Struggling Cities (Financially Strapped Households) Beware: Renewable Energy Mandates Could Double Electricity Costs
My hometown of San Bernardino is just the latest in a potentially growing list of cities to file for bankruptcy protection. There are numerous reasons why cities, counties, and states are facing such drastic measures. Some cite a drop in tax revenues due to the decline in housing values. Others, as in the case of Stockton, CA, legacy costs-meaning pensions. California’s Mammoth Lakes blames a debilitating court judgment. In San Bernardino’s case misconduct in the city council is alleged, and a criminal investigation is underway.
Having graduated from high school and attended college in San Bernardino, CA, my interest was piqued when I heard that it had become the third California city to file for bankruptcy. The mix of declining revenues and increasing costs are pinching government budgets nationwide, and many more bankruptcies are expected.
Obviously, as individual households and businesses have done, spending needs to be cut back in all possible areas. Cut a little here, cut a little there, and hopefully it will be enough to add up to real savings.
Faced with the dire consequences of bankruptcy, why are cities and states voluntarily, under legislative mandate, paying more than they have to for energy? Couldn’t they declare a “state of emergency” and simply waive the mandates for more expensive wind and solar power?
I don’t know if that is really something they can do or not, but it is something voters can do. We can elect people who want to return to common sense energy policy.
Last month, I participated in an insightful conference call on Renewable Portfolio Standards, featuring James Taylor, Senior fellow at the Heartland Institute. During the call he pointed out the impact of higher electricity costs to a state’s economy. For example, he addressed the different per-kilowatt-hour prices in several southeastern states. While rates vary, he used average numbers of $.11 per Khw for Florida, and $.07-.09 in the other states. He claimed that if Florida had the same rates as Georgia-whose rates are the closest to Florida in the Southeastern states-the state would save $6 billion dollars each year, or $850 per household. If the rates were the same as Louisiana-which has the lowest rates in the region, the state would save $10 billion dollars annually, or $1,400 per household.
That got me thinking, if a few cents, between $.07-.11, can make a $10 billion impact on a state’s economy, what difference will the higher costs of renewable energy do to these struggling cities?
Taylor referenced a study done by Tufts University economics professor Gilbert E. Metcalf, which provides the levelized costs of the various sources of electricity-meaning with the subsidies, preferences, and differential tax treatment removed. The “Federal Tax Policy Towards Energy” study was done in 2006 and reported on in 2007, so the numbers quoted here would not be the most recent, but they do provide real numbers for comparison. Metcalf found that coal was the least-cost method of electricity generation. Natural gas was next, the second least-cost, but was still 48% more than coal. Nuclear is 57% more than coal; wind, 75%; solar thermal, 570%; and solar photovoltaic, 887% more than coal. Of course, the price of natural gas is greatly reduced due to its newfound abundance and, yes, the costs of wind and solar have come down-but they’d have to come way down even to be close to competitive to coal or natural gas.
Here’s another way to look at the numbers. The US Energy Information Administration (EIA) produced a report that shows the same basic ideas from a different angle. The 2010 report attempted to project out what future energy costs would be. Like the Metcalf study, the EIA report offers levelized numbers. They assume that natural gas costs will remain low and even give some benefits to the prices of renewable energy. In their projections, natural gas is the least-cost, with coal being 50% more. Nuclear is 81% more expensive than natural gas; onshore wind, 131% more; offshore wind, 470%; solar thermal, 394%; and solar photovoltaic, 234%.
No matter which way you look at the numbers, coal and natural gas are the least-cost ways to generate electricity, with wind and solar, the most expensive.
Yet, most states have passed legislation requiring increasing percentages of the electricity used in the state be generated from renewable sources such as wind and solar-with California’s being the most onerous: 33% by 2020.
Using an average of the renewable (wind and solar) energy cost increases (Metcalf, 505.56% and EIA, 307.25%) we can assume that renewable energy will be 406.45% higher than the least-cost source of electricity. So California, where the three cities, Stockton, Mammoth Lakes, and San Bernardino, are located is mandating a 33% percent increase in electricity that will likely cost more than 400% more-which means the mandates could result in a doubling of electricity costs for every city (and household) in California.
It is true that electricity costs are not the biggest problem facing cities, but with nearly every city in the country (and nearly every household) facing budgetary stress, does it make sense to be increasing costs unnecessarily?
These three cities-including my hometown-serve as a warning sign to all of us. We must cut a little here and cut a little there. And, hopefully, the combined cuts will add up to real savings that can help pull a city back from the abyss of bankruptcy. The money saved by eliminating renewable energy mandates could allow cities to fund services-like police and first responders-that might otherwise have to be cut. Or cities could cut the lights making them less safe and more prone to crime.
These increasing electricity costs are not just a California problem, as more than half of the states have similar mandates-and some senators want to make such mandates national. Unless you are part of Obama’s demonized “1%,” who can afford these higher costs, you’d better beware-a mandate might just be looking for you.
When it comes to energy, President Obama wants us to use less and pay more. But the countries with the best human health and highest material wealth are those with high-energy consumption. If that energy is more expensive, it will hurt our health and wealth.