Tens of thousands of acres across New York State have been transformed into sprawling electric generating facilities -- 18 in total -- where nearly 1,000 industrial-scale wind turbines consume the landscape and threaten communities in their way.
Think about that for a moment.
Now consider that another 1,500 giant towers will need to be erected by 2015 in order to satisfy the state's 30% renewable energy mandate.
New York's Renewable Portfolio Standard (RPS) can be credited with most of the wind development in the state. Officials insist the policy has helped New York diversify its energy resources and will ultimately lower electricity prices but such claims are more rhetoric than real. New York's RPS has already exceeded original budget projections, it's current renewable targets are unrealistic, and claims that prices will drop are predicated on a flawed understanding of how the New York wholesale power market operates.
New York first enacted its renewable energy mandate in 2004 through regulations adopted by the Public Service Commission (PSC). At the time, about 19.3% percent of electricity retailed in the state was derived from renewable resources, with the vast majority coming from large-scale hydroelectric facilities upstate and in Canada. The PSC ordered the state reach a 25% renewables target by 2013 which meant an incremental increase of 10.0 million megawatt hours (MWh) from projects built after 2003.
Unlike market-driven programs in other states, New York's RPS uses a government-administered central procurement system to acquire renewable "attributes" from qualified projects. Projects selected through a competitive-bid process receive long-term contracts to sell their renewable attributes to the state. One megawatt hour of generation produces a single renewable attribute. These payments serve as an added revenue stream for project owners. Funding for the RPS comes from fees charged on the monthly electric bills of NY ratepayers.
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The mid-course review
When the RPS was enacted, the Public Service Commission established a budget of up to $741.5 million to acquire the renewable attributes. It also defined yearly incremental RPS targets measured in megawatt hours.
In a 2009 mid-course review of the program, a number of serious performance issues were raised.
The program had nearly exceeded its entire initial budget while just half of the renewable attributes anticipated at that time were under contract. Other questions raised in the review involved the cost of necessary transmission to meet renewable goals and whether the program would ultimately reduce electricity prices as claimed.
But rather than scale back the RPS or take more time to fully assess the program's costs and benefits, the Commission insisted there were substantial qualitative benefits and ordered the goal increased to 30% by 2015 and the budget expanded.
One Commissioner who opposed the order wrote:
"... to date, RPS costs have exceeded original projections, MWh targets have not been met, and the program's administration remains unchanged. With this history, it is difficult to see how the expansion of the RPS will achieve the results desired."
Wind In The Mix
At the start of 2012, New York had 4.67 million megawatt hours of large-scale projects under contract representing about 2% of the state's generation. Most NY-sited wind energy facilities were under contract. In total, wind is the dominate fuel in the RPS, representing 80% of all renewable fuels.
Since projects are awarded RPS contracts before they're built, the state must estimate operating capacity factors on intermittent resources. For wind, if a project fails to meet a minimum obligation (80% of the contracted energy) for three consecutive years the contract amounts could be reduced. The Noble Clinton, Ellenburg and Bliss wind facilities were all reduced by one-third for this reason.
We reviewed the contracted figures against actual production for operating wind projects and found that, in all but one case, the state significantly overestimated project capacity factors (see table). If the inflated capacity factors were adjusted downward to more accurately reflect wind's poor performance, the state would need to contract even more generation to meet the mandates. In general, New York's wind resource has proven marginal with annual average capacity factors ranging between 22-23% across all projects.
RPS and electricity prices
State officials insist the RPS will reduce electricity prices through a mechanism known as 'price suppression' whereby renewables with no fuel cost displace more expensive power in the wholesale market.
This argument may sound convincing but completely ignores how the wholesale market operates in New York.
The New York power market uses a day-ahead auction where generators are required to offer firm levels of production for each hour of the next power day. The energy price, in turn, is determined based on those bidding into the system; all generators receive the same price per MWh of production. Significant penalties are applied if a generator is unable to meet his commitment.
Because of its intermittency, wind typically does not operate in the day-ahead market preferring the real-time (spot) market which carries no penalties for non-performance. The real-time market represents less than 10% of available generation Since the price paid over ninety-percent of the generation is established 24-hours in advance, any participation from wind will have only a marginal impact on prices limited to the real-time market. Generators that bid in day-ahead who can back down are likely to do so to the greatest extent possible in order to save fuel and other costs. Since generators in the day-ahead market are still guaranteed payment, any price suppression from wind would be limited to the spot market. Thus, any downward pressure on pricing will go largely unnoticed.
