Filed under: Archive, Legislation, New Energy Economy, renewable energy
Could this happen in Colorado? Maybe…
A Wall Street Journal article reports what some in Colorado’s energy industry know, too much reliance on wind and solar can make an electric grid unstable and lead to power outages.
California regulators and energy companies met last week out of fear that the state’s electric grid is so unstable due to heavy dependence on wind and solar that rolling blackouts will begin as early as 2015. The WSJ reports:
Regulators and energy companies met Tuesday, hoping to hash out a solution to the peculiar stresses placed on the state’s network by sharp increases in wind and solar energy. Power production from renewable sources fluctuates wildly, depending on wind speeds and weather.
California has encouraged growth in solar and wind power to help reduce greenhouse-gas emissions. At the same time, the state is running low on conventional plants, such as those fueled by natural gas, that can adjust their output to keep the electric system stable. The amount of electricity being put on the grid must precisely match the amount being consumed or voltages sag, which could result in rolling blackouts.
At Tuesday’s meeting, experts cautioned that the state could begin seeing problems with reliability as soon as 2015.
California, which has a 33 percent renewable mandate, has plenty of power but…
Even though California has a lot of plants, it doesn’t have the right mix: Many of the solar and wind sources added in recent years have actually made the system more fragile, because they provide power intermittently.
This story should serve as a warning to all, such as Rep. Max Tyler (D-Lakewood) and former Governor Bill Ritter, who think that government mandating electricity generated from wind and solar is as simple as passing legislation while ignoring science and technology.
In a March 2010 press release Tyler bragged about his bill increasing Colorado’s renewable mandate to 30 percent:
The sun will always shine for free, the winds will always blow for free, and our energy production will be cleaner. Renewable energy, green jobs, and a cleaner future — what’s not to like?
What’s not to like? How about an unstable grid that leads to blackouts. Get your generators now.
The numbers are in, and they aren’t pretty. Four of the largest cost driving pieces of legislation enabling Colorado’s New Energy Economy cost Xcel Energy ratepayers nearly half a billion dollars in 2012 alone. Adding insult to injury, some of the electricity produced wasn’t needed in the first place according to a just released report from the Independence Institute’s energy policy analyst William Yeatman. So Xcel ratepayers paid handsomely for electricity that ended up as surplus.
Using Xcel’s regulatory filings Yeatman determined:
- In 2012, the New Energy Economy cost Xcel ratepayers $484 million – more than 18 percent of Xcel’s total electricity sales. Based on 1.4 million ratepayers, the New Energy Economy cost $345 per ratepayer in 2012.
- Due to a depressed economy, there is an oversupply of electricity generation onXcel’s system, which means Xcel ratepayers spent $484 million on the New Energy Economy in 2012 in order to obtain electricity that they did not need
Yeatman also breaks down the cost by each of the four pieces of legislation, which includes the renewable energy mandate and its massive $343,000,000 cost. It’s clear that State Representative Max Tyler’s and former Governor Bill Ritter’s fanciful promise of a two percent rate cap is much different in reality.
Prior to the New Energy Economy, Colorado worked on a least cost principle meaning utilities were to deliver reliable power to ratepayers in the most cost effective manner. When it comes to renewable mandates and the New Energy Economy, state lawmakers would be wise to remember economist Milton Friedman’s words, “there’s no such thing as a free lunch.”
The Independence Institute’s Todd Shepherd, along with this blog, have spent two years covering, and ultimately exposing, what is now the Abound Solar scandal. Understandably, much of the focus is now on Weld County District Attorney Ken Buck’s criminal investigation as well as a Congressional Oversight Committee inquiry into the bankrupt solar panel manufacturer.
Recently released emails on Complete Colorado indicate that, despite statements to the contrary, the White House politicized the Department of Energy (DOE) loan guarantee process for politically well-connected Abound.
But something else within those emails caught my attention reminding me of free market economist and Nobel Prize winner Milton Friedman’s famous quote, “there is no such thing as a free lunch.” In other words, even things that appear to be free have an associated cost.
