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«January 4, 2013 AUTHORS Frank Ackerman, PhD Thomas Vitolo, PhD Elizabeth A. Stanton, PhD and Geoff Keith Synapse wishes to thank the Civil Society ...»

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Not-so-smart ALEC:

Inside the attacks on

renewable energy

Prepared for the Civil Society Institute

January 4, 2013

AUTHORS

Frank Ackerman, PhD

Thomas Vitolo, PhD

Elizabeth A. Stanton, PhD

and Geoff Keith

Synapse wishes to thank the Civil Society Institute for funding this report, and for providing

critical input into its content. Responsibility for errors and omissions rests entirely with Synapse

and not with the Civil Society Institute.

Table of Contents

1.  INTRODUCTION

2.  WHAT ALEC “KNOWS” ABOUT ENERGY

3.  WHAT ALEC “KNOWS” ABOUT ECONOMICS

4.  THE BOTTOM LINE

5.  ALEC VS. RENEWABLE ENERGY: TALKING POINTS

APPENDIX: THE ALEC ENERGY STUDIES

1. Introduction Renewable energy is clean, sustainable, non-polluting, reduces our dependence on fossil fuels, improves the health of communities surrounding power plants, and protects the natural environment. Who could be against it?

Answer: The American Legislative Exchange Council (ALEC), a lobbying group that is active in drafting and advocating controversial state legislation on many issues.1 When it comes to energy, ALEC wants to speed up the permitting process for mines, oil and gas wells, and power plants – and to eliminate all state requirements for the use of renewable energy. The latter goal is packaged as the “Electricity Freedom Act.” ALEC uses studies by the Beacon Hill Institute (BHI) at Suffolk University in Boston to claim that the “Electricity Freedom Act” will free ratepayers from the allegedly immense costs and job losses said to come from renewable energy standards.

A look inside the ALEC energy reports2 reveals numerous flaws, both in energy calculations and in economic analysis. This memo summarizes what’s wrong on both counts, and concludes with talking points for responses to the ALEC anti-renewable energy studies.

2. What ALEC “knows” about energy Issued with great fanfare by an unmistakably partisan group, the ALEC studies have not been reviewed by independent researchers. Close your eyes and imagine every accusation that opponents of renewable energy might make, if no one were checking their facts. Now open your eyes and look at one of the ALEC state renewable energy studies. Did you imagine all of the following?

►ALEC’s Claim:

The costs of renewable energy are huge and rising. To estimate a range of renewable energy costs, ALEC takes the carefully developed, conservative estimates of wind and solar power costs from the Energy Information Agency (EIA) as the low end of the scale. Arbitrary, unsupported numbers far above the EIA level are used as the high end, so their “mid case,” between the two extremes, is well above real costs. Moreover, ALEC assumes that wind turbine construction costs will rise over time as demand increases, because turbine parts will become more expensive.

The Facts:

Wind power is a bargain. Many credible sources project that wind power costs will be as low as, or even lower than, the EIA estimates, including the engineering firm Black & 1 American Legislative Exchange Council, http://www.alec.org.

2 The Beacon Hill Institute, frequently with an in-state co-sponsor, has published studies regarding the economic impact of renewable portfolio standards in a number of states, including Colorado, Delaware, Kansas, Maine, Michigan, Minnesota, Missouri, Montana, New Mexico, North Carolina, Ohio, and Oregon, as well as study on the United States economy. The studies are listed in the appendix, and are referenced with their state abbreviation, e.g.

ALEC-KS. This report is based on a detailed review of ALEC-CO, ALEC-MI, and ALEC-KS, as well as a brief examination of the other studies listed in the appendix.

–  –  –

As Figure 1 demonstrates, actual prices have averaged less than $60/MWh for many years. Prices are often lower than the national average in the windiest states, while higher in other states, especially California. ALEC’s low estimate, however, is above actual contract prices, even in California. ALEC’s low, mid, and high estimates for wind power costs in 2010 are roughly 2, 3, and 4.5 times higher than the national average for wind power contracts in that year.

Despite ALEC’s imagined rising price of renewable energy, the actual trend is clearly downward, in both wind and solar photovoltaic costs.8 3 Ryan Pletka, Black & Veatch’s (RETI’s) Cost of Generation Calculator, Black & Veatch (2011), http://www.energy.ca.gov/2011_energypolicy/documents/2011-05workshop/presentations/Ryan_Pletka_B&V.pdf.

