Wednesday, December 21, 2011

Lowest Electricity Rate Increases In States With The Most Wind & Solar

Those confidently declaring that adding substantial wind and solar to a state's electricity grid causes electricity rates to rise faster than if little or no wind or solar is built need to face some facts that show it just ain't so.

A recent paper looked at the annual electricity rate increases from 2005-2010 in the 5 states with the most wind and solar installed versus the 5 states with the least wind and solar installed by the end of 2010.

The author Brennan Lou found that the 5 states (Texas, California, Iowa, Minnesota, and Oregon) with the most wind and solar installed by the end of 2010 had electricity rates increase by 3.2% annually.  These five states had more than 22,000 megawatts of wind and solar installed by the end of 2010 or about 50% of the nation's entire wind and solar capacity.  They certainly are the states where wind and solar is most concentrated.

By contrast, the 5 states with the least wind and solar installed (South Carolina, Louisiana, Kentucky, Mississippi, Alabama) had annual electricity rate increases averaging 4%.  These five states had virtually no wind and solar installed by the end of 2010.

All 50 states had average electricity rate increases from 2005-2010 of 4.1%.

Consequently, the 5 states with the most wind and solar installed saw a lower rate of electricity rate increases than the 5 states with the least wind and solar operating or the national average rate increase. 

See for the full paper:

What could explain these results? 

First, the states that built wind and solar added 22,000 megawatts of new electricity supply. More electricity supply puts downward pressure on prices.  Moreover wind and solar facilities that bid into competitive wholesale markets are total price takers.  Since wind and solar have zero fuel costs, these facilities actually bid zero into the markets and accept for their electricity whatever the market clearing price is.  Wind in Texas has lowered significantly market clearing prices.

Second, the price of coal has been rising by on average 6.5% per year for the last decade, and using more zero fuel cost renewables avoids some amount of an increasing fuel bill.  At a minimum, renewables diversify a fuel portfolio and hedge risks.

Third, the price of wind in the best generation areas is falling fast and is often the lowest cost source of new electricity supply in such favorable locations.  For example, Xcel provides electricity in Minnesota and Colorado and reports that its wind energy cost a bit more than 4 cents per kilowatt-hour since 2007.  No new coal or gas plant could be built for that price.  Xcel further reports that its most recent 200 plus megawatt wind deal is priced at an incredibly low 2.7 cents per kilowatt-hour.  Simply put, wind is not expensive but instead is cheap in the best areas.

Fourth, other factors have substantial influence on electricity rates like gas prices and the amount of electricity generated from gas or coal in a particular state.

The 5 states that heavily invested in wind and solar enjoyed lower rates of electricity increases, created tens of thousands of jobs building and operating new renewable power facilities, reduced pollution, and made their states more competitive. 

They were smart and a bit fortunate.  But the smart have a way of being lucky.



    The link to the full paper in John's article never led me to the full paper. I suggest reading the comments to the blog in the link above. You'll see that the Clear Skies report leaves much to be desired, since no analysis of natural gas prices was included.

  2. While there are a lot of factors at play here, I would say 5 are the biggest but in no particular order:

    1. The 5 states with the most renewables also contain some but by no means all of the best wind resources in the nation. Strong wind makes wind farms competitive.

    2. Wind turbines improve every year, producing more power for less money.

    3. Coal prices have gone up a lot. 6.5% per year for 10 years. Kentucky for example has most of its energy from coal. I suspect that the 5 states with the most renewables generally have below the national average of coal. I have not checked the point.

    4. Gas prices have come down a lot. As I pointed out in the original post, gas prices are a major factor. I suspect the 5 states with the most renewables also have above the national average amount of gas generation.

    5. Renewables lower prices in competitive markets because they add supply and take the price by bidding zero. Texas is a competitive market, California is a hybrid. The other 3 states with the most renewables are not fully competitive markets but do have competitive wholesale markets. Any utility buying energy from the wholesale marke will see lower prices due to 22,000 megawatts of renewables being added.