Tuesday, March 13, 2012

Manhattan Institute Frames Renewable Standards For Non-Existent "Soaring" Electricity Prices

In a recent study trying to blame renewable energy  for supposedly "soaring" electricity prices, Robert Bryce for the Manhattan Institute is like a rogue homicide detective who is determined to frame an unfortunate citizen by investigating just one out of many suspects, while not even realizing that there is no crime, because the "victim" is not dead, but very much alive. In this vein, Bryce insists renewable energy is the cause of a faux energy crisis, saying that "residential electricity rates are soaring, and they are doing so at the worst possible time." www.manhattan-institute.org/html/eper_10.htm.

The first and fatal flaw with the Bryce paper is that electricity prices are not soaring. There is no crime for which to frame renewable energy.

The Energy Information Administration reports: "Average U.S. residential electricity prices are forecast to rise by 0.4 percent in 2012, and then fall by 0.9 percent in 2013.  These growth rates compare with an average annual increase of 2.6 percent during the past five years."  www.eia.gov/forecasts/steo/pdf/steo_full.pdf.

In fact, in many areas of the country like Pennsylvania electricity rates will likely fall in 2012, as a result of low-natural gas prices, stable or even declining demand, and increased supply substantially from new renewable energy generators in regional power pools around the country.

Since electricity prices are not soaring, Bryce's paper trying to blame renewable energy is a desperate, ideologically-driven effort by the conservative Manhattan Institute to blame renewable energy, a new scapegoat for the right, for a non-existent problem.

Never realizing that electricity prices are not soaring, and there is no victim, Bryce concocts a theory that focuses only on renewable energy as the cause of soaring electricity prices.  Forget other upward pressures on electricity rates like steadily rising coal costs; state deregulation of retail rates in certain states; nuclear energy charges in Georgia to build two incredibly expensive nuclear plants there; but instead frame renewable energy for the non-existent crime of "soaring" residential electricity rates.

Bryce's method for framing renewable energy features comparing two groups of 7 states--coal dependent states with no renewable energy portfolio requirement and coal dependent states with a renewable energy requirement.

He curiously selects Wyoming, North Dakota, Utah, Georgia, Oklahoma, Arkansas, and South Dakota for his non-RPS group.  This curious selection raises questions such as, why these 7 states?  Why not Kentucky, West Virginia, and Nebraska for example which are also coal dependent states without an RPS and which are listed by Bryce among states with the lowest rates?  What results would Bryce had if he substituted Kentucky, West Virginia, and Nebraska for South Dakota, North Dakota, and Arkansas?

For the coal dependent RPS states, Bryce picks Ohio, Michigan, Colorado, Wisconsin, Delaware, Minnesota and Maryland.

He concludes that the 7 states with the RPS had average rate increase from 2001 to 2010 of  54%, while the non-RPS states rose 24%.

Beyond the fatal flaw that electricity rates are not soaring and so renewable energy or nothing else caused the non-existent problem, here are 6 more problems with Bryce's analysis:

1. Bryce cooked the statistical books in his selection of states.  His group of 7 coal dependent states without an RPS leaves out Kentucky, West Virginia, and Nebraska and it is clear why.  Kentucky's rates have increased from January 2001 to 2010 by 72 % and 82% through 2011; West Virginia up by 49% through 2010 and 59% through 2011; and Nebraska up by 61 % through 2010 and 68% through 2011.

Had Kentucky, West Virginia, and Nebraska been substituted for South Dakota, North Dakota, and Arkansas in Bryce's group of 7 coal dependent states without an RPS, Bryce would have found a very small difference between his two groups of states. The rate increase in the non-RPS states would have been 43% on average versus 54% in the RPS states.

2. The difference in rate increases between the two groups of states would essentially vanish if Bryce used 2011 data, instead of stopping his analysis in 2010. For example, Georgia, which is in Bryce's group of 7 coal dependent states without an RPS, had a 10% increase in 2011, probably mainly the result of rate increases already charged to build two nuclear plants that supposedly will begin operating in 2017.  Simply put, Bryce's data is dated.

3. In fact, all 7 states in Bryce's group of 7 states without an RPS saw rates increase in 2011, while 2 of the 7 states in Bryce's group with an RPS had rates decrease in 2011.  In short, rates went up more in the coal dependent states without an RPS in 2011 than was the case in the states with an RPS.

4. Bryce fails to consider at all the role of sharply increasing coal prices over the last 11 years in the price of electricity.  Indeed, coal prices have been increasing about 6% per year for the last 11 years or nearing 100% over the period.  Rising coal prices have pushed up electricity prices much more than any renewable energy requirement.

5. Bryce fails to understand the role of deregulation in price increases.  Four of the 7 states in Bryce's RPS group deregulated retail rates during 2001 to 2010.  Those four are Delaware, Ohio, Maryland, and Michigan, and rate increases in Maryland and Delaware are almost completely the result of how the states deregulated. None of the states in Bryce's non-RPS states went through the deregulation of retail rates.

6. Bryce includes in his non-RPS group several states--North Dakota, South Dakota, Oklahoma, Utah-- that have large amounts of electricity provided by non-profit rural electric cooperatives that have lower costs of capital and other financial advantages compared to for-profit investor owned utilities that dominate the states in the RPS category.  I doubt Bryce wants to make a case for public power or non-profit coops, but his analysis would support such ownership more than it does his attack on renewable requirements.

To conclude, Bryce has it wrong.  Electricity rates are not soaring.  There is no culprit to be found for a non-existent problem.  Renewable energy standards and increasing renewable energy had little effect on the price of electricity.  Indeed studies by the Energy Information Administration and others have reached this conclusion.

Much bigger influences on electricity power rates are the price of fossil fuels, especially coal and gas, that fuel a combined 65% of all electricity generated, the cost of capital, and increasingly simple supply and demand for power in competitive or "deregulated" markets that price electricity.

By creating more supply for electricity, often by leveraging substantial private investment that largely is not directly recovered in an electricity rate base or rate, renewable energy standards can cause the market clearing price for electricity in competitive, wholesale power markets to be lower than if the new renewable supply did not exist. More supply or less demand lowers price all other factors being equal. The nation got 3% of its electricity from wind power in 2011, and Texas got 7% of its total electricity from wind.

If wind had not operated at all, electricity prices paid by consumers in America and Texas would have been higher in 2011, because wind power in competitive markets bids zero and takes whatever price at which the market clears.  By doing so, wind and other renewables prevent more expensive units from being dispatched and setting the entire market price at a higher level.

Indeed, among the 10 states with America's lowest electricity rates, three states--Washington, Idaho, and Oregon--have the highest amount of power coming from hydro systems, America's biggest renewable energy power source.  Renewable energy is good for the environment, public health, our economy, and consumers.

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