John Locke Update / Research Brief

Renewable Energy’s Promises Aren’t Enough; Do the Math, Policymakers

posted on in Economic Growth & Development, Economics & Environment, Energy & Environment
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Californians are going to wish their policymakers had learned one key lesson individual homeowners should know when it comes to dealing with the promises of renewable energy: do the math.

Steve Sexton, assistant professor of public policy and economics at Duke University, explained in a recent article in the Wall Street Journal how California regulators used bad numbers to force rooftop solar panels on California homeowners by 2020.

Some snippets follow:

The California Energy Commission, which approved the rule as part of new energy-efficiency regulations, didn’t conduct an objective, independent investigation of the policy’s effects. Instead it relied on economic analysis from the consultancy that proposed the policy, Energy and Environmental Economics Inc. Its study concluded that home buyers get a 100% investment return—paying $40 more in monthly mortgage costs but saving $80 a month on electricity. If it’s such a good deal, why aren’t home buyers clamoring for more panels already?

Sexton, who has studied the value of rooftop solar generation in California by zip code, explains how California’s math breaks down:

The Energy Commission is too optimistic about the cost of panels. It assumes the cost was $2.93 a watt in 2016 and will decline 17% by 2020. Yet comprehensive analysis of panel costs by the Lawrence Berkeley National Laboratory estimated the average cost of installed panels to be 4.50 a watt for the 2- to 4-kilowatt systems the policy mandates. That is $4,000 more than regulators claim for a 2.6-kilowatt model system in the central part of the state, where 20% of new homes are expected to be built. Berkeley Lab further estimates that costs fell a mere 1% between 2015 and 2016, far short of the 4% average annual decline the regulators predict. …

Residential solar generators are paid as much as eight times what wholesale generators receive, according to a grid operator’s analysis of publicly available data. Dozens of states are rethinking these generous subsidies, paid by ratepayers, because they shift the costs of maintaining the electric grid to relatively poor nonsolar households. The California Public Utilities Commission is set to revisit this regressive policy in 2019—before the solar mandate takes effect.

If the subsidies are removed, solar adopters would be in the red. This is why the electricity generated by the solar mandate should be valued at the cost of its replacement from the grid—not at the subsidized rate households receive. In a presentation at the National Bureau of Economic Research earlier this year, I estimated the value of rooftop generation for each of California’s ZIP Codes using one year of price data from the grid operator. The average electricity value of the solar mandate’s model system is $12.50 a month, far less than the $80 benefit the regulators claim.

A reminder: When MIT Technology Review did the math and considered what would happen to the financial picture of rooftop solar if states changed their highly generous subsidy structures, they began to warn that the supposed “solar boom” resembled a “solar bubble.”

That plan is part of California’s vision of being 100 percent powered by renewable energy. Writing in the LA Times, Robert Bryce of Manhattan Institute does the math on that idea. Advocates estimate it could be done with “about 124,608 megawatts of onshore wind-power capacity, 32,869 megawatts of offshore wind capacity, and 236,243 megawatts of solar-energy capacity.”

Those are enormous numbers. Bryce examines them specifically in terms of the land use they would require. A few snippets:

Last year, global solar capacity totaled about 219,000 megawatts. That means an all-renewable California would need more solar capacity in the state than currently exists on the entire planet. … [It would] require nearly 33,000 megawatts of concentrated solar plants, or roughly 87 facilities as large as the 377-megawatt Ivanpah solar complex now operating in the Mojave Desert. Ivanpah, which covers 5.4 square miles, met fierce opposition from conservationists due to its impact on the desert tortoise, which is listed as a threatened species under the federal and California endangered species acts. …

California would need 41.5 billion square meters, or about 16,023 square miles, of turbines. To put that into perspective, the land area of Los Angeles County is slightly more than 4,000 square miles — California would have to cover a land area roughly four times the size of L.A. County with nothing but the massive windmills. Turning over even a fraction of that much territory to wind energy is unlikely. …

Don’t count on offshore wind either. Given the years-long battle that finally scuttled the proposed 468-megawatt Cape Wind project — which called for dozens of turbines to be located offshore Massachusetts — it’s difficult to imagine that Californians would willingly accept offshore wind capacity that’s 70 times as large as what was proposed in the Northeast.

To expand renewables to the extent that they could approach the amount of energy needed to run our entire economy would require wrecking vast onshore and offshore territories with forests of wind turbines and sprawling solar projects. … The grim land-use numbers behind all-renewable proposals aren’t speculation. Arriving at them requires only a bit of investigation, and yes, that we do the math.

Bryce didn’t even bother doing the math on what forcing those choices on citizens would cost them as electricity consumers and taxpayers. Perhaps he figured it was too bleak a prospect to consider.

Nevertheless, as readers here know and poor electricity consumers intrinsically realize, making sure customers have reliable, least-cost electricity is the Number 1 issue in electricity policy.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. Serving as Senior Fellow of Regulatory Studies and also Research Editor at the John Locke Foundation, Jon gets in the weeds of all… ...

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