Renewable Energy Does Not Raise Electric Rates

It is an article of faith of conservative economists that renewable energy raises electric rates and causes economic distress. To make their case, they produce detailed analyses, such as Ref (1), based on cost assumptions.

 

The acid test of the effects of renewable energy is its actual effect on actual electric rates. I have previously shown that electric rates, as well as unemployment rates, are independent of the amount of renewable energy produced in a state (2). Those were 2016 data. The 2017 data are now in (3) and are consistent with earlier data. With the exceptionof traditionally expensive states (Alaska, Hawaii, and New England) the data lie in a narrow band, confirming that renewable energy does not raise electric rates.

 

References

(1) Orphe Divounguy, et al., Economic Research Center Analysis: The Impact of Renewables Portfolio Standards on the Ohio Economy, The Buckeye Institute, March 3, 2017 https://www.buckeyeinstitute.org/library/doclib/The-Impact-of-Renewables-Portfolio-Standards-on-the-Ohio-Economy.pdf

(2) Alan R. Rosenfield, LWVO Testimony on HB114 -RENEWABLE ENERGY STANDARDS, House Public Utilities Committee, March 21, 2017, https://drive.google.com/file/d/15GaqwwQqr692-UStmRxnYFF3hyt8Cbd-/view\

(3) Energy Information Administration, Electrc Power Monthly, Feb. 2018, https://www.eia.gov/electricity/monthly/archive/february2018.pdf

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Why Less Coal

I have been assuming that gains in electricity generation by natural gas were the reason for loss in generation by coal. This is not quite true. In 2016 coal generation was down by about 750 million kilowatt-hours (kWh) from its 2006-2008 average, a 38 percent drop. About two-thirds of the drop was due to natural gas and about one-third to renewables.

Source EIA Electric Data Browser, accessed 21 June 2017

Cost of Withdrawal from Paris Accords

Ohio’s electricity sources are diverse, as shown in the following table:

Sources of Ohio’s Electricity, 2016

Data from electric Power Monthly, Feb. 2017

Source

Percent
Coal 47
Natural Gas 20
Nuclear 11
Renewables 2
Imports from Other States 19

 

The difference from 2008 is that coal has lost ground to both natural gas and imports.

The distribution in the table appears to be ideal for supporters of withdrawal from the Paris Accords on climate change. However, it would be expensive to sustain. Specifically, additions to all residents’ bills would be about $11 per month minimum due to coal, and perhaps much higher. Also, Ohio residents in the First Energy area would have an added $5 monthly charge to support nuclear plants.

Note: Coal costs are from the LSC Fiscal Analysis of 132-SB155. Nuclear costs are from testimony on 132-HB178. Data in the Table is from Electric Power Monthly.

Price of Conventional Fuels

Revised 31 March 2017

As is well known, natural gas has become cheaper than other conventional fuels. The price estimates below show that gas is less expensive than the competition. However all of the cost estimates are high compared with the actual price, which is given in the bottom row.

Cost/Price of Electricity from Conventional Sources, $/MWh

Coal Natural Gas Nuclear Ref.
60-143 47-78 97-136 (1)
N.A. 45-57 100-108 (2)
80-98 66-73 93-96 (3)
N.A. 50-70 N.A. (4)
N.A. 41-56 (a) N.A. (5)
34 (b) N.A. (6)

Notes:

(a) Increases linearly with gas price. Range shown is for $2.5 to $5 per 1000 cu.ft. Gas price on 16 Dec. 2016 was $3.43, giving a price of  $48 per MWh

(b) Unknown mix of gas and coal; April 2017 future

References:

(1) Lazard’s Levelized Cost of Energy Analysis – Version 10.0, December 2016

(2) EIA, Annual Energy Outlook, August 2016

(3) T.F. Stacy & G. S. Taylor, The Levilized Cost of Electricity from Existing Generation Resources, June 2015 http://instituteforenergyresearch.org/wp-content/uploads/2015/06/ier_lcoe_2015.pdf

(4) ”Solar going big: large-scale installations now outpacing small ones”, Toledo Blade, 22 July 2016

(5) Al Rosenfield, “Natural Gas vs. Wind Background” <alanpeg.blogspot.com>, 30 Jan. 2013

(6) PJM AEP Dayton Hub 5MW Peak Calendar-Month Real-Time LMP Futures Quotes

http://www.cmegroup.com/trading/energy/electricity/pjm-ad-hub-5-mw-peak-real-time-lmp-swap-futures.html, accessed 30 March 2017

 

LTE to dispatch (Not published)

Electric rates are spiraling out of control. It is not clear why they have been rising at twice the rate of inflation for the past several years. The higher cost does not mean that we are paying for a new and improved product. It is the same electricity that we always have used – only the price is higher.

Since electricity is also a necessity, it is proper that it is subject to state oversight. But, somehow, Ohio has let us down and allowed the inflated prices. For example, our Legislature is addressing the skyrocketing rates by worrying about the less-than-one-percent of our electric bill that is due to renewable energy.

 

Sources:

ELECTRIC RATES: Electricity Data Browser, http://www.eia.gov/electricity/data/browser/ (note: as of July, Rates have decreased one percent in 2016 compared to 2015)

INFLATION: CPI Detailed Report Data for December 2015, Table 24, http://www.bls.gov/cpi/cpid1512.pdf

RENEWABLE ENERGY COST: IEU-Ohio Mandate Cost Calculator, http://www.ieu-ohio.org/mandate-cost-calculator.aspx