4 Lazard Ltd., Levelized Cost of Energy Analysis, Version 5.0, (2011).

5 California Energy Commission, Comparative Costs of California Central Station Electricity Generation: Final Staff Report, (2010), CEC-200-2009-07SF.

6 Wiser, et al., 2011 Wind Energy Technologies Report, prepared for the US Department of Energy, (2012), http://www1.eere.energy.gov/wind/pdfs/2011_wind_technologies_market_report.pdf.

7 Since the other estimates in Figure 1 include a $22/MWh Production Tax Credit, we have decreased ALEC’s $201/MWh mid-range estimate to $179/MWh, and similarly for the high and low estimates, for comparability.





8 On trends in wind power costs, see the US Department of Energy’s 2011 Wind Technologies Market Report, cited above (note 6); on trends in photovoltaic installed costs, see the Solar Energy Industries Association’s Solar Energy Facts: Q3 2012, (2012), http://www.seia.org/sites/default/files/2012%20SMI%20Q3%20Factsheet_Final5.pdf.

–  –  –

(Data for actual contracts by Lawrence Berkeley National Laboratory; ALEC estimates added by Synapse) ►ALEC’s Claim:

Renewable energy is so unpredictable that it can’t be relied on; conventional backup generation capacity is always required. In the words of ALEC’s Kansas study, “Wind is not only intermittent but its variation is unpredictable, making it impossible to dispatch to the grid with any certainty. This unique aspect of wind power argues for a capacity factor rating of close to zero.”9 The ALEC studies assume that new, conventional capacity must be built and run whenever wind power is used, adding to the estimated expense of renewable energy.

9 ALEC-KS, page 6.

Not-so-smart ALEC ▪ 3

The Facts:

Wind generation is highly predictable, and is relied on by electric utilities. System operators rely on highly accurate near-term weather forecasts. They track local weather patterns closely as they move across the country, and this makes wind generation in a given area quite predictable over a several-hour time frame. Furthermore, as more wind farms are built in a region, their collective generation behaves in an even more predictable manner.10 There is a broad consensus across utilities and system planners that wind can be relied on for significant load-carrying capacity throughout the country, without causing extraordinary expenses. There are 11 states in which 7% or more of electricity generation is already from wind; every one of these states has electric rates below the national average.11 It is not necessary to build new conventional capacity to back up every renewable energy resource.

Many parts of the country have surplus capacity at present, and will not need to build new plants for years to come.12 ►ALEC’s Claim:

Enormous new transmission costs are required for renewable energy. ALEC estimates huge costs for transmitting electricity from new renewables to customers. The average cost used in their studies, about $60/MWh, makes new transmission about as expensive as power generation itself, while their high-end transmission cost is twice the cost of generation!13

The Facts:

New transmission accounts for just a small fraction of the cost of renewable energy. Once again, the ALEC numbers are nowhere near what other researchers find. In fact, one study cited by ALEC states that transmission costs have “a median of $15/MWh.” Nonetheless, the ALEC studies use a mid-case estimate four times that expensive.

►ALEC’s Claim:

Renewable energy leads to rapidly rising electricity costs per customer. Projected impacts per customer are exaggerated by ALEC’s unusual approach to forecasting the likely future demand for electricity. In their Colorado study, for example, they forecast that electricity demand 10 K. Orwig et al., Economic Evaluation of Short-Term Wind Power Forecasts in ERCOT: Preliminary Results, Conference Paper NREL/CP-5500-56257, (2012), http://www.nrel.gov/docs/fy12osti/56257.pdf.

11 The states are Colorado, Idaho, Iowa, Kansas, Minnesota, North Dakota, Oklahoma, Oregon, South Dakota, Texas, and Wyoming. Wind generation and total generation data for first 10 months of 2012, and average retail electric rates for all sectors for 2011, from EIA, Electric Power Monthly, downloaded January 2, 2013.

12 Of the 17 NERC assessment areas in the contiguous United States, 12 have surplus capacity beyond 2021, and another 2 do not need any capacity additions to come online until 2021. NERC, 2011 Long-Term Reliability Assessment, (2011), p. 5. http://www.nerc.com/files/2011LTRA_Final.pdf.