This basic economic concept is lost on Colorado State Representative Max Tyler’s (D-Lakewood) who in a March 23, 2010, press release bragged about a government-dictated increase in Colorado’s renewable energy mandate:
With HB 1001 we will manufacture and install panels and turbines all over Colorado to capture free energy….The sun will always shine for free, the winds will always blow for free, and our energy production will be cleaner. Renewable energy, green jobs, and a cleaner future — what’s not to like?
At roughly the same time that Tyler publicly fantasized about “free energy,” a credit advisor for the Department of Energy (DOE) loan guarantee program James McCrea was concerned about “major issues” with Abound Solar’s marketability. In an email dated April 1, 2010, just seven days after Tyler’s press release, McCrea explained:
Another issue is the very limited supply of telluride, its potential price trajectory and other demands for it. Related to this is a question of the viability of the Abound panels as compared to other panels and whether there is sufficient benefit to allow the panels to be profitable if Te [telluride] prices really increase. If the price really rises will there be alternative uses that can afford it basically turning it into a non available input for Abound?
I don’t believe we have ever worked with an input material that is so limited. We need to think that through carefully.
Before going bankrupt this summer, Abound produced cadmium telluride (CdTe) thin-filmed photovoltaic solar panels. Cadmium and tellurium, used in the manufacturing of Abound’s panels, are two of the world’s 17 “rare earth elements” that are needed for everything from smart phones to solar panels to high tech weapons systems. My former colleague Michael Sandoval, now an investigative reporter with the Heritage Foundation, and I have written several columns on general issues with rare earth elements.
This email highlights the problem specific to Abound, and McCrea was right to be concerned. According to the December 2011 DOE Critical Materials Strategy the price of tellurium has been going up since 2007:
The price dropped in 2006, but in 2007 resumed its upward trend owing to increased production of cadmium telluride (CdTe) solar cells.
Furthermore, China controls the vast majority of rare earth elements. In August 2012, the Chinese announced an ambitious plan to increase its stranglehold on the world’s available supply of rare earths. According to China Daily the country:
launched a physical trading platform for rare earth metals as part of its efforts to regulate the sector and strengthen its pricing power for the resources.
As the world’s largest producer of rare earth metals, China now supplies more than 90 percent of the global demand for rare earth metals, although its reserves account for just 23 percent of the world’s total.
The article reiterated what Michael and I have said on numerous occasions, mining rare earths comes with a significant environmental cost that green zealots like Tyler completely ignore when claiming solar energy is free and clean:
Mining the metals greatly damages the environment. In recent years, China has come down heavily on illegal mining and smuggling, cut export quotas and imposed production caps, stricter emissions standards and higher resource taxes to control environmental damage and stave off resource depletion.
However, these measures have irked rare earth importers, who complained about rising prices and strained supplies.
But China did exactly what it said it would do in 2009. It drove up prices with reduced output as global demand increased.
China’s rare earth output fell 36 percent year on year to 40,000 tonnes in the first half of the year. Prices of major rare earth products in July remained twice as high as prices at the beginning of 2011, although down from the beginning of the year.
In July 2009, about a year before President Barack Obama announced a $400 million loan guarantee for Abound, Jack Lifton, an expert on sources and uses of rare minerals, wrote a lengthy article for Resource Investor about the availability of tellurium for First Solar, a global leader in cadmium telluride solar panel manufacturering. Lifton’s conclusion should have served as a prophetic warning for Abound and any hope of profitability:
A company such as First Solar, which is critically dependent on a secure supply of tellurium to exist and on an unsustainable growth in the supply to it of tellurium for it to grow and achieve competitive pricing is a big risk for short-term investors. The maximum supply and production levels attainable of tellurium are quantifiable even if the actual production figures are murky, and they do not bode well for the future of First Solar if it must make profits to survive.
