• The charge for renewables
    October 12,2013

    We can argue all day about efficiencies, environmental impact and safety, but one metric of comparison that we should be able to agree on is cost — specifically, the cost of electricity per kilowatt-hour. If we pay more for renewable power, is the cost increase worth it? Do we really get a benefit from using renewable energy? The following is mostly about solar, but it applies, more or less, to every renewable energy source.

    In March 2009, the Legislature amended a 2005 program called Sustainably Priced Energy for Economic Development, or SPEED, to include a standard offer program, through which renewable energy developers can sell renewable energy on a guaranteed, long-term, fixed-price contract to the utilities. The program cap started at 50 megawatts, but that will increase every year, reaching 127.5 megawatts in 2022 with a goal of reaching 75 percent renewable energy sources for all utilities by January 2032.

    The long-term, fixed-price contract varies for each type of renewable energy, but for solar it is a flat 25 years and is currently fixed at 30 cents per kilowatt-hour. This forced payment is approximately five times higher than what the utilities can buy the same amount of power for on the wholesale power market in New England. Of course, the utilities recover this higher cost from their customers. This process of mandated purchase of renewable energy is called a feed-in tariff.

    In addition to the feed-in tariff, a renewable energy production facility gets a 30 percent federal tax credit and is also issued something called renewable energy credits. These companies then sell their collective tax credits through a tax equity fund and sell their RECs to other big companies that use these credits to reduce the requirement to cut their own high greenhouse emissions.

    The net effect of these above-market energy costs is that the renewable energy facilities are able to sell electricity at a substantially higher profit margin than any normal utility is allowed to make, and that higher profit is guaranteed for up to 25 years.

    In December 2009, a yearlong study was completed and reported by the Division of Energy Planning of the Vermont Department of Public Service. Its charter was to study the economic impact of feed-in tariffs to the Vermont economy in the short and long term. Here are a few excerpts and selected quotes from that study.

    “For households … (the feed-in tariff program) reduces expenditures on ‘all other’ items to pay for a rising electric bill.” “… (I)ncreased energy bills can lead to a higher cost of living and out-migration of population.” “Similarly, the productive sectors of the Vermont economy, industrial and commercial ratepayers … may reduce in-state production and/or relocate to a lower cost location.” “From 2011 through 2036 we estimate the long term creation of just 13 jobs.”

    Put another way, Vermont consumers are paying a higher price for a portion of their renewable energy with no discernible benefit.

    In Vermont, the feed-in tariff restricts entry to smaller providers that have more costly projects, and it mandates purchase of this power by utilities — whether they need it or not. The program is only a few years old in Vermont. Let’s look at some places where it has been used for the past two decades.

    In a 2011 study of Spain’s feed-in tariff program: “The main results of the generous FITs in Spain have been multi-billion dollar investments in (photovoltaic) solar systems and multi-billion dollar FIT subsidies paid to the owners of such systems that produce just a very small quantity of variable, intermittent and expensive power and avoid the emission of a miniscule quantity of CO2 per installed (megawatt).”

    In a 2010 study of Germany’s feed-in tariff program: “The study indicates the political decision of ‘going solar’ in Germany is beyond reason with regard to economics, air pollution and global warming.”

    “Although renewable energies have a potentially beneficial role to play as part of Germany’s energy portfolio, the commonly advanced argument that renewables confer a double dividend or ‘win-win solution’ in the form of environmental stewardship and economic prosperity is disingenuous. In this study, we argue that Germany’s principal mechanism of supporting renewable technologies through feed-in tariffs, in fact, imposes high costs without any of the alleged positive impacts on emissions reductions, employment, energy security, or technological innovation.”

    “Hence, although Germany’s promotion of renewable energies is commonly portrayed in the media as setting a ‘shining example in providing a harvest for the world,’ we would instead regard the country’s experience as a cautionary tale of massively expensive environmental and energy policy that is devoid of economic and environmental benefits. As other governments emulate Germany by ramping up their promotion of renewables, policy makers should scrutinize the logic of supporting energy sources that cannot compete on the market in the absence of government assistance.”

    If we can get past the emotion of the renewable energy arguments, it would seem that we are simply going about it wrong and by the time the SPEED program ends in 2032, we will have spent billions of dollars, nearly 30 years and thousands of man-hours of effort without a discernible benefit to energy independence or to the environment. Expanding the feed-in tariff mandated energy purchase to 75 percent of all energy produced in Vermont will drive all other base-load producers out of the market — replaced by variable, intermittent and expensive renewable power sources.

    Tom Watkins, a former Navy officer and consultant, lives in Montpelier. You can reach him at TomW@21vt.us.

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