What does looking at the middle say about energy policy in the U.S.? Or, to put it another way, how have policies pushing alternative energy changed consumer prices and environmental pollution? A new study from the Center of the American Experiment aims to answer this question, taking a close look at how aggressive clean energy policies have cost Minnesotans billions of dollars without delivering on environmental protection goals. Since Minnesota is relatively average in terms of both energy pricing and consumption, the effect of clean energy policies there is a good demonstration of how these changes can effect consumers in other states.
Minnesota has set ambitious energy goals for itself, aiming to reduce greenhouse gas emissions 15 percent below 2005 levels by 2015, 30 percent by 2025, and 80 percent by 2050. Under its renewable energy standards, utility companies are required to produce 25 to 30 percent of their electricity from renewable sources other than hydroelectric power.
“Historically, Minnesota enjoyed the advantage of relatively cheap electricity, with rates typically 18 percent less than the national average. However, since spending an estimated $10 billion on building wind farms and billions more on new and upgraded transmission lines, Minnesota has lost this competitive advantage with little to show for it, except higher electric bills,” write Steven Hayward and Peter Nelson, the authors of the study, who described the state’s policies as “virtue signaling” that only hurts consumers.
“As electricity generation from carbon free wind approaches 20 percent of total generation, Minnesota has not experienced any appreciable reduction in greenhouse gas emissions relative to the U.S. average,” they write.
According to the numbers, the state ranked 18th in per capita energy consumption, and 22nd in per capita spending for energy, and was 24th in carbon dioxide emissions in 2014. What Minnesota has lost, though, is its price competitiveness. Between 1990 and 2009, before many of the renewable energy policies had been implemented, the retail price of electricity in Minnesota was 18 percent lower than the national average. In February of 2017, Minnesota prices passed above the average for the first time in nearly 30 years.
“If in the past seven years Minnesota would have maintained its historic price advantage versus the rest of the country, the state’s consumers would have paid nearly $4.4 billion less than what the actual cost of electricity turned out to be,” the study found.
The primary beneficiary of this tax break has been wind energy. Minnesota has pushed the development of wind energy for more than a decade. Starting in 1994, utility companies began constructing wind farms on Buffalo Ridge in the southwestern corner of the state. Since then, an estimated $10.6 billion has been spent building wind farms to meet the state’s mandated renewable energy requirement.
In this respect, the state has taken an unusual approach to carbon reduction, by focusing its efforts on electricity generation, which represents only about 40 percent of the state’s energy consumption. As a result, consumers saw energy prices increase by more than three times the national average between 2010 and 2017.
The researchers stressed that energy policy needs to be both affordable and scalable, requirements that favor energy sources with a high density. Fossil fuels meet these requirements by being able to deliver relatively large sources of energy from a small amount of material, and because they are easily transportable. For Minnesota, however, the focus on clean and renewable energy has rewarded wind energy, which relies heavily on federal subsidies to remain competitive.
At the same time, electricity consumption within the state has remained relatively stable, a trend that is predicted to continue for at least the next decade. According to forecasts by Xcel Energy, the utility company supplying roughly half of the state, state electricity use is expected to grow by only 2.1 percent over the next fifteen years and for the most part, meeting the growth will not require new generators.
“This means that the emphasis on installing new renewables is not necessary to meet increased demand, but is replacing—in some cases duplicating—existing electric generators that may not have reached the end of their useful lifespan,” the study continues.
Even after the heavy emphasis and costly investment in wind power, Minnesota falls far short of meeting its own goals. Between 2005 and 2014, state carbon emissions decreased by only 4 percent, far below the state’s 15 percent goal. In fact, the study found that, “after falling 15 percent from the peak in 2005, total CO2 emissions rose 10.4 percent between 2012 and 2014.” Even as wind power generation increased by more than 90 percent between 2009 and 2014, the state has made “little to no progress” on lowering its carbon emissions.
In fact, decades of wind generation did less to reduce carbon emissions than one plant failure that took a coal-fired generator offline for 22 months in November 2011.
Much of this occurred because the availability of wind power rarely matched periods of peak energy demand. As a result, coal-fired plants are needed to serve as backstops.
“Electricity demand in Minnesota varies by time of day and by as much as 40 percent by season, from its lowest points in the spring and fall (when the weather is mildest) to its highest points in the middle of the summer and around the holidays,” the researchers found. “The data show that wind power produces the least amount of power in the hot summer months when annual power demand peaks. Wind power performs moderately well in the winter months, but falls precipitously—as much as 50 percent—in the summer months when demand is highest.”
As a result, Minnesota’s energy policy largely fails to achieve its primary goal: reducing carbon emissions. Rather than shifting towards natural gas generators, which produce fewer emissions than coal plants, Minnesota’s regulators and utility companies have focused on wind and solar power. While cleaner, these generation methods have done little to lower the state’s carbon emissions. After spending millions of dollars on wind turbines and solar panels, Minnesota’s emissions are roughly where they would be if the state had instead installed natural gas generators on the same level as other parts of the country.
In part, this is because electricity generation accounts for only a fraction of the carbon emissions in Minnesota. Seventy percent of fossil fuel consumption in Minnesota is used for purposes other than generating electricity, including transportation and home heating. Even if 25 percent of Minnesota electricity were generated from renewable sources, this would only account for about 15 to 20 percent of total state energy use.
And all of these improvements come with a price to consumers. For the first time in years, Minnesota’s state legislature seems to be wising up to this. In 2017, the legislature passed a statute considering energy cost for the first time in years. The new statute establishes a new goal that state energy rates should be at least five percent below the national average.
Hayward and Nelson hope that the tension between price and emissions will push the state towards adopting a more moderated approach. Of course, in the meantime, the state has been investing heavily in another new renewable power source: solar.