Count the costs for renewable energy mandates

[caption id="attachment_3435" align="alignleft" width="83"] Jon Sanders[/caption]

by Jon Sanders, The John Locke Foundation, June 16, 2015.

In 2007, nine Southeastern states' Utilities Commissions were deeply concerned. Congress was debating federal renewable energy portfolio standards, or REPS, and the state commissions worried about likely effects on their ratepayers.

The nine state commissions jointly alerted Congress to their concerns. They cited the geographically “limited availability” of and consequentially “cost-effectiveness of traditional renewable energy resources.” They worried that “our retail electricity consumers will end up paying higher electricity prices, with nothing to show for it.”

Congress did not approve the federal REPS mandate.

North Carolina was among those nine Southeastern states worried about the costs of REPS mandates for ratepayers. The others were Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, South Carolina, and Tennessee. Strangely, however, in that same year North Carolina’s own leaders imposed a state REPS mandate on those same ratepayers.

North Carolina remains the only one of the nine to have voted in its own REPS mandate.

Not coincidentally, ever since then North Carolina’s proud legacy of highly competitive electricity rates has been eroding fast. Electricity rates in this state have increased over 2 1/2 times the national average increase since 2008.

By 2014 the cost to ratepayers of the state’s so far relatively small REPS mandate had already totaled $276 million.

The question is not, however, just about how much effect the REPS mandate has had so far. There are several other concerns raised by North Carolina’s policies to promote some energy resources above others. They include:

• Worsening rate impacts as the REPS mandate expands. North Carolina’s rapidly growing electricity rates occurred during the lowest possible REPS mandate, at 3 percent. Without legislative action, the mandate doubles this year to 6 percent. Unchanged, by 2021 it will have more than quadrupled, to 12.5 percent.

An increasing REPS mandate’s costs will grow proportionately more burdensome. Fully implemented, the mandate will also exact other net costs:

• Loss of 3,592 jobs
• Loss of $56.8 million in real disposable income
• Loss of $43.2 million in investment
• Loss of $140.4 million in real state gross domestic product
• Loss of $43.5 million in state and local government revenues (all figures in 2009 dollars)

• Lack of price competitiveness. Renewable energy sources, especially intermittent sources such as solar and wind, are several levels less efficient at energy production than traditional sources. They require comparably much greater resources of land (let alone state and federal subsidies) to produce the same amount of energy as traditional sources.

• Dispatchability. The intermittency problem is simply a fact of nature: Sun and wind cannot be summoned to produce on an immediate, as-needed basis, as can traditional sources.

• Backup generation. Managing intermittency requires keeping traditional energy sources on standby. Their costs are necessarily a part of those renewable sources’ operating costs. Worse, those traditional sources don’t operate as efficiently as backup, which involves ramping them up and down.

• Greater social cost of renewables. For the above reasons, a landmark study last year from the Brookings Institution found that solar and wind power were the most (not least) expensive sources for reducing carbon emissions. Solar was the worst. Natural gas, all things considered, was the least expensive source.

These issues are not small items of interest on the fringes of state policy. They affect one of the most basic household needs — electricity — which means they impact everyone, the poor most of all.

Electricity is also one of the most basic business costs, so expectations of how state policy affects it will factor into business decisions. Losing the state’s competitive rates as prices increase much faster than the national average will dampen commercial enterprise’s enthusiasm for joining in a “Carolina Comeback.”

The implications are serious enough to warrant pulling back and rethinking these policies. North Carolina wouldn’t be the first to do so: Kansas just repealed its REPS mandate. Ohio froze and West Virginia repealed their REPS mandates. Bills repealing or revising REPS mandates have passed legislative chambers this year in Texas, New Mexico, and Colorado.

At the very least, state leaders would do well to hold North Carolina’s REPS mandate where it currently is and undertake a thorough study of state energy policy. Who could object to such a responsible pause?