Will National Energy Policy ‘Evolve’ to a Clean Energy Standard?

Clean energy is something everyone is ‘for’.  Few people are in favor of dirty energy.  But the problem is the definition of what is clean depends upon who you ask.  We will say we are in favor of clean renewable energy, when polled, until a wind producer tries to site a wind turbine near us, or spreads out a sea of photovoltaic panels across the desert—or worse says a high voltage transmission line is needed to bring that clean, renewable energy from its remote location to serve demand in the load centers of our metropolitan areas.

Clean, renewable energy is something we think our utilities should provide.  And now thirty states have adopted renewable portfolio standards requiring their regulated investor owned utilities to purchase a percentage of their expected electricity consumption from renewable sources.  Here in California we have a 33% RPS goal and our utilities are working feverishly to contract for that supply.  But until recently, much of that clean renewable energy was higher than the market price of natural gas combined cycle generation (the grid parity) which means that adding more clean and renewable energy drives up utility rates.

Public opinion surveys tell us customers are willing to pay more for clean renewable energy.  And time and again we answer affirmatively to that survey question even while we protest loudly when our utility files for a rate increase to cover its higher costs.  A recent study by Nature Climate Change found 81 percent of those surveyed would pay $36 per year more for clean energy and 56 percent would pay $155 per year more.

But not too much more for clean energy. But when asked by Senator Jeff Bingaman to estimate the rate impacts of his proposed National Clean Energy Standard, the US Energy information Administration said the CES would increase electricity prices nationally in 2035 by an average of 21 percent. Regionally, electricity prices could increase 69 percent in 2035 the Southeast and 62 percent the Pacific Northwest which already has more hydropower and wind energy than it can consume.  EIA says electricity prices would increase the most on Long Island, 5.2 cents per kilowatt hour (2009 dollars). Nationally, average household electricity prices would be $170 higher under the Bingaman CES than they are projected to be in the EIA reference case.  It sounds like this CES idea might be a tough sell.

And that is the problem.  Customers want clean and renewable energy but we don’t want to pay more for it.  The states imposed renewable portfolio standards on utilities to force them to buy clean and renewable energy, but many states are near achieving their goals.  Renewable energy has benefited from a national production tax credits, investment tax credits and treasury tax grants to help boost market share for clean and renewable energy.  But these programs are expiring and costs for wind and solar have fallen to grid parity levels making it harder to rationalize continued subsidies.  The same thing has happened in Europe with feed-in-tariffs.  We have reached an inflection point with clean renewable energy where we expect it to compete at grid parity prices with other fuels like natural gas.

So what’s this have to do with Senator Bingaman’s Clean Energy Standard?

CES is a way of ‘evolving’ to keep playing the ‘winners and losers’ energy industrial policy game—after the subsidies expire. It evolves by substituting a new national mandate to purchase clean renewable energy as a substitute for the expiring and harder to sell subsidies, treasury tax grants and tax credits.  It evolves by forcing the ten states without a state RPS to meet the Federal one in order to effectively expand the market for wind and solar. It evolves by enshrining the anti-fossil fuel bias embodied in the US EPA regulations on emissions into a CES purchase mandate that continues the policy quest to kill off coal. The EIA reference case sees coal fired generation rising 23% by 2035 but the Bingaman CES plan will reduce coal generation market share by 41% by 2035.

The CES hopes to create a market for carbon capture and sequestration that does not exist today to covert 47GW of existing coal plants.  During my tenure as Division President, Global Energy Decisions, we were the quantitative analytics advisers for the FutureGen project.  But we were unable to find a scenario that ever got CCS ‘in the money’ and the Bush Administration cancelled the project.  The current costs of CCS are still so high and involve so much risk that the more likely scenario is the coal plants will be shut down and replaced by natural gas fired generation at a fraction of the cost.

The CES goal is 45 percent of electricity sales in 2015 from qualifying clean energy sources scaling up to 95 percent by 2050.  But some sources are more qualifying than others.  Existing coal plants get no credit because they are dirty.  Existing large hydro do not count because the environmental lobby hates them almost as much as coal. Nuclear counts in the proposed CES because of fierce lobbying from utilities but low natural gas prices make nuclear uneconomic. New coal with carbon capture and sequestration can get some credit but no one has actually done it economically.

That leaves renewable energy from wind, solar, biomass, and geothermal to compete with natural gas, the low cost fuel of choice in every market.  That might be the least cost, best fit, most environmentally responsible competitive integrated resource planning outcome but it would be so politically incorrect.

And then there is this—if we counted all the hydropower resources we current use here in California along with the wind and solar and geothermal clean energy more recently built we could declare victory on our 33% renewable portfolio standard TODAY.