The climate bill under discussion in U.S. House would require electric utilities to draw an increasing amount of power from renewable sources, spurring growth of wind, solar, biomass and geothermal energy and reducing carbon emissions.
Opponents argue that it would raise consumer’s electricity prices too high. But is that true?
The question is critical to whether a final bill contains a Renewable Electricity Standard mandating that retail electric utilities generate 25% of their power from renewable sources by 2025.
The answer, according to the Department of Energy’s Energy Information Administration, is no.
In a report last month, the EIA said that any additional costs to consumers from a 25% renewable electricity standard would not be significant. The cumulative costs to consumers’ electric and natural gas bills through 2030 could be 0.2 percent, according to an analysis of the numbers by the Union of Concerned Scientists.
An earlier USC report, which assumes more reliance on wind power and less on biomass than the EIA study, found that a 25% RES by 2025 could lead to $95 billion in cumulative savings for consumers. The savings would come from diversifying the energy mix and spurring competition for fuel sources.
“By diversifying the electric mix, you are displacing need for natural gas to be used for electric power and some coal,” says Jeff Deyette, a UCS energy analyst. “By increasing this competition in the energy sector we see an impact on prices.”
Utility executives say the industry faces other costs, though, including building renewable energy facilities and adding transmission lines – costs they’ll pass on to their customers. Several Congress members have also complained that a nationwide RES doesn’t allow for regional differences, which wouldn’t be fair, they say, because not all states have the wind potential of Texas or the sunshine of California.
“The feedback from my clients is there’s not a lot of confidence that it will be cost neutral,” says Andrew Roehr, vice president, North American utilities at Capgemini, a consulting firm.
A big issue, according to Roehr, will be the costs of getting renewable power to regions that don’t have established wind, solar or biomass production.
One project already in the works to carry wind power from the plains of the Dakotas and Iowa to the Midwest’s cities, dubbed the Green Power Express, is estimated to cost $10 billion to $12 billion for 3,000 miles of extra high-voltage transmission. The cost might not be that high by the time it reaches utilities and their customers, though, because of the strong support from Washington. The recovery act passed earlier year, for example, set aside $11 billion for transmission projects.
The 25% by 2025 Renewable Electricity Standard is part of the comprehensive climate bill proposed by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) as the American Clean Energy and Security Act. (Similar RES proposals are being floated in the Senate.)
Under the Waxman-Markey plan, the standard would apply to electric utilities with retail sales of at least 1 million megawatt-hours. The requirements build gradually, beginning with a 6% in 2012. Renewable sources that would qualify include solar, wind, geothermal, tidal, landfill gas and certain biomass feedstocks. Also included is new hydroelectric power, and renewable power used to co-fire a coal plant. Existing hydroelectric power and municipal sold waste generation would be subtracted from a utility’s sales baseline, but couldn’t be used to meet the standard.
Twenty-eight states and the District of Columbia already have some type of RES, or renewable portfolio standard. It was their efforts that jump-started much of the investment in renewable energy in the United States today.
Renewable sources other than hydropower currently supply about 3% of U.S. electricity generation, with much of the recent growth coming from wind power.
Even without a national RES, the renewables industry is expected to grow. Thanks to the federal stimulus bill’s tax incentives and federal loan guarantees, designed to spur development of renewable power, renewables would still be expected to supply 11% of U.S. electricity needs by 2025, according to EIA.
The Interior Department is also pushing for more renewable energy development on federal land, and is creating renewable energy teams to expedite the process in several Western states, Interior Secretary Ken Salazar told the Windpower 2009 conference this week in Chicago.
"At no time in our history has the need for a new energy policy been so urgent," Salazar said.
"We import more than two-thirds of our oil, costing us hundreds of billions of dollars a year. Unemployment is at eight and a half percent. Carbon emissions are rising. Our national security is threatened. And countries like China and India are ready to cash in by leading the global clean energy economy."
"With millions of new jobs at stake, this is an opportunity America can’t afford to miss."
To those who think a 25% RES is too “aggressive,” proponents note that various exemptions and exceptions in the Waxman-Markey bill would effectively result in a 17% RES, which is not so far off from a “business-as-usual” scenario of 11%. The American Public Power Association is pushing for a 15% RES by 2020, a proposal that, incidentally, passed in the original version of the House’s energy bill in 2007. However, APPA says such a proposal would, among other things, need to minimize costs to consumers and address grid reliability .
Looked at this way, an effective RES of 17% is not overly aggressive, says Deyette.
“Our analysis and DOE’s show it is achievable, and we both show it’s affordable.”
The utility consultants at Capgemini say their clients are anxious for federal guidance on an RES so they can begin planning for a future with less reliance on carbon-emitting technologies.
The basic way of doing business for electric utilities hasn’t changed for many years. Electricity has been commoditized, so prices are relatively low, and new capital expenditures are rare, says John Christens, vice president , energy and utilities practice at Capgemini. If utilities need to change the way they do business and rely more on renewables, “it will require significant capital investment and someone has to pay that price,” he says.
Energy efficiency measures can mitigate the costs, Christens adds, so while the cost of power may go up, consumers needing less of it won’t see much increase in their bills.
Several states have efficiency programs with credits that could be applied to up to 20% of the RES requirement, according to the EIA report. But these credits are tied to a proposed energy efficiency resource standard in the bill, the details of which have yet to be worked out.
“If the federal government is going to mandate renewable standards and cap-and-trade," Christens says, "it’s worth incentivizing (utilities) to sell less of their product."