13 The study, Andrew Mills et al., The Cost of Transmission for Wind Energy: A Review of Transmission Planning Studies, (2009), http://eetd.lbl.gov/ea/emp/reports/lbnl-1471e.pdf states that “In terms of cost per megawatt-hour of wind power generation, the aggregate range of transmission costs is from $0/MWh to $79/MWh, with a median of $15/MWh and most studies falling below $25/MWh”. (p xi).

Not-so-smart ALEC ▪ 4 will grow 3.6% each year, while the number of customers stays the same.14 In essence, they assume that each family’s and each business’ demand for electricity – and the impacts of rising electricity prices – will grow by 3.6% each year.15

The Facts:

Costs per customer will rise more slowly, if at all. ALEC not only exaggerates costs per kWh of renewable electricity; they exaggerate the growth in electricity use. Figure 2 (next page) compares nine ALEC forecasts16 of electricity demand growth through 2025 with comparable forecasts from the EIA’s Annual Energy Outlook (AEO) – the federal government report that is widely taken as a standard source of near-term energy projections. AEO offers electricity use projections for nine regions of the contiguous United States. The lowest, median, and highest of these regional projections are shown by the blue lines on the graph. We looked at nine ALEC state studies, and included the highest, median, and lowest of their forecasts, shown in the red lines on the graph. (In fact, four of the nine, including the Colorado study, forecast identical rates of growth, shown by the “ALEC max” line on the graph.) The lowest of the ALEC studies roughly matches the AEO median forecast. The median, let alone maximum, ALEC forecasts are far above the AEO range.

Other forecasts are typically well below the ALEC levels. In Colorado, for example, the largest utility in the state and the Department of Energy forecast 1% annual growth in electricity demand, similar to the AEO median forecast.17 Having inflated the costs per MWh of renewable energy, in other words, ALEC compounds this error by also inflating the quantity of electricity that will be required in the near future. Moreover, the inflated demand estimates make it appear unrealistically difficult to reduce dependence on coal and other non-renewable energy sources.

14 ALEC-CO, p. 15.

15 A different approach shows up in the ALEC study for Michigan. That state has an explicit cap on cost increases resulting from its renewables standard, but the ALEC study admits that it ignores that cap in order to model the “full impact” of the standard. Thus they are modeling a different, more expensive standard than the one Michigan actually adopted. ALEC-MI, p. 3.

16 From the ALEC renewable energy studies of Delaware, Maine, Michigan, Minnesota, Missouri, Montana, New Mexico, Ohio, and Oregon.

17 Public Service Company of Colorado, 2011 Electric Resource Plan, Volume I (2011); EIA, Annual Energy Outlook 2013 Early Release, (2012) Table 2: Energy Consumption by Sector and Source, Electric Power Sector, Mountain Region, Delivered Electricity for All Regions.

Not-so-smart ALEC ▪ 5Figure 2. Forecasts of Electricity Demand Growth

►ALEC’s Claim:

Traditional, non-renewable energy is incredibly cheap. A scattering of other questionable assumptions have the effect of biasing results in favor of non-renewable energy. Some (not all) of the ALEC studies estimate the cost of electricity natural gas-fired power plants at mere pennies per MWh.18 In other cases, land requirements for wind power are said to be enormous, while a nuclear power plant is absurdly said to fit on less than an eighth of an acre of land.19

The Facts:

ALEC studies appear to make simple errors on these points. Their ultra-low gas-fired power costs may result from mistaking dollars for cents in standard data sources.20 Their land requirements for wind power versus nuclear power represent a misreading of a study that reported wind power needs less than 500 times as much land per MW as nuclear power; BHI erroneously cites this study as finding that wind power needs 1,000,000 times as much land.21 18 ALEC-OR Table 4; ALEC-NM, ALEC-MN, ALEC-KS Table 5; ALEC-MT Table 6; ALEC-ME Table 7; ALEC-US Table 8. The title of each of these Tables is “LEC and Capacity Factors for Electricity Generation Technologies.” 19 ALEC-CO, p. 14: “a wind power plant would need a land mass of 20 by 25 kilometers to produce the same energy as a nuclear power plant that can be situated on 500 square meters.” 20 This is our inference, based on the fact that some of their studies report gas power costs two orders of magnitude lower than others.

21 See ALEC-CO, p.14. Even the underlying study, correctly cited, may overstate land requirements for wind power.

Not-so-smart ALEC ▪ 6



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