The economic impacts of Vermont feed in tariffs

Abstract

The Vermont Department of Public Service evaluated the economic consequences of The Vermont Energy Act of 2009 which established mandatory cost based prices for 50 MW of renewable energy technologies. These prices were generally higher, and in many cases significantly higher, than current estimates of prices for market based alternatives. Using a dynamic regional forecasting and policy model the DPS estimated the economic and employment impacts on Vermont households and businesses for the next 25 years.

The analysis found the Feed in Tariff program is expected to increase Vermont capital investment and create jobs during its 26 year life cycle. However, the net gain in employment was found to be far less than conventionally thought with long term winners and losers by sector. Following an initial increase in temporary construction-related jobs long term employment averaged 13 full time jobs per year. This total includes both direct and indirect employment in the energy sector as well as the job and income related effects of increased electricity costs.

This study estimated only the economic and employment impacts from the specific mix of renewable systems chosen to participate in the Feed in Tariff program and the impacts of the specific rates provided to these facilities.

The Bottom Line 

The analysis measured marketplace responses to a policy-induced investment in 50 MW of renewable energy capital construction, spending on O+M, and differential Feed in Tariffs.

The Feed in Tariff program is expected to increase Vermont capital investment and create jobs during its 26 year life cycle. However, the net gain in employment was found to be far less than conventionally thought with long term winners and losers by economic sector. Moreover, the analysis did not consider the potentially detrimental impacts of diverting capital investment away from more productive opportunities.

Above-market energy costs had the deleterious effects of reshuffling consumer spending and increasing the cost of production for Vermont businesses. Increased costs for households and employers reduced the positive employment impacts of renewable energy capital investment and the annual repair and maintenance activities.

Lessons Learned

Certainly the population most directly affected by the Standard Offer is utility ratepayers who will pay a significant premium for a portion of their electricity for up to 25 years. As a general principle the Department does not support having ratepayers subsidize economic policy in their rates because regulatory discipline dictates that the rates that consumers pay should go solely to what is necessary to source power that lights their homes and businesses. Further, the least cost principals embodied in statute and implemented by the DPS dictate that the power that is purchased on behalf of rate payers is sourced on a least-cost basis. The architects of Act 45 specifically eliminated the least cost standard from the standard offer program which opened the door to paying premium rates to higher cost energy providers.

Consumers may benefit and desire that their energy come from renewable power sources, but in the standard offer program the rate structure requires the payment of a price sufficient to support less competitive renewable sources. Wind, biomass, solar and farm methane are all renewable sources of electricity, but they do not all cost the same to produce per kwhr of electricity. Further, the smaller sized resources supported under this program suffer from diseconomies of scale within each renewable type. 50 MW of renewable electricity can be procured for Vermont ratepayers on a long-term basis at a much lower cost if the program dictated that the least cost renewable should be chosen. Put another way Vermont consumers are paying a higher price for a portion of their renewable energy with no discernable benefit.

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