Renewable Mandates and Subsidies
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Renewable Portfolio Standards



Federal and state renewable portfolio/electricity standards are mandating increased use of renewable and reduced carbon energy resources.

The Waxman-Markey energy bill (H.R. 2454) which passed the U.S. House of Representatives in June 2009, attempted to establish a national renewable portfolio standard (RPS) of 20% in 2020 from renewable sources or increased efficiency. The Senate has also considered other "clean energy standards” that would mandate the development and use of renewables as well as lesser amounts of nuclear energy and clean coal. In fact, the "American Clean Energy Leadership Act,” which calls for 3 percent of U.S. electrical generation to come from non-hydro renewable sources by 2011-2013, was reported out of the Senate Committee on Energy & Natural Resources in July, 2009. Colorado has passed legislation requiring utilities to generate 30% of their electricity from renewables by 2020; California has demanded 33% by 2020. About 35 states have renewable or alternative energy standards in place.

When public policy starts mandating winners and losers in the generation industry, in this fashion, it is worthwhile to ask a few questions.

  1. Summary
  2. What is an RPS?
  3. What is an RPS supposed to accomplish?
  4. Will these and other such green policies achieve their environmental objectives?

Follow the link to listen to our Coal Q & A webcast: Renewable energy mandates: Pros and Cons - (archived webinar) - by Daniel Simmons, Institute for Energy Research (May, 2010)

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What is an RPS (renewable portfolio standard)?

A Renewable Portfolio Standard (RPS) is legislation or regulation that requires electricity suppliers to include renewable resources in their electricity generation portfolios. To date, 35 states and the District of Columbia have adopted RPS policies or renewable purchase obligations. EPA data indicates that 5 of these states have RPS goals, rather than mandatory requirements. Initially, many states adopted RPS policies as part of electric industry restructuring, but more recently, several states have implemented policies by legislation or proceedings that are separate from restructuring activities. Each state has made their RPS different in terms of which technologies satisfy the purchase obligation, size limitations, special set-asides for some technologies and whether utilities may own the renewable facility. RPS proponents claim that these mechanisms "create market demand for renewable … energy supplies.” (see Issue 1, 2006 American Coal magazine, pg 27)

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What is an RPS supposed to accomplish?

States tend to tailor the features or requirements of their individual RPS programs to meet particular needs, local market realities, and local resource potentials. However, the two most often cited reasons for implementing RPS are climate change and energy "independence.” Other stated goals include, "local environmental quality, energy price stability, development of local industry and job creation, reduced reliance on coal, other fossil fuels and nuclear plants or to solve location specific problems like forest thinning and fire protection in the case of biomass.” (American Coal, Issue 1 2006, p.27)

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Will these policies be able to achieve their environmental objectives, and are the proposed emissions/environmental targets economically/technologically feasible?


Proponents of RPS will claim many benefits of these policies, including,

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Diversity of Energy Supply - The ACC has always supported the notion that a diverse energy supply is a good thing; so long as the social, environmental, and free market economic justifications for the development of new generation capacity are based in fact and on full information.

As we have demonstrated on this website and in the Coalblog, the push, by government, to demand the development of specific technologies, as opposed to allowing market forces to determine the best path forward is having (at best) mixed results.

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Environmental Improvement - The claim that building renewables energy sources necessarily entails reduced air pollution and reduced greenhouse gas emissions is false. As we have shown in the "Coal Facts” section of our issues page, the reality is that relying on renewables to reduce CO2 emissions may do nothing and could even have the opposite effect.

Utilities are finding that they need to "maintain permanently online back up generation with capacities equal to 90% of the installed wind power capacity … to guarantee supply at all times.” As this back up generation is typically fossil-based and operated in an inefficient manner – as fast-ramping firming power to correct for the variable nature of renewable generation – alleged environmental gains associated with renewables are not being achieved when full life cycles are considered.

This is further backed by the fact that renewable installations, including wind, are now facing so-called green resistance as strong as any faced by coal or nuclear. As we noted on the Coalblog, the US Chamber of Commerce's Project No Project website describes how the extreme green, NIMBY mindset is shutting down an even greater number of renewable projects than coal or nuclear projects. Perhaps the best example of this is that strident green protests over the Cape Wind development stretched that project's federal permitting process out over a decade. As resistance to development of any sort -- including renewables -- continues to mount, the legal/logistical/regulatory costs and hurdles of permitting renewable generation will make it a less desirable generation option.

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Lower Natural Gas Prices - The notion that natural gas prices will be pushed lower is disputed by the arguments given above. With fast-ramping, fossil-based back up generation kept idling at all times, natural gas burn is actually similar to that which would be used if renewables were not in the generation mix.

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Electricity Prices - The claim that use of renewables ensures reduced volatility of power prices is questionable at best. In the first place, the ACC and other industry associations have shown that the renewable energy industry would not be possible without the coal and mining industries. Without the affordable and reliable supply of energy, metals and other minerals, it would not be possible to build or operate wind turbines, solar arrays, etc.

