I learned that when I was a project manager for a general
contractor in Chicago. Electrical contractors used it to their advantage. If
they said an expensive change order was required, they usually won, because
electricity is confusing. Of course, that was Chicago, where corruption
permeates every level of society. That wouldn’t happen here in Colorado, would
it?
Electricity is also political. Governor Hickenlooper recently signed Senate
Bill 252, which increases the amount of renewable energy produced for Colorado.
Seems like a good idea. After all, once you build a wind tower or solar panel,
the electricity is free, right? Why should there even be a question? Is there
something more to it?
Let’s try to unpack some of the mystery and reduce the
confusion.
Renewable Portfolio Standards (RPS)
Colorado’s investor-owned utilities (Xcel Energy and Black
Hills Energy) are required, by 2020, to produce 30% (the Renewable Portfolio
Standard or RPS) of their electricity by renewable means. Renewable energy, as
a political matter, means wind and solar. As a practical matter, it should also
include nuclear and hydroelectric. But as I said, electricity is political.
To meet the RPS, Xcel Energy has been installing lots of
wind towers. They have 17 wind farms and are preparing to build another one.
Because of federal subsidies, improving manufacturing processes, and an
abundant supply of wind towers, the next wind farm is going to be relatively
inexpensive to build. The federal subsidy is a major factor in wind’s
affordability, reducing the cost by almost half. But the federal government
doesn’t have any of its own money. It gets it from taxpayers. Us. We Coloradans
send a portion of our earnings to Washington, and the politicians send it back
to Colorado as a subsidy for wind towers. Do we get a fair share of it back?
Perhaps. Xcel Energy has been very aggressive at getting those subsidies. Do
you, as a ratepayer benefit? Not a chance.
Legislation generally caps rate increases for renewable
energy at 2%. If renewable energy were actually cheaper, there would be no rate
increase for it. Your electric bills are
increasing because of the RPS. Further complicating the matter, not all of the costs
for renewable energy are included in that 2% cap.
Selling your old car
Let’s say that you wanted to get a new car. When you do
that, you might want to sell your old car. After all, if it’s not the one you
prefer to drive, why keep it?
When the legislature demanded that Xcel build new renewable
energy sources, they didn’t take into account that we didn’t need enough new electricity production
to account for the new wind towers and solar panels. In other words, we’ve got
a bunch of new plants and can’t get rid of the old ones. Xcel still pays for
the old ones, running or not. The cost to build them is amortized over several
years, and ratepayers continue to pay that cost. It’s in a part of your bill
that isn’t capped at 2%. In fact, in 2011, Xcel requested a $53 million rate
increase to cover the carrying costs of 300 megawatts that it couldn’t use.
You’re paying for idle plants. And Xcel is about to build 550 megawatts more.
Xcel will do the math for us, but I’m willing to bet that it costs more to idle
550 megawatts than 300 megawatts.
You and I, the ratepayers, end up paying to build the new
wind farms, and for the old plants.
It’s like having old cars that work, but that you aren’t allowed to sell or
drive, but you still have to pay off the loans, taxes and insurance. Great, if
you’re a car collector. I’m not a power plant collector.
Limited options and excess capacity
The Renewable Portfolio Standard (RPS) limits the other
kinds of electricity production available to us. Once the RPS is fully
implemented at 30%, barring a hoped-for advancement in electricity storage
technology, about 2/3 of our electricity will come from natural gas. Nuclear
and coal will not be an option. Here’s why:
There is no technology available to store huge amounts of
electricity. Once those electrons start moving, they gotta go somewhere and get
to work.
The output of coal and nuclear plants can’t be varied
quickly. It takes a while to ramp up, or back off. Nuclear and coal are
typically used for baseload electricity demands, the level at which demand
never goes lower. Demand above that level must come from sources that can be
turned on and off quickly. That’s natural gas.
Now here’s where it gets a bit tricky.
Wind and solar sources produce roughly 1/3 of their rated
capacity over time, because the wind don’t always blow, and the sun don’t
always shine (see US Energy Information Administration, 2013 Early Release
Overview.) So a wind farm rated at 100
megawatts only produces 33 megawatts. To produce 30% of our electricity from
wind and solar, Xcel will need to have renewable capacity at 90% of anticipated
demand. That means they must also build a complementary 90% capacity in natural
gas. And that’s all stuff they’re gonna build, and you’re gonna pay for.
