“So if somebody wants to build a coal-fired plant they can. It’s just that it will bankrupt them…”
– Barack Obama speaking to San Francisco Chronicle, January 2008

February 7, 2012—Update

More than 33 gigawatts (GW) of electrical generating capacity are now set to retire because of the Environmental Protection Agency’s (EPA) Mercury and Air Toxics Rule (colloquially called Utility MACT)[1] and the Cross State Air Pollution Rule (CSAPR)[2] regulations. Most of these retirements will come from coal-fired power plants, shuttering nearly 10 percent of the U.S.’s coal-fired generating capacity.

This report is an update of a report the Institute for Energy Research (IER) issued in October 2011.[3] In the original report, we calculated that 28 GW of generating capacity would close as a result of EPA’s regulations. At the time, we warned that “this number will grow as plant operators continue to release their EPA compliance plans.” Unfortunately, this statement has proven to be true. This update, a mere four months later, shows that over 33 GW of electrical generating capacity will close—nearly a 5 GW increase.

According to EPA, their modeling of Utility MACT and CSAPR indicates that these regulations will only shutter 14.5 GW of electricity generation capacity. But events in the real world already show that EPA’s modeling is a gross underestimate.

To calculate the impact of EPA’s rules, we first assumed that EPA’s modeling was correct. Then, we looked at statements, filings, and announcements from electrical generators where the generators were closing power plants and citing EPA’s regulations as the precipitating cause of the plant closures. We then compared EPA’s modeling outputs with the announcements and created a master list of plant closures as the result of EPA regulations (the master list is below).

Combining actual announcements with EPA’s modeling shows that EPA’s modeling grossly underestimates the actual number of closures. As noted above, EPA calculated that only 14.5 GW of electrical generating capacity would close as a result of its rules. But the reality is that over 33 GW of power generating capacity will close—over twice as much as EPA’s modeling predicted. Worse, as utilities continue to assess how to comply with EPA’s finalized Utility MACT rule and CSAPR, there will likely be further plant closure announcements in the coming weeks and months.

Since Our First Report was Released in October, an Additional 5 GW of Retirements Due to EPA Regulations Have Been Announced

Operators in Georgia, Maryland, Michigan, New Mexico, Ohio, Pennsylvania, and Wisconsin   have announced new closures since we first published our closure list four months ago.  Additionally, operators in Minnesota announced they would cease plans to convert a coal plant to natural gas, letting the plant retire due to EPA regulations.[4]  In just two short months, retirements related to EPA regulations have grown by 5 GW, over one third of the total retirements predicted by EPA.

NERC is Concerned about Reliability even though It Underestimates the Amount of Closures

It should be further noted that the North American Reliability Corporation’s (NERC) modeling of the MACT rule and CSAPR estimate that under the worst case, or “strict” scenarios, 16.3 GW of electricity capacity will be closed due to the regulations, and the Department of Energy’s (DOE) “stringent” test shows that only 21 GW of generating capacity will be closed. Even though NERC’s estimate is much lower than what our analysis shows, NERC is concerned that the closures will cause electricity reliability problems.[5] How much greater will the reliability problems be, given that retirements appears to be twice as great as NERC estimates?

Announced and EPA Projected Retirements Are Significantly Higher than DOE’s Worst Case Scenarios

The Obama administration’s DOE recently released a study claiming that even under a theoretical “stringent” test, EPA regulations would only close 21 GW of generation.  EPA has since claimed this study proves regulations will not threaten reliability. Our analysis, however, shows that between EPA projections and operator announcements, over 33 GW of generation will close—almost 12 GW more than DOE’s supposedly ultra-strict test scenario.

Michigan and Ohio Hit Worst By Latest Announcements

In our updated analysis, the vast majority of new announced retirements will occur in Michigan and Ohio. Operators in Michigan have announced more than 1 GW of closures due to EPA regulations.[6] Michigan, already reeling from record high unemployment, has warned that further closures due to the regulations could threaten reliability in both the Upper and Lower Peninsulas. The situation is not better in Ohio. FirstEnergy has announced more than 2.3 GW of closures due to EPA regulations in Ohio.[7]

Updated List of Powerplant Closures

Here is our updated list of powerplants set to close according to EPA’s modeling and public announcements. The methodology is described in detail in the Appendix of the PDF.