The next time you hear a politician like Max Tyler tout the benefits of “free” and “clean” energy, remember Abound Solar because there is no such thing as a free lunch.
Colorado energy policy: “You have this cheap, reliable, affordable energy source that the state is mandating be replaced with intermittent, unreliable, expensive energy sources. What does that mean for folks?” For Craig, a beautiful town of 10,000 people in Northwestern Colorado, it means the death of the town. Perhaps the true green believers such as Rep. Max Tyler should visit Craig before the the pending floor debate on Colorado’s excessively high renewable energy mandate.
Watch this powerful video about the “perfect storm” of energy regulation wreaking havoc on Craig.
Thank you to Bob Beauprez, editor of A Line of Sight, for sending the video our way.
Just around dinner time last night the House Transportation Committee, chaired by Weld County GOP Rep Glenn Vaad, moved HB 1121 (detailed here) out of committee on a 10-3 vote and to the whole House for a floor debate on Colorado’s renewable energy mandate.
Rep. Ray Scott’s (R-Grand Junction) Ratepayer Bill of Rights, dubbed “RayBOR” by Rep Robert Ramirez (R-Westminster), was amended by the committee and became a bill allowing the Public Utilities Commission (PUC) the discretion to roll back Colorado’s 30 percent renewable energy mandate if the PUC determines that the cost would be detrimental to ratepayers.
Several interesting points from last night’s committee hearing:
- Three Democrats voted with Republicans to move the bill out of committee including Dave Young Greeley), Angela Williams (Denver), and Matt Jones (Louisville).
- Even though he voted against moving the bill out of committee, Democrat Randy Fischer (Fort Collins) made a point of saying the renewable energy mandate is worthy of a floor debate.
- Despite testimony directly contradicting him, Democrat Max Tyler continues his renewable fantasy that the 30 percent mandate only costs ratepayers 2 percent.
The floor debate on RayBOR will be spirited. Because it doesn’t force the roll back of the renewable mandate but rather provides more discretion for the PUC, I think it has a good chance of moving out of the House and to the Senate.
Full disclosure: I testified on behalf of the Ratepayers Bill of Rights and will have my testimony posted shortly.
Xcel Energy’s recently denied $142 million interim rate increase request exposes the hypocrisy of tiered rates, which were implemented out of fear that high demand would require the building of additional power plants. Yet, more than 37 percent or $52.6 million of Xcel’s request was to cover the cost of excess capacity. In other words, Xcel has too much supply and not enough demand.
A bit of history.
Several years earlier, Xcel decided not to sell some 300 megawatts of power to Black Hills Energy because it claimed it need the additional capacity to meet ratepayers’ electric demands. Apparently, Xcel overestimated demand because it no longer needs the power and now wants to recover the cost of NOT selling that power to Black Hills. Black Hills subsequently built a $487 million plant to supply power it once purchased from Xcel, the cost of which was passed along to Black Hills’ ratepayers. If Xcel has its way, its own inability to correctly estimate demand will Colorado electric consumers nearly $540 million.
Why do ratepayers have to pay more for Xcel’s boneheaded management decision? Colorado News Agency columnist Peter Blake brilliantly explains how the basic law of supply and demand doesn’t apply to a state-regulated monopoly:
When a department store buyer somehow decides that the taste of today’s teenagers is even lower than it is, and orders too many low-rise ripped jeans or abbreviated tank tops, what does the store do?
It puts the slut-chic clothing on sale and hopes the lower price will shrink the inventory. It will make less profit, or even lose money on each item. That’s the price a store pays when it miscalculates consumer tastes.
But what does Xcel Energy do when it finds itself able to generate more electricity than the customers are using? Instead of cutting the price of power, it asks the Public Utilities Commission to authorize higher rates on all its customers to pay for the surplus.
Being a utility means never having to say sorry to stockholders; you can just stick your mistakes on the ratepayers’ bills.
