On November 6, Michigan voters will decide on Proposal 3, a renewable electricity standard (RES) that requires utilities to increase their use of clean, renewable energy sources like wind and solar to 25 percent by 2025. The initiative is affordable and will deliver important economic and environmental benefits. But a flawed and biased study released last week by the Koch-funded Mackinac Center for Public Policy and Beacon Hill Institute threatens to undermine Proposal 3 and stall Michigan’s progress toward a clean energy future.
Missing the mark on the policy details
A fundamental rule of sound energy policy analysis is to model the proposal as accurately as possible. The Mackinac Center analysis fails to do this in two major ways, which not surprisingly leads to a biased conclusion heavily skewed toward higher costs right from the start.
Cost Cap? What Cost Cap? First, the report authors deliberately exclude a central provision in Proposal 3: the ratepayer cost cap. Even though current market trends indicate investments in renewable energy will actually reduce rates over time, Proposal 3 includes a cost cap to protect Michigan ratepayers from higher than expected costs associated with achieving the 25 percent RES.
That cost cap clearly states compliance “…shall not cause rates charged by electricity providers to increase by more than 1 percent in any year.” Rather than factor this critical detail into their analysis, the Mackinac Center ignores it and instead argues that utilities will use other means to collect their renewable energy compliance costs from ratepayers. Really? Detroit Edison and Consumers Energy are leading the opposition to Prop 3 and have already pumped nearly $6 million into blocking it. Call me skeptical that they will want to spend a nickel more than required in order to comply with the 25 percent standard.
Move the Starting Line. To evaluate the net cost of Prop 3, the Mackinac Center disingenuously compares its implementation against a business as usual projection that includes no RES at all. Yet, a 2008 Michigan law already requires utilities to achieve a 10 percent by 2015 RES, and as described below, they’re well on their way to achieving it. Prop 3 builds on that law, and would allow all the renewable energy developed to meet the 10 percent RES to be counted toward the higher targets. Therefore, an honest evaluation of the cost associated with Prop 3 would compare it with a business as usual projection that includes the existing 10 percent by 2015 RES. To move the starting line back to before the passage of the existing RES significantly and artificially inflates cost projections because the study assumes utilities will be required to develop 40 percent more renewable energy than Prop 3 actually requires.
Oblivious to reality
For an institution headquartered in Michigan, the Mackinac Center’s analysis relies very little on actual readily available state-specific utility data. Michigan’s utilities are currently heavily dependent on old, polluting, and inefficient coal power plants for their electricity, and spent more than $10 billion from 2002-2010 on coal imports to run them.
The cost of supplying coal to these facilities jumped 81 percent for Detroit Edison and 119 percent for Consumers Energy during that same period. This is in large part why this year alone Detroit Edison raised its residential electricity rates by 13.5 percent, while Consumers Energy raised its residential rates first by 3.3 percent and then again by 11 percent, according to the Michigan Public Service Commission (PSC). And that’s only the beginning. Detroit Edison and Consumers Energy anticipate spending as much as $3.3 billion over the next 4 years just to keep these aging and dirty coal plants running. These costs will ultimately get passed onto ratepayers.
Meanwhile, renewable energy is being rapidly deployed in Michigan to meet the state’s existing 10 percent RES at costs below initial projections, according to a recent PSC study. With more than 1,000 megawatts of renewable energy capacity installed so far, the average cost of wind contracts from 2009 to 2011 has been about $94 per megawatt-hour (MWh) and trending downward. In fact, the levelized costs of the two most recently signed wind contracts in Michigan were $61-$64/MWh.
But the Mackinac Center takes no notice of these actual in-state trends. Instead, their assumptions for the levelized cost of wind projects in 2010 inexplicably range from $149-$289. It’s no wonder they mistakenly conclude Prop 3 will hurt consumers.
Garbage in, garbage out: Starting with bad data ends with bad results
Throughout the analysis, the report authors make questionable assumptions about the cost and performance of renewable energy technologies, often citing out of date, controversial, or unsubstantiated material to support their assertions. For example, the paper references a flawed and soundly refuted study by the natural gas firm Bentek Energy to support the erroneous claim that renewable energy provides few emission reduction benefits.
In addition, a 2003 analysis of U.S. wind facilities and other similarly outdated information are cited to support Mackinac’s contention that the Energy Information Administration’s assumption for wind capacity factor of 34 percent is overly optimistic. Consequently, they chose to apply a capacity factor range that drops as low as 15 percent, which significantly increases cost estimates for wind power.
Yet the Department of Energy’s definitive annual Wind Technologies Market Report released this August confirms that the actual capacity factor in 2011 averaged 33 percent for all U.S. wind facilities and 30 percent for those located in the Great Lakes. The authors of that report also project capacity factors to be much higher in the near future (2012-2013) due to taller towers (80-100 meters) and advances in low wind speed turbines. The DOE analysis also projects continued declines in wind capital costs that will lead to near-term reductions in total levelized costs on the order of 5 – 40 percent.
In addition to plugging bad data into their analysis, the Mackinac Center study cherry picks only the negative impacts on the economy from overly inflated higher electricity prices (inappropriately modeled as a sales tax). What they don’t consider is the positive job and economic development from displacing imported fossil fuels and increasing local spending on construction, manufacturing, operations and maintenance. They also don’t consider the benefits to rural communities from new tax revenues and land lease payments for wind projects. And they don’t account for the price suppression benefits that wind power has on regional power systems, as confirmed by a recent Synapse Energy Economics study commissioned by the Midwest Independent System Operator.
Michigan voters need quality and accurate information in order to make a sound decision about the merits of Proposal 3. Without question, the Mackinac Center’s analysis fails to provide it. Fortunately, there is reliable research available that offers a more balanced assessment of the impact that the 25 percent RES has on Michigan consumers and the state economy. To learn more about the consumer benefits, check out my colleague Rachel Cleetus’ recent blog post.