 

“No coal plants here in America. Build them, if they’re going to build them over there, make ‘em clean because they’re killing you.” — Vice President Joe Biden

The Obama administration has a long, anti-coal, oil, and natural gas track record. According to the North American Electric Reliability Corporation (NERC), their anti-coal, oil, and natural gas zeal will soon start affecting the reliability of the electric grid.

NERC is recognized by the federal government as the leading authority on electric reliability. As the organization that ensures the reliability of the electric grid, NERC recently found that existing and proposed environmental regulations in the United States may significantly affect bulk power system reliability. In fact, according to NERC, “environmental regulations are shown to be the number one risk to reliability over the next one to five years”.[i]

Beyond the 38 gigawatts of electricity capacity that has already been announced to retire, NERC estimates that another 36 to 59 gigawatts of capacity will come off-line by 2018, depending on the “scope and timing” of EPA regulations. Together nearly a quarter of our coal-fired capacity could be off-line by 2018, marking the first time in energy history that installed coal-fired capacity has declined.

NERC’s 2011 Long Term Reliability Assessment

Four major regulations now being proposed or implemented by the Environmental Protection Agency have been found by NERC to expose the U.S. to significant energy vulnerabilities:

• Section 316(b) of the Clean Water Act-Cooling Water Intake Structures
• Maximum Achievable Control Technology (MACT) Standards (Title 1 of the Clean Air Act)
• Cross State Air Pollution Rule (CSAPR), replacing the Clean Air Transport Rule (CATR)
• Coal Combustion Residuals

NERC’s assessment shows there are 4 areas of vulnerability. First, reserve margins, the capacity above what is required to meet normal peak demand, can be severely affected due to either the retirement of plants that do not meet the standards or the de-rating of capacity for plants that add environmental equipment in order to meet the standard.   NERC regional planners would like reserve margins to be at 10 to 20 percent of peak demand to meet surges in power demand caused by weather, outages, or other unexpected occurrences.

Second, while plants are offline to install environmental equipment required to meet the new EPA guidelines, electricity generation will be lowered.  Third, retrofitting the units to meet the standards in the short time frame mandated (2012-2015) will require coordination of plant outages among the industry, requiring a massive effort since it typically takes about 18 months to add environmental equipment to a coal-fired unit.

Finally, because there are a limited number of companies that design and install scrubbers, the time for retrofitting may increase beyond the typical 18-month period, which could cause additional generation to be off-line and further lower reserve margins.

All told, NERC estimates that as many as 677 coal-fired units (258 gigawatts) will need to be temporarily shut down to install EPA-mandated equipment, which constitutes an impact on over 70 percent of our total coal-fired capacity.”

Other Estimates

There are good reasons to believe that EPA’s regulations will force more generating units off line.  According to the Edison Electric Institute, for example, about 48 gigawatts of coal units at 231 plants will be retired between 2010 and 2022. That capacity represents 14 percent of the 339 gigawatts of coal-fired power capacity in 2010, or about 5 percent of total generating capacity.[ii]

Recently, the Institute for Energy Research (IER) compiled a list of all of the generating units that will be closed according to EPA’s model and utilities’ disclosures because of the transport rule (CSAPR and CATR) and the utility MACT rule. IER found that almost 30 gigawatts of electric generating capacity will be taken offline due to these two rules alone.  That amount is about double the number originally predicted by the EPA and represents nearly 10 percent of total coal generating capacity in the U.S.

