by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
A previous research brief discussed the reliability side of North Carolina’s protections in law of “least cost” and “reliable” electric service. This research brief discusses cost issues of different electricity generation sources.
The first issue of cost to understand is that power generated from new power plants costs more than power from existing power plants. If this seems counterintuitive, it’s because existing power plants have lower fixed costs than new ones. In short, new power plants must not only pay for daily operations, but also pay off their construction costs. Meanwhile, existing power plants have already paid off some or all of their construction costs.
Unlike most businesses, when utilities build new working capital, they’re insulated from the risks by law. Because North Carolina state law finds that “the rates, services and operations of public utilities” are “affected with the public interest” (that is, very vital to the people of North Carolina), the state has granted a monopoly to your electricity provider. The power company must provide “adequate, efficient, and reasonable service,” and in return its shareholders are guaranteed a “fair return.” By law, your power company — which for most North Carolinians is Duke Energy Carolinas or Progress (Duke) — is going to make a profit.
So when the North Carolina Utilities Commission (NCUC) calls for Duke to build new electricity generation, it will then let Duke recover those costs for studying, planning, developing, and building those facilities through higher rates on power consumers, from families on up to large industrial users.
For example, nearly a year ago, the NCUC ordered Duke to “procure 2,350 MWs [megawatts] of new solar generation” as part of the initial Carbon Plan, which is two and a half times more new solar than Duke has ever interconnected in a single year. This order came mere weeks after the NCUC had ordered Duke to procure 1,200 MWs of new solar not related to the Carbon Plan. Duke is seeking a succession of rate increases totaling 16 percent over the next few years to cover those costs along with the cost of prepping the grid to interconnect all of that intermittent solar generation.
The NCUC Public Staff has further warned that by the end of the decade, rates will be “approximately double” what they are now.
On the surface, intermittent renewable resources such as solar and wind would seem to be the cheaper resource because they don’t have any “fuel” costs. For example, a 2021 Popular Science article was flummoxed over how little solar and wind have been adopted given that, while nuclear, natural gas, and coal rely on mined materials to generate electricity, nature provides sun and wind for free, and also that the costs of new solar and wind facilities have fallen below the costs of other new power plants.
That facile approach ignores several factors, and not only the cost of new vs. existing facilities and the cost of restructuring grids to accommodate land-intensive intermittent resources that must be built far away from population centers where energy is consumed. It also ignores the reality that nature often doesn’t provide sun or wind. Furthermore, the article blames utility contracts when they involve other energy sources, but it seems not to know that long-lasting fixed utility pricing contracts for wind and solar required by the federal government prevent customers from enjoying falling prices of wind and solar.
MIT’s Climate Portal showed that, despite solar and wind getting cheaper and lacking fuel costs, making the grid 100 percent reliant on solar and wind would make electricity more expensive for several reasons.
MIT’s Climate Portal recently discussed why, despite solar and wind getting cheaper and lacking fuel costs, making the grid 100 percent reliant on solar and wind would necessarily make electricity more expensive. Their intermittency is a big part of it, because something needs to provide power when people need it and nature isn’t providing it (or not enough of it). Other added expenses include storage (“not cheap”), a need to charge higher prices “for using electricity at peak hours” (which by the very name means when people need electricity the most, but also which occurs beyond the hours of solar production), and a need to use “climate-friendly energy sources” as backup sources for when solar and wind aren’t producing or aren’t providing enough (these sources would be “coal or gas plants fitted with carbon capture technology, or something new like small nuclear plants”).
As mentioned above, preparing the grid for intermittent renewables will be a significant expense. Duke indicated that 75 percent of revenues from their requested rate increases will go toward improving grid infrastructure.
As MIT acknowledged, the need for backup generation to intermittent solar and wind power increases costs on electricity consumers. The previous brief (see under the subhead “Dispatchable or not”) showed that those backup sources are used inefficiently — shut down and restarted as solar and wind fluctuate, rather than ramped up from a less inefficient low-load (idling) operation. Either way, it ironically results in increased emissions.
A report from the Institute for Energy Research (IER) compared the levelized costs of new and existing electricity sources. Since backup generation is required for solar and wind, the IER report factored in the imposed costs of backup generation in calculating the levelized costs of new solar and wind facilities. With those costs included, new solar and wind resources are revealed to be some of the most expensive new sources, not the least.
Solar and wind’s intermittency also call for overbuilding. It’s not just that adding new solar and wind facilities increases costs to consumers. It’s also that making the grid rely more on solar and wind would necessitate adding far more solar and wind capacity than the grid would appear to need. Why? Because as discussed in the previous brief (see under the subhead “ELCC and output factor”), solar and wind can only carry fractions of the load.
Reports generated for Duke showed that, on average, onshore wind would have an effective load carrying capacity (ELCC) of only 38.8 percent. Roughly, it means that 100 MWs of new wind would be able to carry only 38.8 MWs of additional demand for electricity (load). Solar’s ELCC ranged from an average of 45.4 percent in the summer down to 3.5 percent in the winter. If the utility were required to ensure that intermittent solar and wind carried the load, overbuilding would be the only way.
At this point solar and wind’s advocates might protest: Aren’t new solar and wind facilities even cheaper now because of tax credits for renewables contained in last year’s Inflation Reduction Act (IRA)?
After all, the Biden administration boasts that the president’s signature legislation will “Save American families up to $38 billion on electricity bills.” It’s a boast predicated on the idea that “wind and solar are cheaper to operate once they’re built [and have] no fuel costs” (emphasis added), but it also relies on a rather foolhardy forecast that gasoline prices will decline by 13 percent by 2030.
The second part of this brief will address this aspect of the cost question, but in the meantime consider: