SKYROCKETING ELECTRIC PRICES

Once more the Ohio Legislature plans to deal with electricity supply.

Once more they will complain about the high cost of clean energy.

Once more they will be wrong.

For the last several years the Legislature has focused on discouraging clean energy to the exclusion of the bigger problem of soaring residential rate increases. We have seen an almost annual chopping away at the clean-energy requirements in existing law. At one point the legislature even declared blast furnace exhaust gas to be renewable energy. This concentration on renewable energy ignores the average Ohioan, who is more concerned about the size of his electric bill than the number of wind farms in the state.

We need to know why electric bills almost continually go up. Electricity doesn’t change; when we pay our bills, we are not buying new and improved electricity. Actually the electricity that comes to our outlets is the same product that our parents bought, and our grandparents, and our great grandparents. If the product doesn’t change, shouldn’t the price remain about the same?

When Ohio’s clean energy bill was passed nine years ago the average electricity rate was around ten cents per kilowatt-hour (kWh). It is now around 12.5 cents, a 25 percent increase. It was rising at twice the rate of inflation before a small decrease last year. Household electric costs are now $300 more than they were when that clean energy bill was passed. It so happens that state income taxes have been reduced by about $300 for the typical family. Their tax relief has gone to the electric company to pay their higher bills.

The obvious logic is that clean energy caused the rate increase. But clean energy costs are reported on our electric bills, where we can see that they are a very small part of the problem.

Renewable energy has become increasingly attractive because of sharp price decreases. According to the 2016 Wind Market Report, real prices for electricity from new wind farms are about 3.5 cents per kWh in our part of the country, while the PUCO Apples-to-Apples web site shows that the generation part of Ohioans electric bills averages over 5 cents per kWh for a combination of coal, gas, and nuclear power – a thirty percent savings from wind over old-fashioned technology.

This price advantage has been recognized by many large companies, such as Apple and Google, who have made major commitments to renewable energy. Amazon’s commitment to renewable energy is seen here in Ohio, where they will be purchasing a large part of the state’s wind output. If wind was as expensive as the opponents claim, Wall Street would be reacting strongly and driving down the price of the stocks of these companies This has not happened.

Clean energy opponents still maintain that wind energy is expensive. To do so, they rely on a theory called levelized cost of energy (LCOE). Opponents’ cost estimates for wind are much higher that the price currently being charged by wind farms. If these theorists are correct, wind farms are losing 50 to 80 cents on the dollar. No explanation has been offered for this discrepancy between theory and reality.

Opponents also claim that the clean energy requirements are mandates on electric companies that inhibit the free market. This claim is only true for the generation part of providing electricity. In fact, consumers have a choice of generating company, and prices for this part of electric bills have moderated. There is no choice for the transmission and distribution parts of our bills, and this is where the large price increases have been concentrated.

Finally, opponents claim that subsidies give renewables an unfair advantage over fossil fuels. The subsidy is a federal issue, which the legislature has no control over. It is worth noting that most experts agree that wind would be competitive without the subsidy and that solar is getting there. The subsidies operate to lower our prices.

Electricity is a necessity. The legislature needs to stop blaming clean energy for excessive price rises and insure that average Ohioans are being treated reasonably.

 

Renewable Energy Does Not Harm Stock Performance

There are still office holders who cling to the notion of expensive renewable energy, buttressed by questionable web sites.

There is a line of argument that I have not seen used: companies, such as Google and Amazon, have made major commitments to renewable energy. These are publically-traded firms. If renewable energy was so expensive, Wall Street would be shouting loudly and hammering their stock down. This has not happened.

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

 

Converting MW to Homes

A recent article stated that one MW of wind power provides enough electricity to power 1000 homes (1, 2). This claim was later qualified by stating that “sources such as wind and solar are often operating at less than full capacity” (3).

Actually the largest possible value is 800 houses per Megawatt. Last year wind in Ohio produced enough electricity for about 250 homes and solar about 125 homes (See Appendix).

References:

(1) Wind energy poised for growth in Ohio, advocates say, The Columbus Dispatch, October 30, 2016

(2) Tom Stacy offered a correction in the Comments section of Ref. (1). Unfortunately he used faulty logic.