To put it in perspective: this is the equivalent of closing every power plant in the state of North Carolina or Indiana.[iii]

Some Utility Reactions

Southern Company, a utility that covers states from Mississippi to Georgia, does not believe that EPA’s timeline can be met and believes that electricity rationing is almost inevitable..American Electric Power, operating in 11 Midwest states, also believes that rationing may result if EPA’s standards are not relaxed.[iv]

Another company, Michigan-based Consumers Energy, recently announced plans to “mothball” seven coal-fired units at three plants in 2015.  According to the company spokesman, the units will be taken offline because of the high cost of upgrades required to meet the new EPA guidelines.  Instead, the company is boosting investments in two wind farms with a capacity of 250-megawatts, a fraction of the 830-megawatt capacity of a single coal plant they were planning to build.[v]

What about Air Quality?

So if the U.S. electric grid is made more vulnerable by EPA’s latest regulations, what justifies the administration’s undeterred drive to close coal-fired plants?  Ostensibly, we are told, the new regulations are needed to improve air quality in America. But air quality has already dramatically improved. Even over the past 10 years, air quality has markedly improved, according to the EPA’s own data:

EPA also provides the following graphic that shows that as population, energy use, and GDP have grown over the past 30 years, pollution emissions have fallen by 67 percent. Clearly, something other than clean air and water are driving the administration’s anti-coal policies.

Conclusion

President Obama has made it clear that coal-fired power plants are not wanted and his Environmental Protection Agency is set to ensure their decline.[vi] While estimates vary on how much coal-fired capacity will be affected by EPA regulations, all estimates show that coal-fired capacity in the United States will decrease for the first time in history.

In order to ensure reliability, new gas-fired and renewable power plants will need to be built, costing the consumer more for needed electric power to heat, air condition and light our homes and offices, and to run industrial equipment.  Higher energy costs only serve to hurt our fragile economy further.

Because EPA’s three year timeline is so tight, utility companies are not even sure that they can meet the standards and ensure reliability of the electric system without rationing power to American consumers. So the question remains, is meeting the administration’s ill-conceived green energy goal worth jeorpardizing the reliability of our electric grid and closing hundreds of plants that employ thousands of American workers?

While the rest of the country is enjoying a warm hearth and cold eggnog around festooned and lighted evergreens, energy doomsayers like Paul Ehrlich rail against “garish commercial displays.”  Other anti-energy extremists have the good sense not to attack Christmas so blatantly, yet their silence on the “excesses” of holiday lighting is a glaring exception to their goal of saving the world by eliminating discretionary energy usage.

One wonders why anti-energy activists who are willing forgive holiday energy guzzling don’t similarly excuse indoor heating and cooling, one-switch centralized lighting and instant-on appliances that “leak” electricity, not to mention SUVs?  The energy Grinches, however, seem willing to keep quiet about our Clark Griswold-esque holiday decorating – energy usage that is purely celebratory – while they excoriate essential energy usage like warming a home or lighting an office.

Of course, there’s no reason to worry about depleting our energy resources or harming our environment because of holiday lighting – or any other way that Americans now use electricity at work and home.

North American Energy

Human ingenuity continues to unlock mineral plenty despite the heavy hand of government in the United States and in neighboring countries. As documented in a recent report by the Institute for Energy Research:

• Total recoverable oil in the United States, Canada, and Mexico of 1.7 trillion barrels is more than the world has consumed in its history and is sufficient to fuel the present needs in the United States for the next 250 years.
• North American recoverable natural gas of 4.2 quadrillion cubic feet is enough to supply America for the next 175 years at current rates of consumption.
• North America’s nearly 500 billion short tons of recoverable coal is about three times that of Russia, which has the world’s second largest reserves. The U.S., in particular, is the ‘Saudi Arabia” of world coal.

Air Pollution

Record energy consumption has been accompanied by improving air quality. The U.S. Environmental Protection Agency (EPA) reported that emissions of air pollutants in urban America have declined 71 percent since 1970.

According to the U.S. Energy Information Administration (EIA), this fall in criteria pollutants was accomplished while fossil energy usage increased by 40 percent.

Further air emission reductions are expected, but it will not be efficiently accomplished by forcing higher prices or inconvenience levied on consumers. It will be accomplished with market incentives, technological improvement, and regulation based on sound science, not exaggeration and alarmism.

Energy Use and Societal Progress

The wealth created from affordable, plentiful energy–the dense energy of oil, gas, and coal–provides the primary means for societies to improve the environment. In the final analysis, wealth is environmental health, which explains why increasing energy usage and environmental improvement have gone hand in hand in the Western world.

There is much to be thankful for this holiday season with our energy economy. But thoughts about the less fortunate should be with us too. An estimated 1.4 billion people do not have electricity for lighting, heating, cooling, cooking, or water purification. For the energy-poor, there could be no greater holiday gift than affordable electricity itself.

Conclusion

Energy brings good things to life—no, make that wonderful things—comfort, convenience, cheer, and it even empowers celebrations. May one and all in good conscience enliven this holiday season with lights and wreaths and trees aplenty. With conventional energy technologies rapidly improving, Americans can look forward to even more energetic celebrations and shared goodwill in the holidays ahead.

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The Environmental Protection Agency (EPA) is setting environmental standards that make older coal, oil and gas steam plants uneconomic to operate. Since the older units are completely paid for, their operating costs are limited to fuel, administrative and maintenance costs. To replace them, new power plants will be needed, costing the rate payers more. Estimates vary as to how many units will be retired depending on the methodology used and how many of EPA’s new rules are considered but IER’s analysis shows that 30 gigawatts of generating capacity may retire.

Residential Electricity Prices

Between 2005 and 2010, residential electricity prices increased by 23 percent from a national average of 9.45 cents per kilowatt hour in 2005 to 11.58 cents per kilowatt in 2010.  And the increasing trend in electricity prices is continuing in 2011. For the first 8 months of 2011, residential electricity prices were 1.8 percent higher than for the same period in 2010.[ii] Though the latter increase may be about the rate of inflation, inflationary costs were absorbed by utilities between 2009 and 2010 when national average residential electricity prices were nearly flat.

Among the states, Hawaii and Connecticut have the highest electricity prices while states in the Northwest with inexpensive hydroelectric power have the lowest prices. Hawaii’s average price for residential electricity was 28.1 cent per kilowatt hour in 2010, while Connecticut’s was 19.3 cents per kilowatt hour. The least expensive residential state electricity prices in 2010 were in Idaho at 7.95 cents per kilowatt hour and in Washington State at 7.98 cents per kilowatt hour.[iii]

Effect of State Clean Energy Programs on Electricity Prices

States with renewable electricity standards have 38 percent higher electricity prices than other states.[iv] Those states tend to also have other state programs like quasi-deregulated electric generation markets where the state provisions for implementation dictate how prices for power are calculated.

Electricity prices also differ greatly by location and the generator types that produce the electricity. The lowest prices are in the Northwest where hydroelectric power is dominant. Electricity prices are high in the Northeast, such as in New York City, where electricity prices are around 26 cents per kilowatt hour due to high taxes, limits on generating fuels, and the cost of maintaining an underground transmission system.[v]

The Beacon Hill Institute of Suffolk University performed a number of state studies dealing with renewable and efficiency programs. They estimated that:

• Green Energy Programs in Massachusetts would increase average electricity prices by 2.6 cents per kilowatt hour by 2020, with a total cost of $9.8 billion (2010 dollars) for the 11-year period from 2010 to 2020. The mandated renewable electricity standard in Massachusetts represents 27 percent of the estimated total cost.[vi]
• New Jersey’s Offshore Wind Economic Development Act requiring at least 1,100 megawatts of qualified offshore wind capacity would increase state electricity prices by 2.1 percent in 2017, lose an average of 2,219 jobs, and cause real disposable income to fall $330 million and net investment to fall by $48 million (2011 dollars).[vii]
• North Carolina’s renewable electricity standard is expected to reduce real disposable income by $56.8 million and lose 3,592 jobs by 2021.[viii]
• New Mexico’s renewable electricity standard is expected to cost $2.3 billion and lose over 2,800 jobs by 2020.[ix]

EPA’s New Environmental Rules Will Affect Electricity Prices

The impact of EPA’s latest environmental regulations is expected to be the greatest in the Midwest and in the coal belt where dozens of units probably will be retired. Kentucky Utilities estimates that it will cost $800 million to replace the units it will need to retire and $1.1 billion to upgrade other units to meet the standards. A 14 percent rate increase will be needed to cover those costs.[x]

Duke Energy in North Carolina recently requested a 17 percent increase in rates to replace old plants and to make the transmission system more reliable. North Carolina agreed to a 7.2 percent increase.  To finance the new natural gas technologies needed to replace its old coal-fired units, Duke Energy will need to request another increase next year.[xi]

Retiring old coal plants will also result in loss of property taxes and state revenues. In Salem, Massachusetts, for example, Dominion plans to retire two units later this year, halving the plant’s employment and reducing its $4.75 million tax bill. In the short term, the state is expected to make up   for the tax loss to Salem, which relies on tourist trade for income.[xii]

EPA estimates that industry will spend $11 billion by 2016 to comply with its toxic and air transport rules.[xiii]

Conclusion

Federal and state governments are setting mandates and regulating industry causing increases in electricity prices to consumers and increased costs to tax payers for monitoring compliance. While EPA’s new regulations are promulgated to reduce pollution, EPA’s website shows that aggregate emissions of six common pollutants that they want to reduce further have already declined by 67 percent between 1980 and 2010 due to regulations currently on the books. As the Beacon Hill Institute has found in its analyses, State renewable energy mandates are costing jobs and reducing real disposable income.  Policy-makers need to ask whether the benefits of regulations and mandates exceed their costs as well as how much more they think Americans can afford to spend on electricity, which is a fundamental component of a high quality of life.

A recent headline on the opinion page of the New York Times proclaimed: “Pain at the Pump? We Need More.” Authors Daniel Esty and Michael Porter recommend new gasoline levies as an elixir to our budget deficit and to rectify our energy sins. Their tax would start small “[to] make the short-term burden … almost negligible” but increase twenty-fold by year twenty.

As bad as the above mindset is for consumers and the economy, the candor is commendable. President Obama will not dare say the same, although his energy/environmental advisors such as John Holdren are comrades-in-arms with Caperton, Esty, and Porter. Instead, Obama is fingering scapegoats (the oil companies, speculators)—as if the bad guys and gals had suddenly decided to get greedy and world supply/demand conditions were tangential.

Remembering Al Gore

Obama’s misdirection and hypocrisy bring to mind presidential candidate Al Gore on the campaign trail back in mid-2000 when high gasoline prices were an issue. Did the numero uno climate alarmist praise the price trend as a step toward saving a “dysfunctional” society?[1] After all, this is the man who wrote: “We now know that [the automobile’s] cumulative impact on the global environment is posing a mortal threat to the security of every nation that is more deadly than that of any military enemy we are ever again likely to confront.”[2]

And did Gore seize the moment to advocate a big tax increase given what he also penned:

Minor shifts in policy, marginal adjustments in ongoing programs, moderate improvements in laws and regulations, rhetoric offered in lieu of genuine change—these are all forms of appeasement, designed to satisfy the public’s desire to believe that sacrifice, struggle, and a wrenching transformation of society will not be necessary.[3]

Well, none of the above came to pass with Gore on the campaign trail; quite the opposite.  “I think we need to bring gasoline prices down,” he intoned.

I have made it clear in this campaign that I am not calling for any tax increase on gasoline, on oil, on natural gas, or anything else. I am calling for tax cuts to stimulate the production of new sources of domestic energy and new technologies to improve efficiency.[4]

To which his erstwhile climate ally Bill McKibben complained:

No American politician can bear to do anything to restrict our piggish use of coal and gas and oil–not to raise energy prices or legislate against the plague of gas-guzzling SUV’s. During the campaign, Mr. Gore even demanded that the Strategic Petroleum Reserve be opened to keep fuel prices down.[5]

Post-election, of course, Al Gore reverted back to his old ways. “The leading experts predict that we have less than 10 years to make dramatic changes in our global warming pollution lest we lose our ability to ever recover from this environmental crisis,” he stated eight years after his narrowly failed presidential run. Little doubt Gore would endorse a new gasoline tax à la Esty and Porter, and higher electricity prices as well.

Conclusion

Politicians do not dare repeat the performance of April 18, 1977, where Jimmy Carter interrupted the television shows to give what became known as the “malaise speech”.

“To some degree, the sacrifices will be painful—but so is any meaningful sacrifice,” the president solemnly said that evening. “It will lead to some higher costs and to some greater inconvenience for everyone.”

Sacrifice for the common good is a very bad sell to Americans—as it should be. Andrew Revkin recently blogged about how “the environmental movement … confronts a century in which mainstay messages such as ‘woe is me’ and ‘shame on you’ will have ever less relevance.” After all, as Daniel Yergin wrote 20 years ago in The Prize:

Hydrocarbon Man shows little inclination to give up his cars, his suburban home, and what he takes to be not only the conveniences but the essentials of his way of life.  The peoples of the developing world give no indication that they want to deny themselves the benefits of an oil-powered economy, whatever the environmental questions. Any notion of scaling back the world’s consumption of oil will be influenced by the extraordinary population growth ahead.[6]

Government intervention at home and abroad has made electricity and gasoline artificially scarce. An energy intelligentsia telling Americans to both double-down on government and increase their pain is a loser in every which way. A new mentality is needed that favors consumers, producers, and the general economy. That means an expansion of private property rights and free markets for energy at home and abroad, not the opposite.

In Rand’s most famous novel, the hero, John Galt, has invented a radically new dynamo that promises to make energy superabundant. Ellis Wyatt’s oil fields and Ken Danagger’s coal mines power America. Diesel powers the great railroads.

Energy for Rand is the great enabler, what Julian Simon would later codify as the master resource. But for Rand, as for Simon, energy comes from the mind, not the ground.[1] Therefore, it is—or can be–super-abundant, given a pro-achievement socioeconomic system.[2]

Yet Atlas Shrugged is also about the forces that repress energy: the philosophy that sacrifices its creators, the taxes that drain its producers, and the edicts that hobble its profitable use. The book goes from fact-to-fiction with oil shortages (pp. 342–44, 475), gasoline shortages (pp. 272–73), and electricity blackouts (pp. 669, 671).

There is energy rationing (pp. 349–50), conservation edicts (pp. 339, 343), and the Industrial Efficiency Award (pp. 44–45). The Bureau of Economic Planning and Natural Resources (p. 273) is in charge of prices, profits, and allocation.

There is fair profit legislation (p. 507), anti-profit law (pp. 997, 1074), common carrier regulation (p. 677), and public utility regulation (p. 195). Crony capitalists game regulation (p. 217), and trade associations stifle economic freedom (pp. 46–47, 274). There is the dynamics of government intervention as one regulation spawns another (pp. 130, 273, 413)

The title, Atlas Shrugged, refers to a protest against such regulation and oppression, undertaken by those creative, market-driven energy producers who carry the world on their shoulders. Far from fantasy, one can remember the price controls in the 1970s that had many Americans in gasoline lines and discouraged an estimated 900,000 barrels of domestic oil production per day (more than 10% of output at the time).[3] Atlas was shrugging: Capital that would have gone into exploration and production went elsewhere; some went elsewhere in the economy, some just went to the sidelines (a sit-down strike).

Today, Atlas is shrugging again, as offshore production has dropped significantly in response to the Interior Department’s guilty-until-proven-innocent lease policy. By one estimate, seven out of thirty rigs active in the Gulf of Mexico at the time of the oil spill a year ago have moved to better environs.

Judging by the popular response to the novel Atlas Shrugged and the film based on it, Americans see the big picture. And to judge by the intelligentsia’s reaction to the sales and the film release of Atlas Shrugged, the political classes are afraid that the American people may finally “get it.” If so, energy policy will swing toward the free market, as will public policy in many other areas.

WASHINGTON – The Institute for Energy Research (IER) today released a comprehensive new study, The Status of Renewable Electricity Mandates in the States, which examines the status and impacts of state-based renewable electricity mandates. IER’s study found that in states with renewable energy mandates, the deadlines are frequently not being met, they are expensive to consumers, and hostile to job creation.  To view an interactive map that illustrates the study’s findings, visit this link.

