by Daren Bakst
Senior Research Fellow in Agricultural Policy, Heritage Foundation
Recent newspaper articles have discussed the John Locke Foundation’s view that the state legislature should repeal the 2007 state renewable energy mandate bill (SB 3).
Here’s a bit more information on why SB 3 should be repealed, along with some thoughts about the views expressed in those articles.
The SB 3 Mandate
SB 3 mandates that utility companies generate at least 7.5% of their electricity from renewable energy sources (such as biomass, solar, and wind).
If a bill mandated coal or nuclear power, this also would be a problem. Utility companies should be generating electricity from the most reliable and inexpensive sources of electricity, whatever those sources may be. If those sources are wind and solar, so be it.
Costs: Due to this mandate, North Carolina electricity customers have to pay far more for electricity. Utility companies don’t bear the costs–they pass on the costs to customers.
Cost per kWh for new generating technology (from EIA data)
Biomass is somewhat competitive according to these numbers but much of the costs for biomass are going to be state-specific depending on in-state biomass resources.
SB 3 caps how much extra utilities can charge due to the higher costs of renewable energy. The fact that there’s a much-needed cost-cap is evidence that these sources will cost more money for customers.
Based on a Beacon Hill Institute study (in conjunction with JLF), with the cost caps in place, electricity customers will have to pay about $1.8 billion extra for electricity from 2008-2021. If the cost caps were not in place, the extra costs would be about $4.5 billion.
Reliability: The other key issue is reliability. While coal, nuclear, and natural gas are reliable sources of electricity (i.e. they can be counted on to generate electricity when called upon), solar and wind are unreliable. Since the wind doesn’t blow and the sun doesn’t shine on demand, grid operators must account for the volatility associated with these sources. This means back-up generation, often in the form of natural gas plants, have to be ready to go when wind and solar power sources aren’t generating electricity.
Paying for Nothing: Under SB 3, utility companies can meet 40% of their renewable energy mandate by subsidizing out-of-state renewable energy providers. This mean North Carolina electricity customers not only are paying much more for electricity, but they are paying more to receive no electricity in return. Basically, we are paying extra to subsidize the electricity in Texas and California.
Mandate to Lose Jobs: The SB 3 mandate would cost North Carolina at least 3,592 jobs (by 2021), assuming the cost cap is in place. This is 3,592 jobs that North Carolina would have had but won’t because of this mandate. SB 3 is not just a mandate for renewable energy, it is a mandate for North Carolina to give up jobs.
Mandate to Reduce Disposable Income: The SB 3 mandate would result in a loss of about $57 million in disposable income by 2021, assuming the cost cap is in place. SB 3 is a mandate for North Carolinians to have less disposable income.
“Renewable Energy” is an Artificial Term in SB 3: What is the most reliable renewable energy source? That would be hydropower. What renewable energy source does SB 3, for the most part, exclude? That’s right: hydropower.
But isn’t SB 3 designed to protect us from carbon dioxide emissions? If that were true, then why isn’t nuclear power part of the mandate? The SB 3 definition of renewable energy demonstrates that the bill isn’t about anything other than pushing certain types of power–at the expense of electricity customers, jobs, the economy, and the poor (the poor get hit hardest by higher energy prices).
Understanding why the Utility Companies Support SB 3
In the recent newspaper articles, Progress and Duke express support for SB 3. Of course they do.
Not only don’t they incur costs, but they received a very important “goodie” in SB 3 that made the mandate worth it. There’s something called Construction Work in Progress (CWIP), and it is now allowed with nuclear power.
This means that utility companies can pass on the costs of building nuclear power plants as they incur those costs. If the plants never get finished, electricity customers still bear the costs of the plants.
The risk associated with building plants is shifted from utility company shareholders to electricity customers. The result is that utilities have little reason to be cost-efficient in constructing plants. This disincentive to be efficient will lead to:
SB 3 also has provisions that make it very profitable for utility companies to run energy efficiency programs. They make more money from not generating electricity compared to generating electricity.
I also have to comment on this quote from the article:
Charlotte-based Duke Energy likewise opposes repealing SB3. “It has done a lot of good things for the state,” Duke spokesman Jason Walls said. “This legislation has really helped create a market for solar energy in the state.”
Of course, by this definition of a “market,” the state could force us to buy rocks and we’d have a rock market, but this doesn’t change the fact that people don’t want rocks nor is there a need for people to own rocks (although, they do make good pets).
It’s the Economy
Repealing SB 3 would be a huge step in improving North Carolina’s economy. It, of course, won’t solve all problems, but it will eliminate a policy that the state adopted that intentionally is hurting the economy.
Isn’t it bad enough that so many people are out of jobs and/or are struggling to make ends meet? North Carolina doesn’t need to intentionally makes things worse by keeping this harmful law in place.
Representative Cleveland recently introduced a bill (HB 431) in the state House to repeal SB 3. This is the first step in what will hopefully be the end of this very costly law to all North Carolinians.