Renewable Energy: Predictions (and Politics) Meet Reality

April 4, 2013

Yesterday in the North Carolina  General Assembly, the House Committee on Commerce and Job Development took up  House Bill 298. (For background on the bill, see an earlier  post  about the proposed repeal of North Carolina’s renewable energy portfolio standard.)   Rep. Mike Hager presented a slightly revised bill, but repeal of the 2007 renewable energy portfolio standard (REPS)  remains at the center of the legislation. The committee approved the bill on a very close vote (11-10);  two Republican committee members voted  with Democratic committee members to oppose the bill.

Discussion in committee set up an interesting conflict between the reality of North Carolina’s REPS experience and the politics of renewable energy.  Those supporting repeal of the REPS requirement   cite both  ideological reasons  (opposition to  energy subsidies in general and subsidies for renewable energy in particular) and fear that the higher costs of renewable energy will hurt consumers and damage  the   economy.  The problem for bill supporters is that the state has had five years of experience with the REPS requirement and none of the predicted economic  horrors have materialized.  Instead, bill opponents can point to  real economic benefits  in jobs created and  private investment attracted to the state –- at minimal cost to consumers.

Of the fifteen (by my count)  members of the public who  commented on the bill in committee, only three supported repeal of the renewable energy portfolio standard. All three represented conservative political organizations — two  speakers from Americans for Prosperity and  another   from the Civitas Institute.  One argument for repeal laid the responsibility for increased electricity rates at the feet of the renewable energy standard.  In reality, REPS costs have been  low and and continue to decline.  For a residential Duke Energy customer, the  fee (or “rider”)  to cover the additional cost of  meeting the REPS requirement  is now 21 cents per month and  falling.   Although Duke Energy has filed a proposed rate increase  with the N.C. Utilities Commission, the justification for the increase has been recovery of capital costs associated with conventional power generation facilities and improvements to transmission infrastructure  — not  the cost of renewable energy.

Dallas Woodhouse, state director of Americans for Prosperity,  and Brian Balfour from the Civitas Institute also argued that the  higher  cost of renewable energy hurts the state’s economy and leads to job loss.   Their  argument  seems to be rooted in a 2009  report on the  projected  economic impact of  North Carolina’s renewable energy portfolio standard  that was put out by  the John Locke Foundation and the Beacon Hill Institute (BHI)  at Suffolk University. The  Locke/BHI Report looked at two different scenarios and even under the more favorable of the two predicted  that:

“… North Carolina will lose 3,592 jobs, investment will decrease by $43.20 million and real disposable income will fall by $56.80 million by 2021. As a result, the state economic output measured in real state Gross Domestic Product (GDP) will be $140.35 million lower than without the mandate.”

That prediction was made  early in implementation of the state  REPS requirement and the 2013 reality looks very different.    The actual impact of North Carolina’s support for green energy:  $1.4 billion in new green energy investment, more than 15,000 jobs in green energy as of September 2012  and an increase of $1.7 billion in the state’s overall economic output.  (My  earlier post has  links to both a 2013  Research Triangle Institute/La Capra report on the economic impact of the state’s green energy policies and a green energy jobs census conducted by the N.C. Sustainable Energy Association.)

Why were the predictions in the  Locke/BHI Report so wrong?  The costs of meeting the REPS requirement have turned out to be much lower than  the report projected.  The Locke/BHI Report assumed that the electric utilities would need to go  to the maximum cost recovery  rider  allowed under the 2007 REPS legislation (Senate Bill 3).  The report also evaluated a second, even more pessimistic, scenario that assumed actual renewable energy costs would exceed the fee caps.  As it turns out, the  REPS  riders are nowhere near the  statutory caps and  the riders continue to drop from year to year.  Senate Bill 3 capped the  REPS cost recovery rider for residential customers at $1 per month for 2012; the  current  Duke  Energy  rider for residential customers is  21 cents per month. In March, Duke filed an  application with the N.C.  Utilities Commission to set the residential REPS rider for 2013-2014 at  -1 cent, which would result in a  rebate to residential customers.  Costs to  non-residential customers have also come in   below the Senate Bill 3 caps and will continue to fall under the riders proposed by Duke Energy for 2013-2014.

The twelve members of the public who spoke against House Bill 298 in committee represented renewable energy companies  with significant investments in North Carolina; large swine producers  investing in waste-to-energy projects as an innovative  way to dispose  of swine waste;   the Warren County economic development director who pointed to the benefits that solar energy development  has brought to an economically struggling  rural county; and a wind energy developer interested in the North Carolina coast.

Based on the committee discussion yesterday, House Bill 298 has the potential to cause serious heartburn for conservative legislators who are being forced to choose  between a real bright spot in the state’s economy and policy positions advocated by conservative political organizations. The bill still has three more committees to get through in the House; the next stop will be the Environment Committee.