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Michigan’s 25 Percent Renewable Electricity Standard is Good for Consumers

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This November, voters in Michigan have the opportunity to choose where their energy comes from and ensure that utilities make investment decisions that are good for consumers’ pocketbooks and their health. Winning a ‘yes’ vote on Proposal 3 will raise Michigan’s renewable electricity share from 10 percent by 2015 to 25 percent by 2025. And, as a just-released study makes clear, Prop 3 makes smart economic sense for Michigan electricity consumers.

The study, commissioned by the Michigan Environmental Council, uses actual data from utilities (from state and federal filings) combined with forecasts from the Energy Information Administration (EIA) to analyze the rate impacts of the 25 percent by 2025 standard.

Coal-fired power is expensive (and only getting more costly)

The study shows that costs of coal for Michigan power plants jumped 71 percent between 2006 and 2011. UCS research shows that the state’s two largest utilities, Detroit Edison and Consumers Energy, both of which depend heavily on imported coal for electricity production, together spent more than $1.2 billion in 2010 to import coal from other states.

Aging, dirty coal plants are also getting increasingly costly to run. This is a big part of the reason why utilities in Michigan have imposed significant rate increases on their customers that far outpace the national average. This year alone, Detroit Edison customers can expect to pay 13.5 percent more for electricity than last year, according to the Michigan Public Service Commission. Looking ahead, the economics of coal-fired power look increasingly worse as coal is steadily outcompeted by cleaner energy sources like natural gas and renewable energy.

Wind and solar are increasingly competitive (and their prices are falling steeply)

Diversifying Michigan’s energy portfolio by adding more renewable generation into the mix will help bring electricity costs down over time. The costs of wind (wind turbine prices have declined as much as 33 percent since 2008) and solar (PV module prices are now 75 percent lower than they were in mid-2008) power have dropped dramatically in recent years and are projected to fall further. According to a recent NREL study, wind power was competitive with a range of wholesale power prices seen in 2011.

Moreover, choosing renewable energy will also help reduce the risk of future price spikes by enabling utilities to lock in more long-term contracts at set prices for renewables, a feature that is not available for fossil-fired power because of uncertainty around future fuel costs.

Choosing renewables is a smart economic investment

Given the energy market trends outlined above, it’s no surprise that the report shows that investing in renewable electricity is the best overall choice for Michigan consumers. While upfront investments could result in minimal rate impacts in the short term (averaging 0.5 percent, or about 50 cents monthly per residential customer, over the first 10 years), over the long term prices will actually decline and consumers will save money.

Moreover, Prop 3 has a specific safeguard (a rate cap) that prevents rates from rising any more than 1 percent in a given year — and the study shows that at no time do rate increases approach that level (see graph below):

Source: M. Cohen and G. Sansoucy, 2012. 25% by 2025: The Impacts of the Michigan Clean Renewable Electric Energy Standard.

The economic benefits of renewable energy are clear

Other Midwest states like Ohio, Illinois, Iowa, and Minnesota have benefited from embracing similar levels of renewable energy. For example, according to the Illinois Power Agency, that state’s 25 by 2025 renewable energy standard has meant that renewable resources, in particular wind, have played a dramatic role in reducing electric energy prices in Illinois and the entire Eastern Interconnection. In 2011, this resulted in over $176 million in reduced electricity generation costs. As in other states, new renewable energy development in Michigan will also lead to thousands of jobs in construction, operations, manufacturing, and finance.

Pollution from coal imposes a high additional cost

The true costs of coal – including health and environmental costs imposed on the American public – are not currently captured in the price of electricity generated from coal. Harmful pollutants – including mercury, sulfur dioxide (SO2), particulate matter (PM2.5), and nitrogen oxides (NOx) – released by burning coal have been linked to increases in asthma attacks, heart disease, neurological problems, and premature deaths.

These “external” costs have been estimated to range from over $53.4 billion a year to over $345 billion per year nationally. Carbon emissions from coal-fired power plants also contribute significantly to the risks of climate change. Accounting for these costs would make coal-fired power more expensive than many cleaner alternatives, including investments in wind energy and energy efficiency.

Prop 3 puts Michigan on track to be a clean energy leader

By voting ‘yes’ on Prop 3, Michigan voters will set their state on a path to be a clean energy leader – and in doing so will reap significant economic and health benefits. Now that’s an example our national leaders could learn from!

Posted in: Energy, Fossil Fuels Tags: , ,

About the author: Rachel Cleetus is an expert on the design and economic evaluation of climate and energy policies, as well as the costs of climate change. She holds a Ph.D. in economics. See Rachel's full bio.

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  • mohammad maleka

    I agree with this post.

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