Michigan and the Clean Power Plan: What the State’s Analysis Can and Cannot Tell Us

, energy analyst | October 17, 2016, 12:21 pm EST
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On September 26th the state of Michigan released its initial analysis of the potential impacts of complying with the EPA’s Clean Power Plan (CPP) that will limit carbon emissions from existing power plants.

The analysis found that complying with the CPP may actually provide cost saving opportunities for Michigan ratepayers, particularly if Michigan strengthens its commitment to energy efficiency and cooperates with neighboring states. But the analysis fails to shed light on the role renewable energy could play in maximizing consumer benefits, while minimizing the variety of risks associated with an overreliance on natural gas.

The Michigan Agency for Energy (MAE), in coordination with state regulators and outside consultants, analyzed several possible pathways to comply with the CPP. The analysis used sophisticated modeling to better understand the impacts of Michigan’s choices under a variety of future conditions. The overall takeaway is that Michigan is in a good position to comply with the CPP and that compliance can actually bring significant economic benefits to the state compared to business as usual.

The importance of energy efficiency and interstate cooperation

Adding insulation to your attic is an effective step to improve the efficiency of your home, save money, and cut carbon emissions.

Michigan’s initial analysis of Clean Power Plan compliance confirms that energy efficiency will be critical to cost-effectively cutting carbon emissions.

Michigan’s analysis looked closely at how investments in energy efficiency and the ability to trade carbon credits with other states in the region might reduce costs and increase benefits to Michigan under the CPP.

Its findings are consistent with results from other credible analysis, finding that strong commitments to energy efficiency can significantly lower the cost of compliance. This should come as no surprise since Michigan’s energy efficiency efforts have consistently saved energy at just a fraction of the cost of generating electricity from power plants.

The analysis also found that Michigan is actually in good position to cost-effectively reduce carbon emissions well beyond what’s required under the CPP. This means Michigan will have the opportunity to sell carbon credits to other states that may have a harder time meeting their targets. Selling these credits can provide revenues that will lower the cost of energy for Michigan ratepayers. Revenues from the sale of carbon credits could reach several billion dollars, a results consistent with UCS’s own analysis of CPP compliance in Michigan that found similar levels of revenue for Michigan under a national carbon trading regimen.

Lingering questions about the role of renewable energy

What the analysis doesn’t do is shed light on the interplay between renewable energy and natural gas to replace retiring coal plants while meeting Michigan’s energy demands. A few key decisions made at the outset of the analysis limited the model’s ability to provide insights.

  • Assuming a large build out of natural gas

In all of the futures that were modeled, Michigan assumed utilities would build more than 2,200 megawatts (MW) of new natural gas plants over the next decade even though these plants haven’t even been proposed to the public service commission for approval.

Hardwiring these assumed natural gas plants into the model—instead of letting the model determine a least-cost mix of resources as it is designed to do—essentially crowds out any room for other resources, such as wind and solar, to cost-effectively contribute to meeting energy demand.

In fact, the assumed natural gas plants make up nearly all of the new capacity that is added in Michigan until after 2025. By telling the model what to build, Michigan effectively closed the curtains on any insights about what could be the true least-cost mix of generation resources is for meeting energy demand under the CPP.

  • Ignoring the low cost of renewable energy
Michigan's analysis didn't address the role of renewable energy in reducing carbon emissions while helping to avoid the risks of an overreliance on natural gas.

Michigan’s analysis didn’t address the role of renewable energy in reducing carbon emissions while helping to avoid the risks of an overreliance on natural gas.

Michigan also decided not to account for the extension of the federal tax credits for renewable energy projects that lower the price of these resources over the next several years. This decision artificially skews the results against renewable energy  – making them less cost-effective in the eyes of the model than they actually are and limiting our ability to understand how near term investments in renewables  might provide additional benefits to Michigan consumers.

Given both of these analytic decisions, it’s no wonder Michigan’s analysis shows little to no investment in renewable energy resources between now and 2025 and sheds no light on the proper role of renewable energy in shaping a low-cost, low-risk, and low-carbon energy future for Michigan.

When UCS conducted an analysis using updated renewable energy cost assumptions and no assumed natural gas build out, we found Michigan could cost-effectively develop more than 8,000 MW of new wind and solar as part of its CPP compliance plan, driving billions of dollars in in-state investments while creating a cleaner, more diverse, and lower-risk energy supply for the state.

This information is critical to proper planning to meet Michigan’s future energy needs. DTE recently announced plans to spend up to $1.5 billion dollars on new natural gas plants in Michigan, stating intent to bring proposals for these investments to the Michigan Public Service Commission over the coming months, and essentially putting us on notice that Michigan will be grappling with this question in the near future.

These shortcomings don’t make Michigan’s analysis “wrong.” Their conclusions that Michigan can easily comply with the CPP, and that energy efficiency and interstate cooperation are critical pieces of cost-effective compliance, are useful insights that should help guide the state’s decision-making.

But we have to be clear about what the analysis can tell us and what it can’t. The state’s assumptions about natural gas builds and the cost of renewable energy effectively foreclosed the model’s ability to provide useful insights into how renewable energy can cost-effectively diversify Michigan’s energy mix and avoid a risky overreliance on natural gas. Without additional analysis to look into these lingering questions, the state may very well be heading towards a costlier, riskier future, while ignoring the benefits of renewable energy.

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  • solodoctor

    As a former resident of Michigan I read this piece with greater, and admittedly nostalgic, interest. I hope UCS will work to get the State to reconsider its assumptions of the extensive use of nat gas and minimal use of renewables. As the State is surrounded by the Great Lakes I would think that the potential for developing more off shore wind power, for example, would be terrific. Please keep us posted as to how this progresses and how/when UCS members can help move the State in a more environmentally friendly direction.