Ultimately, New York's RPS will cost ratepayers billions of dollars to support the construction of new generation. And if the state continues to rely on wind as the dominate resource, more turbines will be necessary to make up for low capacity factors. The program is up for review again in 2013. It's time for the PSC to remove the rose-colored glasses and acknowledge the program for what it is: Regulatory Capture at its finest.
1. NY's RPS supports two tiers of projects, Main Tier and Customer-sited Tier. Main Tier projects include those built to meet grid-scale energy needs. Customer-Sited Tier applications support smaller behind-the-meter renewable generation. The bulk of the electricity needed to reach the RPS mandate comes from Main Tier resources.
2. Attribute prices ranged from as low as $14.75/MWh in 2007 to as high as $28.70/MWh in 2011.
3. The PSC forecasted 5.79 million MWh by the end of 2009. The state had acquired 3.03 million MWhs.
4. The incremental increase of only 0.4 million megawatt hours needed to reach the 30% target assumes that New York reaches significant energy efficiency goals aimed at reducing electricity needs in the state. If energy efficiency were not included in the analysis, the state would require 17.0 million MWh of new renewable generation to meet the RPS.
5. New York typically signs 10-year contracts for 95% of the energy from large wind projects. The Cohocton/Dutch Hill contracted less. Maple Ridge 1 contracted 100%. (see table)
6. Actual annual generation (MWh) varies in NY due to the variable nature of renewable energy, including hydroelectric. Demand in NY also dropped since the RPS was enacted. Since the RPS was enacted, renewables in the state increased from around 19.3% to about 23% today, including all generation.
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The Big Wind lobby has descended on Washington DC and its objective is singular -- secure a four-year extension of the Production Tax Credit ('PTC'), the 20-year ‘temporary' subsidy most credited for market growth in the wind sector. The PTC is due to expire at the end of this year.
For the last month, the industry poured millions of dollars into its nationwide campaign aimed at convincing the public that any lapse in the subsidy would prove a crushing blow to American jobs. Most of the ads targeted Congressional House members who resisted the industry's demands for their PTC earmark. The cry for action reached a fevered pitch last week as Congress negotiated the payroll tax bill, viewed by many as the last best chance to attach an extension of the PTC before November's presidential election.
Politicos from wind-friendly states like Iowa and Kansas wrote letters repeating the same tired talking points about jobs. It was embarrassing to see these politicians blindly repeat what they were told with no apparent understanding of the costs and impacts of their pro-wind policies. They clearly viewed their support of the PTC as safe politically. Not so fast.
The Public Pushes Back
Last week the American public proved that support of the PTC was, well, complicated. Thousands of Americans from eigtheen states signed letters to Congress asking their representatives to vote NO on extending the PTC.
Three key arguments were raised in the letter:
1. Since the PTC was adopted in 1992, its annual cost has ballooned from $5 million a year in 1998 to over $1 billion annually today. The open-ended subsidy of 2.2¢/kWh in after-tax income represents a pre-tax value of approximately 3.7¢/kWh, which in many regions of the country equals, or exceeds the wholesale price of power!
2. If the PTC were to sunset, taxpayers would still be obligated to cover nearly $10 billion in tax credits for wind projects built in the last decade. This debt is in addition to the nearly $20 billion already accrued for wind projects built under Section 1603.
3. Despite the billions in public funding since 2008, the wind sector lost 10,000 direct and indirect jobs, bringing the total to 75,000 jobs. In states like Vermont, government models have shown that above-market energy costs tied to renewables have the deleterious effect of reshuffling consumer spending and increasing the cost of production for Vermont businesses. These increased costs reduce any positive employment impacts of renewable energy capital investment.
The PTC -- Outdated and Inefficient
Even if we accept that earmarks for big wind are still appropriate, the PTC is highly inefficient and should, at least, be updated to respond to current market conditions. For example, since it is uniform across the country the PTC supports poorly sited wind development in some areas while in other areas pays for projects that would have been built regardless of the credit.
The policy also ignores other crucial factors driving wind development in the U.S. including State mandates and energy prices. With more than half the states demanding renewable development, some policy experts question why projects receive benefits from both State renewable portfolio policies and the PTC. Good question!
Last week Congress listened to the American public and said 'no' to extending the PTC. By all accounts, the Big Wind lobby was stunned by the vote and has now pulled out all the stops to pressure Congress to vote for an extension as soon as possible. This time, their pressure will be met with an equivalent response from Americans nationwide who are determined to stop this unneeded, wasteful spending perpetuated by lazy, thoughtless politicians.
The message from taxpayers is simple: The cost of the PTC is excessive, the benefits elusive and, big wind's pitiful performance as measured against industry promises makes this entitlement an easy one to sunset.