(2) AEP wins profit guarantee sought in coal-fired power case, The Columbus Dispatch, November 3, 2016

Appendix: Calculations

One Megawatt generating electricity for one year (8760 hours) would produce 8760 MWh. Since the average home uses about 11 MWh (= 11,000 kWh) of electricity each year, this is enough electricity for 8760/11 = 796 homes.

Since Ohio generated 1.2 million MWh of electricity from wind in 2015, wind provides enough energy for about 110,000 homes. Ohio has 432 MW of wind power – 110,000/432 is about 250. So one MW of power provides electricity equal to that used by about 250 homes.

Comparable numbers for solar are 162,000 MWh total electricity and 119 MW of power. This translates to 14,700 homes and 14,700/119 = 124 homes per MW.

(Data from Energy Information Administration for 2015, except solar capacity from Columbus Dispatch, Nov. 4, 2016)

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

Critique of Utah State Report

Ohio’s Energy Mandates Study Committee (EMSC) report (a) uses a Utah State University (USU) report (b) to justify continuing Ohio’s freeze on our renewable energy goals. The USU report is deeply flawed in its attempts to show negative effects on a state’s economy due to a legislated renewable energy portfolio.

Since twenty one states have had renewable energy portfolios for over ten years, USU should be able to make a comparison of states with and without portfolios, based on current and past economic performance.  They make no such comparison. Instead the USU report relies on predictions of the future.  This is a poor approach, since predictions in this field are notoriously inaccurate, as Sen. Seitz pointed out in his sponsor testimony for 130-SB310.

As noted below, the USU predictions contain numerous errors. The chief problems are ignoring any research in conflict with theirs and using obsolete data.

Specifically:

  1. USU assumes that Ohio law requires construction of wind farms to satisfy the law. Actually the law is satisfied by purchase of renewable energy certificates (c).
  2.  USU uses cost data by the Energy Information Administration, as reported in the Annual Energy Outlook (AEO) (d). Specifically, they use 2013 predictions of costs for 2018 and assume that these predictions hold through 2026. Although 2014 data were available, they did not use them or explain why they used the older data in a field characterized falling prices. The 2015 AEO, which was not available when the USU report was written, shows wind to be competitive with fossil fuels, making the construction of wind farms cost-neutral in the USU approach.
  3. Cost data are also available annually from the investment firm of Lazard (e) and are lower than those from EIA. USU did not explain why they used the EIA data in preference to the Lazard data.
  4. The American Tradition Institute (ATI) issued an earlier report using the same computer program as USU (f). The table below shows that there is great disagreement between the two studies, which USU does not explain.
ATI USU Percent Change
Total Net Cost, Final Year, $ billion 1.427 0.281 -80
Total Net Cost, Final Ten Years, $ billion 8.629 1.923 -78
Electricity Price Increase, Final Year, ¢/kWh 0.97 0.20 -79
Percentage Increase 9.3 1.86 -80
Total Employment (Jobs) (9,753) (3,590) 63
Investment, $ million (79) (52) 34
Real Disposable Income, $ million (1,097) (258) 76

 

  1. USU used two different prediction techniques and their results varied significantly (e.g. job losses of 3,600 and 29,000). When two results differ, at least one is wrong. The conclusion of the USU report favors the 3,600 number, while the EMSC report uses the 29,000 number and we do not know which, if either, is correct.
  2. Since wind farms need to be constructed and operated, the portfolio creates jobs, which the USU report ignores.

In conclusion, with so many problems, it is difficult to see how the USU report can be used to justify continuing Ohio’s renewable energy freeze.

References

(a) Kristina Roegner & Troy Balderson, The Energy Mandates Study Committee Co-Chairs’ Report September 30, 2015

(b) Randy T Simmons, et al. Renewable Portfolio Standards: Ohio, April 2015

(c) Galen Barbose, U.S. Renewables Portfolio Standards 2016 Annual Status Report, Report LBL-1005057, April 2016

(d) Energy Information Administration, Annual Energy Outlook, issued annually

(e) Lazard’s Levelized Cost of Energy Analysis – Version 9.0, November 2015

(f) American Tradition Institute, The Cost and Economic Impact of Ohio’s Alternative Energy Portfolio Standard, April 2011