companies) to make mandatory usage tier pricing for all, including residential, along with overuse charges to reflect the real cost of power. This should be done, not just because it will promote on-demand power sources, but because it is more accurate and results in a more fair assessment. It’s surprising that these standards are not already defined and made mandatory, and those who disregard these standards for advertising/marketing purposes should be held accountable for false advertising and endangering the public welfare of our current and future energy market. Those who ignore these important considerations are guilty of nothing less than libel.

  5. David B. Benson says:

    Unfortunately wind turbines can have deliterious environmental impacts. Worse, the designated balancing agents have to run about 75% of the time and that inefficiently due to the variability. The result, according to several studies in the US and in Europe is that wind turbines do almost nothing to reduce the use of the fossil fuel used as the balancing agent. All told I see little benifit to wind turbines not balanced by hydro (and not much of that is possible).

  6. Paul Revere says:

    If renewable energy standards were really “cost-effective” then the market would naturally meet them without requiring the government to create such “standards”.

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