 Lawrence Berkeley National Laboratory reports (p. 7): "The American Wind Energy Association, meanwhile, estimates that the entire wind energy sector directly and indirectly employed 75,000 full-time workers in the United States at the end of 2010 - about 10,000 fewer full-time-equivalent jobs than in 2009, mostly due to the decrease in new wind power plant construction." A recent AWEA blog (February 3, 2012) confirms the 75,000 is still current.
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The American Wind Energy Association (AWEA) is on a mission to keep its members fat and happy as they bloat up at the public trough. The goals are simple:
1) Create a set-aside power market that pays a premium for wind energy and eliminates competition from lower-cost, more reliable fuel options;
2) Encourage policies that pave the way for wind-related transmission development at the expense of rate- and taxpayers; and
3) Make permanent the free-flow of public subsidies for renewables and shield the funding spigot from changing political and economic tides.
In the last two years, AWEA's had some success. On the power market front, more than half the States have RPS programs mandating that a percentage of their electricity needs be met with renewable energy. Senator Bingham (D-NM) introduced a bill seeking the same non-compete set-aside for the entire country that he hopes will be acted on during the lame-duck session. On transmission, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) that considers amending transmission planning and cost allocation processes to facilitate broader public policy goals -- i.e. a national grid system to deliver wind power. This deviates from current rules that look mainly at grid reliability. And Obama's $787 billion stimulus passed in February 2009 authorized billions be spent on renewable energy and energy efficiency initiatives which kept the wind industry from collapsing when the big investment banks needed bailing out.
The debates surrounding a national RPS policy and FERC's transmission priorities are not settled and will likely come down to cost. But the stimulus programs that spent lavishly on pet wind projects -- while a success for AWEA members -- are proving to be a waste for the public.
Under the stimulus, we saw the investment tax credit (ITC), which was popular back in the 1980's, brought back again. The ITC enables developers to obtain direct cash outlays from the government for up to 30 percent of their costs. Any company or person who qualifies and applies for the money can get a grant. (Greenwire October 14), The qualification criteria are not onerous, the grant amounts are unlimited, and the Treasury Department which doles out the cash is prohibited by law from ranking the projects.
Between direct cash payouts, federal loan guarantees, existing state tax credits and State RPS policies that assure premiums for renewable energy, wind developers can't fail.
Spanish energy giant Iberdrola Renewables, Inc., who received nearly a billion in cash grants alone, argues the money helped create more development which led to jobs and economic opportunity but according to Gilbert Metcalf, a Tufts University professor who teaches energy economics and tax policy: "Any time you use subsidies to encourage new investment, you're always going to end up giving money to people who would have done the project anyway." (Greenwire October 14) And that appears to be exactly what happened.
A preliminary evaluation of the ITC grant outlays published earlier this year by the Lawrence Berkeley National Laboratory found that 61% of the grant money distributed through to March 2010 "likely would have deployed under the PTC [production tax credit] if the grant did not exist." In many cases, money went to projects that were already under construction and, in others the wind facilities were already producing electricity.
So what did the public receive in return for all the money spent? High risk and overpriced carbon reduction benefits.
That's according to an October 25 White House memo penned by chief economic aide Larry Summers and senior policy aides Carol Browner and Ron Klain. The memo uses the 845-megawatt Shepherds Flat wind energy facility in Oregon to illustrate the problem. Shepherds Flat will be the largest wind plant in the country consisting of 338 GE wind turbines. According to Summers, the $1.2 billion in governmental subsidies covered 65% of the cost and risk for the project while its equity sponsors incurred only about 11% with an estimated return on equity of 30%. That's a hefty return for a project where the American public is absorbing the bulk of the risk.
Summers makes clear in the memo that the project would likely have "moved without the loan guarantee" since the "economics are favorable for wind investment given the tax credits and state renewable energy standards". Examining the carbon reduction benefits, the memo concludes that the reductions "would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules)".
The Wall Street Journal published an informative editorial on the memo that's well-worth reading.
The White House memo enumerates several options for reining in the free spending and shifting risk back to developers, but frankly, tweaks made at this level are misguided.
It's time for Capitol Hill to take a hard look at the renewables feeding frenzy underway and adopt policies that better suit the public's needs. For starters, let the funding programs set to expire this year do just that -- expire! Remaining programs (i.e. PTC) should be adjusted to reward projects that can deliver energy according to time of day or seasonal demand requirements and that are built close to load centers.
There are cheaper, much more effective opportunities for achieving clean energy goals without coddling the wind industry -- an industry that peddles a low-value electricity product and which, after decades of public handouts, has yet to show it can survive on its own.