But isn’t it cheaper?
Cost comparisons between various types of electricity
generation can be misleading, because they don’t take into account the money
that was already paid or committed (sunk costs) for a facility that has already
been built. To compare new wind power to existing coal powered plants, one
should subtract the amortized capital cost of the existing power plant.
According to the US Energy Information Administration, wind power costs $86.60
per megawatt hour. Traditional coal costs $100.10. But consider, for example, a
coal plant that is halfway through its economic life. When you subtract half of
the amortized capital cost, the cost is $67.25. (Capital costs, or the cost to
build the plant, are amortized in all figures.)
It’s like buying a pair of practical shoes. You probably
only need one pair, because they are just practical shoes – not your party shoes
or Sunday go-to-meetin’ shoes. You can buy a new pair for $86.60, or keep using
your half worn but serviceable shoes that originally cost $100.10. If you’ve
got a budget, you’ll just keep using the old pair that you’ve already paid for.
Don’t forget the profit
I like profit. I think it’s a great way to encourage
efficiency in free markets. But it isn’t necessarily good in a monopolized
market, where the consumer is forced to pay what the producer demands. Xcel
Energy commands a monopolized market, and makes 10% on everything they do.
Everyone benefits - except most people. Xcel stockholders benefit, and
politicians benefit because they spin this as something they are doing that’ s
good for us. And because electricity is confusing, they get away with it. Keep
in mind, that Xcel is not to blame – seeking profits is their obligation to
their stockholders. The blame lies with the legislature.
Other ways we pay
“Anything that requires a subsidy probably doesn’t deserve
it.” I’m not sure who first said that. I wish it had been me.
I already mentioned the federal wind production tax credit,
without which the wind industry probably wouldn’t survive. Even with it,
they’ve been having their fair share of troubles. Subsidization often spells
disaster for a company.
A business succeeds and grows because it creates some kind
of efficiency that makes it more valuable than its competitors or alternatives.
But a company that needs a subsidy obviously lacks that efficiency in the first
place. Then the subsidy reduces the urgent need to become more efficient.
Let’s also look at whence the subsidies come. As mentioned
earlier, you and I pay for it. Government and businesses merely handle the
transaction. Xcel Energy lists 36 categories of subsidies available through
them. THIRTY SIX! These subsidies (rebates) are not complete giveaways –
you have to spend more money than the rebate provides. For instance, a $120
rebate is available for installing a high efficiency furnace in your home. Such
a furnace will cost several thousand dollars. Ratepayers that can’t afford that
pay more on their utility bills to provide a subsidy to those who can afford
it. Even though it’s not called a tax,
it functions very much like a regressive tax, a tax that creates a larger
burden on those who can least afford it. And with the legislature’s support,
Xcel makes 10% profit on it.
Subsidies can lead to waste
Xcel’s subsidy program is meant to encourage energy
conservation. However, that high
efficiency furnace means homeowners can get more heat for the same utility
bill. It does not necessarily follow that they will use less gas or electricity
– they might just decide to be more comfortable in cold weather. Conservation
may not happen if giveaways encourage greater consumption.
Reliability is at risk
The electrical grid has a sort of “shock absorber” built
into it. As long as electrical production matches demand within a certain
range, the system works. If a production facility shuts down suddenly,
immediate action is required to ramp up other systems to prevent overloads that
can cause blackouts. I’ve toured the “command center” where a staff monitors
the output and demand, watching numbers to make sure the system stays within
that narrow band. Unfortunately, renewable energy is unreliable. Winds can die
quickly. Solar panels don’t work when it’s cloudy or at night time. As more of our electricity comes from these
unreliable sources, our entire system is at risk.
So to recap:
We pay for renewable production capacity we don’t need. We
pay for more production capacity we don’t need to complement the renewable
production capacity we don’t need. We lose the ability to use less expensive
clean sources of electricity. Poor ratepayers subsidize wealthier ratepayers
through Xcel’s subsidy program. We send our tax money to Washington so they can
send it back to us as wind towers we don’t need. And your appliances and air
conditioner don’t care where those electrons came from. They just want them to keep coming. If the
grid becomes less reliable because of its dependence on unreliable renewable
sources, those electrons may not move when they are most needed.
Still confused?
