by Dr. Roy Cordato
Senior Economist, Emeritas
1. It’s time to end NC’s forced usage of renewable energy
There is currently a bill in the legislature, introduced and sponsored by Representative Chris Millis, that would phase out North Carolina’s coercive renewable energy mandates, which were passed in 2007. At the present time, North Carolina requires that utility companies provide 12.5 percent of their electricity from very expensive renewable forms of energy that are incapable of generating electric power for more than a few hours a day, like solar and wind. If they have trouble meeting this requirement, the 2007 law allows companies to substitute up to 5 percent of the 12.5 percent with what are called "energy efficiency" measures. These have to do with altering people’s demand for electricity, often implying social engineering and lifestyle manipulation. Because the legislature at the time knew that all this would be quite expensive for consumers, they put rate caps in place, limiting the amount of additional costs that the utility customers would have to shoulder in order to meet these all-social-cost-and-no-social-benefit standards. As it currently stands, the cap is $12 per household in annual rate hike costs associated with the mandate but, if Millis’s bill is not passed, that will almost triple to $34 per household as of July 1.
Millis bill, called the Energy Ratepayers Protection Act (HB 681) will reverse this mess. Between now and 2018, the residential cost cap will stay at $12 and the increase to $34 will go away. Also, the renewable mandate will fall from 12.5 percent to 6 percent, which is already being met, while allowing half of that to be met through "energy efficiency." Even those mandates will be repealed by 2018.
The 2007 law should never have passed in the first place. It has no environmental benefits. Even if one accepts the alarmist position on global warming, the reductions in CO2 levels in the atmosphere brought about by the legislation would be imperceptible and would have no measurable impact on global temperatures. For the citizens of North Carolina, as opposed to the special interests in the solar and other renewable energy industries, these mandates have been and will continue to be all costs and no benefits. Repeal is definitely in order.
2. Regulated markets plus third party electricity sales equals a hidden tax on ratepayers
In a recent News and Observer article, Rep. John Szoka plugs his so-called "energy freedom" legislation allowing off-the-electric-grid third party sales from solar farms directly to consumers by saying "I believe in free markets and I believe in property rights. This allows property owners to use their property as they see fit." As I discussed here, there is in fact nothing free market about allowing solar companies, which exist only because of tax incentives and coercive mandates, to sell electricity directly to customers. It is an industry that no rational investor would put his or her money into in a free market.
Users and producers of solar power benefit from a huge number of government-granted privileges, all of which are necessary in making electricity from solar a viable option to consumers. The fact that there are state and federal tax incentives for both solar companies and their customers is well known. The mandates discussed in the previous item are also a form of subsidy. But there are two others that are not well understood and that amount to a hidden tax on all rate payers.
First there is a requirement that the utility companies buy any excess power generated by solar at retail prices, i.e. the same price that it sells it for. This is called net metering and is mandatory whether or not the electricity is needed by the utilities and whether or not it will impose extra costs on utility customers, which it does. These extra costs are associated with the fact that it is expensive for utilities to accommodate this extra power onto the electric grid. These costs are passed on to ratepayers, so net metering imposes a hidden tax.
According to the pro-solar advocacy group TUSK, "Net metering is a fundamental policy to the growth of rooftop solar in North Carolina and should not be weakened." In other words, even advocates for third party solar sales in North Carolina recognize that the industry couldn’t survive without this subsidy.
But what might end up being the biggest hidden tax stems from the fact that solar panels can only supply electricity when the sun is shining. Solar power, like wind power, requires back-up electricity generation from regular power plants in order to have any chance in the market at all. The next time someone says that solar is a reliable form of energy ask them if, using only the panels, you will be able to light your house at night — other than with a kerosene lamp — heat your house during a blizzard, or cook dinner after 7 in the evening. This is where the hidden tax comes in. If you are a user of solar power sold to you by a third party, the electric company is required by law to connect you to the grid and has to provide you with power during what amounts to more than half of any given day. This imposes a number of costs on electric companies due to the fact that the amount of electricity flowing to the grid from conventional power plants has to be constantly adjusted to accommodate the on-again-off-again nature of third party sales. The costs of meeting this challenge will all end up as rate hikes for utility customers generally. As noted by the Institute for Energy Research:
Intermittent renewable generating technologies (i.e. wind and solar) are causing havoc with electric grid operations because these technologies cannot be controlled by the operators of the electricity grid due to the fact that their generation depends on the wind blowing and the sun shining. Thus, the independent system operator in charge of running the grid must be ready to either drive down the generation of traditional technologies (i.e. natural gas and coal) when intermittent renewable generating capacity starts producing power or ramp up generation from more reliable technologies when intermittent renewable generating capacity shuts down. This means that the independent system operator needs an arsenal of flexible generating technologies to come to the rescue in order for electric consumers to receive electricity at the touch of a switch as they have been accustomed to.
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