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Senate Jeff Bingaman, chair of the Senate Energy and Natural Resources Committee, signaled he's determined to see a national renewable portfolio standard ("RPS") passed in the Senate before the members recess for the fall campaign season. Joined by majority leader Harry Reid (D-NV) and twenty other co-sponsors including three Republicans: Sens. Sam Brownback of Kansas, Susan Collins of Maine and John Ensign of Nevada, Bingaman introduced new RPS legislation that will require retail suppliers of electricity to secure a percentage of their generation from renewable energy resources.
Bingaman's apparent explanation for pushing the bill now, according to a press announcement this week, is hardly convincing: "I think that the votes are present in the Senate to pass a renewable electricity standard. I think that they are present in the House. I think that we need to get on with figuring out what we can pass and move forward."
Is that the best he can muster to justify a mandate for purchasing renewable energy and setting aside 15% of the electricity market solely for wind, solar, and other preferred forms of generation?
Perhaps he's relying on AWEA's Denise Bode to make his case with her boast that a national RPS "is the single most important thing we can do to grow jobs here in the United States and keep 85,000 American wind energy workers on the job." Denise must have missed the latest press on green jobs that explained, again, how the hype surrounding green projects is not matching reality. What's missing entirely in the discussion is how much a 15% RPS will cost the American ratepayers and how many jobs in every other sector in the country will be lost due to higher energy rates.
More than half of the U.S. States has already adopted RPS legislation in the last decade and a number of these programs are up for review to determine whether their promises of job growth and low impact on electricity rates have been realized. Wouldn't it be prudent to understand the costs and benefits of these programs before launching into new, farther reaching mandates?
Or maybe we already know what these reviews will find.
According to a March 2007 study released by the Lawrence Berkeley National Laboratory, adoption of State RPS policies hinged on state-sponsored studies that projected the costs and benefits of programs. However, across all state studies, the methodologies used in determining projected electricity rate impacts, environmental effects, and public benefits were limited and failed to account for key costs including:
1. transmission and integration costs for wind energy*,
2. fluctuating capacity values,
3. increasing capital costs for the turbines, and
4. likelihood that coal-fired generation, not natural gas, will drive wholesale market prices in some regions.
*The bulk of the renewable generation is expected to be satisfied by wind according to the report.
In an interview, Berkeley Lab researcher Ryan Wiser said that "many of the studies were designed with the explicit intent to either influence legislative processes or, alternatively, to potentially affect the design of RPS policies as established by regulatory agencies."
The "disparity between study expectations and current market reality suggests that the actual cost impacts of state RPS policies may significantly exceed those estimated in our sample of studies, especially if higher wind costs persist."
Do we have any reason to believe Bingaman's bill will do better?
There are other practical considerations of a national RPS that suggest a 15% mandate will have serious negative consequences.
In their 2008 paper entitled "A National Renewable Portfolio Standard? Not Practical", Dr. Jay Apt and others were clear in explaining the perils of a national RES as excerpted here:
A national RPS is a bad idea for three reasons. First, "renewable" and "low greenhouse gas emissions" are not synonyms; there are several other practical and often less expensive ways to generate electricity with low CO2 emissions. Second, renewable sources such as wind, geothermal, and solar are located far from where most people live. This means that huge numbers of unpopular and expensive transmission lines would have to be built to get the power to where it could be used. Third, since we doubt that all the needed transmission lines would be built, a national RPS without sufficient transmission would force a city such as Atlanta to buy renewable credits, essentially bribing rural states such as North Dakota to use their wind power locally. However, the abundant renewable resources and low population in these areas mean that supply could exceed local demand. Although the grid can handle 20% of its power coming from an intermittent source such as wind, it is well beyond the state of the art to handle 50% or more in one area. At that percentage, supply disruptions become much more likely, and the highly interconnected electricity grid is subject to cascading blackouts when there is a disturbance, even in a remote area.
Renewable energy sources are a key part of the nation's future, but wishful thinking does not provide an adequate foundation for public policy. The national RPS ...would be expensive and difficult to attain; it could cause a backlash that might doom renewable energy even in the areas where it is abundant and economical.
As it stands, subsidies for wind dwarf most fuel types at $23.37 MWh not including state and local tax breaks and subsidies for project owners, tax- and ratepayer funded transmission costs, and other public perks thrown at the industry. It's time to step back and consider what's best for us as a Country and demand that Congress stop picking favorites and stand behind a free energy market where companies succeed by building cheaper, better products than competitors. Saying NO to a national RPS would be an important first step.
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