Additionally, renewable energy sources cannot begin to compete with coal on a price basis. Even advanced, clean coal technologies, with CCS are far less expensive than average prices associated with renewables. For example, the recent approval of a federal permit for the Cape Wind project in Nantucket Sound helped bring out the fact that initial prices for this offshore wind installation will be 20.7 cents per kilowatt hour, rising to 34.7 cents per kilowatt hour at the end of the project's 15 year grid contract. Costs for advanced, clean coal with CCS are estimated to be 9.8 – 10.8 cents per kilowatt hour. Even the far less expensive option of onshore wind in "favorable conditions,” and with necessary fossil backup factored in comes in at over 12 cents per kilowatt hour. But then one must add in the facts discussed above – that claimed environmental gains, which are primary selling feature for renewables, are in reality negligible, or not even being achieved. Furthermore, one must add in the over $60 billion in new transmission investments the DOE and wind energy providers admit would be necessary to reach a 20% RPS and integration of that (largely wind-based) power into the national grid.

Furthermore, the prices that wind generators are able to charge are kept unnaturally low due to the massive subsidies that renewable energy receives from taxpayers. EIA data from 2008 shows that solar energy received $24.34 per megawatt hour in subsidies and wind energy received $23.37 per megawatt hour. In contrast, coal received 44 cents, natural gas and petroleum received 25 cents, hydroelectric power 67 cents, and nuclear power $1.59 per megawatt hour. Without those subsidies keeping them afloat, the cost of renewable energy would balloon beyond the reach of any but the super rich.

Claims that renewable electricity generation can help mitigate fluctuations in electricity prices may, in certain limited circumstances, be technically true. However, that claim is still misguided as renewables are causing overall prices and taxes to increase. Controlling price fluctuation through increased electricity prices and an increased tax burden is hardly a strong selling point.

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Local Economic Development (jobs, taxes, revenues) - The argument that renewable generation installations add to local economic development was brought into question by a 2009 Universidad Rey Juan Carlos study that showed the "Effects on employment of public aid to renewable energy sources.” This study demonstrated that while individual development projects may bring some, short-term, tax-subsidized jobs into an area, as soon as those subsidies are removed, the incentive to keep renewable electricity production going was gone, meaning investors and developers pulled out, and jobs were lost. This study also demonstrated that the cost of each so-called green job was far more than the cost of other jobs that might have been created had the money not been used up by the renewables sector.

  • For every green job that the state finances, there are "at least 2.2 jobs ... lost." Overall, Spain lost nearly 113,000 jobs while creating their green jobs. Those jobs were lost mainly in "metallurgy, non-metallic mining, and food processing …"
  • Despite a vigorous support of the green jobs policy, Spain has actually created "a surprisingly low number of jobs." Additionally, the majority (two-thirds) of the jobs created came in short-term construction, fabrication, and installation positions. A further one quarter came in administrative and marketing. Only one in ten of the jobs created were permanent positions in operation and maintenance.
  • Spain spent €571,138 for each green job created, including subsidies of more than €1 million per wind industry job.
  • Each" 'green' megawatt installed destroys 5.28 jobs elsewhere in the economy. 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro."
  • These costs are "inherent in schemes to promote renewable energy sources."
  • Comprehensive energy rates would need to be increased by 31% to repay the debt generated by subsidies to renewable energy.
  • The only way for the renewables sector to be "countercyclical" in the current economic crisis is through the provision of government subsidies. Once those subsidies are removed, the industry finds itself in a classic "bubble" condition and facing collapse.
  • The renewable sector in Spain consumes "enormous taxpayer resources. The average annuity payable to renewables is equivalent to 4.35% of all VAT collected, 3.45% of the household income tax, or 5.6% of the corporate income tax for 2007."

This study was mirrored by the findings of a University of Illinois Law & Economics research paper, titled "Green Jobs Myths."

In contrast studies show that the deployment of clean coal technologies and carbon capture and sequestration could mean an additional 150,000 jobs (or 1.7 million job years of labor) to the country. Another study produced by MSIindicated that investments in clean coal technologies would not only ensure affordable electrical generation that met strict environmental standards and relied on domestically produced coal, these investments would (by 2020) derive cumulative benefits of $111 billion at an ROI of more than 13. In the same time period these investments are forecast to create over 100,000 manufacturing-oriented, high-paying careers.

DOE has estimated that an increase in the energy efficiency of existing coal plants of five percentage points would reduce CO2 emissions by 250 million tons per year. With a CO2 price of about $50/ton assumed by DOE, these benefits alone would total over $12 billion annually. Additional CCS benefits would accrue from the use of captured CO2 for enhanced oil recovery, which could increase U.S. domestic oil production by one million barrels of oil per day or more. These benefits would total over $25 billion annually and significantly reduce U.S. dependence on oil imports while enhancing the nation’s energy security. Thus, even a cursory examination of the potential benefits of federal CCS programs indicates potential benefits of $30 to $40 billion per year. These programs will pay back the costs of federal investments in CCS technologies many times over.