What does this have to do with Xcel’s tiered rates? As mentioned earlier, the rational for tiered rates is that those ratepayers who use more energy should pay more because their demand will force Xcel to build additional power plants.
Tiered rate supporter Randy Fischer, democrat legislator from Fort Collins, explained last legislative session during a committee hearing that tiered rates are “a fair way of distributing the cost of energy. People that drive the need for more plants should pay for them.”
The utility’s summertime rates are designed to encourage people to conserve energy, preventing Xcel from having to build expensive new power plants that customers ultimately finance.
If the pretense for tiered rates is to avoid the expense of building costly power plants, then why charge more when Xcel is carrying excess capacity? It’s obvious that the power plant argument is fallacious. The real reason for tiered rates is because green eco-evangelicals such as Max Tyler and Randy Fischer want to control the amount of energy that Coloradans consume.
Even though the PUC denied the interim rate increase, doesn’t mean it won’t approve passing on the cost of excess capacity to ratepayers in the near future. Either way ratepayers get stuck with the bill. In the case of tiered rates, they’ll be charged for using too much and not using enough at the exact same time. Only government thinks that is a great energy policy.
When it comes to renewable energy, Colorado politicians are trying to have their cake and eat it, too. In March, the General Assembly passed HB 1001, a law requiring that Xcel use 30% renewable energy for electricity generation by 2020. To be sure, renewable energy is more expensive than conventional energy, but lawmakers promised that the costs would be held in check by a 2 % rate cap codified in the legislation. You see, Colorado politicians believed they could establish a Soviet-style renewable energy production quota AND Soviet-style price controls.
In early September, the Independence Institute’s Amy Oliver Cooke and I took this silliness to task in a Denver Post oped. Specifically, we explained the regulatory machinations employed by the Ritter Administration to get around the rate cap.
Nearly a month later, Rep. Max Tyler, the lead sponsor of HB 1001, replied to our oped with a letter in the Post. Rep. Tyler’s missive ignored our arguments about the price cap, and instead boasted of the ancillary benefits of government picking which energy sources Coloradans must use. Along these lines, he noted that wind power in Colorado:
• Creates more than $2.5 million for farmers and ranchers who lease land for wind generation
• Supports 1,700 construction jobs and 300 permanent jobs in rural areas;
• Generates $4.6 million in annual property tax revenue for local schools, roads, etc.
Of course, Rep. Tyler missed the point: These “benefits” aren’t a net positive for the State. Rather, they are paid for by Xcel consumers, in the form of higher energy bills, which means that Xcel ratepayers (primarily in Denver, Grand Junction, and Boulder) are subsidizing the rural development showcased by Rep. Tyler. This is a classic case of robbing Peter to pay Paul.
In his letter, Rep. Max Tyler stated that, “Colorado currently generates 1,244 megawatts of wind power.” That sounds like a lot, but it’s not. Because the wind doesn’t always blow, Xcel can rely on only a fraction of its wind generation’s nameplate capacity. In practice, 1,244 MW of wind is only 124 MW of real power. That’s about half of the coal power capacity that Xcel agreed to shutter in its most recent electric resource plan.
The problem for Colorado is that this small amount of wind power costs a large amount of money. According to the Public Utilities Staff, Xcel “identified wind energy costs for 2009 of $147,431,000 and 2010 of $155,462,000.” That’s about 5% of Xcel’s 2009 and 2010 sales—or more than double the 2 % rate cap that Rep. Tyler trumpets in his letter (he wrote, “Another important fact: When developing new energy resources, utilities have a 2 percent increase rate-cap on retail customer bills”).
By highlighting localized gains, Rep. Max Tyler missed the big picture. Forcing Xcel customers to pay more for less energy hurts the State’s economy. Period.
William Yeatman is assistant director of the Center for Energy and Environment at the Competitive Enterprise Institute.
 February 4 2010, “Answer Testimony and Exhibits of William J Dalton, Staff of the Colorado Public Utilities Commission,” p 14-15, Docket No 9A-772E