Author of the study and IER’s Director of State and Regulatory Affairs, Daniel Simmons, made the following comments:

“As some policymakers promote a Federal Renewable Energy Mandate, it is important to consider the success and consequences of similar mandates in the states. This study teaches us a few valuable lessons: first, that the mandates vary greatly from state to state, making it extremely difficult to impose a uniform one-size-fits all Federal mandate; second, that the mandates or goals are on track in only 14 of 36 states; and finally, and most importantly, these mandates are expensive and result in job losses.

“When you consider the facts in this new study, it is important to ask proponents of a Federal Renewable Energy Mandate the following questions:

1.      Do we want the government to create an overreaching federal policy that has been tested and proven unsuccessful at the state level?
2.      Do we want the government to make electricity more expensive?
3.      Do we want the government to destroy more jobs?”

Not all renewable energy sources count as “renewable” under a Federal Renewable Energy Mandate. IER released a separate interactive chart today that shows each state’s current renewable generation and the percentage that counts under a mandate, as a supplement to the study.

A brief summary of the study is available here. To schedule an interview with Daniel Simmons, please contact Laura Brewer at 202-380-5758.

More from IER on energy in the states and Renewable Energy Mandates:
Interactive Chart: Impact of a Federal Renewable Energy Mandate
Map: State Energy Regulations and Cost Rankings
Press Release: Expensive Energy Mandate a Raw Deal for Members of Every Party

The Wall Street Journal points out that California public utilities are paying out $548 million over the next seven years in order to subsidize the purchase of CFL’s. The hope is that this program will creatively destroy of the incandescent light bulb and save energy.  The nightmare is that this program has only done the former.

This program unnaturally lowered the price of one CFL from $4 to $1.30. The prevailing logic in Sacramento was that the $548 million used to subsidize the purchase of CFL’s would be recouped on the back end with energy savings, but that hasn’t been the case.

Here is what the WSJ has to say:

As a result of these and other adjustments, energy savings attributed to PG&E were pegged at 451.6 million kilowatt hours by regulators, or 73% less than the 1.7 billion kilowatt hours projected by PG&E for the 2006-2008 program.

And:

One hitch was the compact-fluorescent burnout rate. When PG&E began its 2006-2008 program, it figured the useful life of each bulb would be 9.4 years. Now, with experience, it has cut the estimate to 6.3 years, which limits the energy savings. Field tests show higher burnout rates in certain locations, such as bathrooms and in recessed lighting. Turning them on and off a lot also appears to impair longevity.

In the end, there might be a sliver lining to California’s chronic budget debacles: the state might default and the lights will be turned off; saving energy, money and the consumer from unintended consequences of central plans.

I hope Sacramento’s next bright idea stays just that, an idea and not public policy.

Our friends at NPR seem to think so, and so do we.

This past Friday, NPR hosted Dr. Celia Kuperszmid-Lehrman, the Deputy Home Editor for Consumer Reports, and she outlined two reasons why the Energy Star program no longer works.

Pictured: EPA-approved innovation (image courtesy Grist)

The problem is that companies do their own product tests and submit results for approval. Dr. Kuperszmid-Lehram explains this system has led to some absurd results, such as a gas-powered alarm clock receiving an Energy Star. And, if that isn’t enough to erode legitimacy in the label, a feather duster-space heater received one too.

Since companies supply their own testing results, Energy Star does not provide due diligence to ensure the devices actually perform as advertised.  For this reason, Dr. Kuperszmid-Lehrman suggests Energy Star update their tests, procedures and standards – similar to what her own group, Consumer Reports, has in place.

This raises an important question: “Why is the government in the business of producing energy efficiency certifications?” Who do you trust more to give advice on products, Consumer Reports or the federal government? Instead of continuing this program, we should let private alternatives take over.

Buildings have the private Leadership in Energy and Environmental Design (LEED).  Let Consumer Reports, JD Power and Associates, Underwriters Laboratories,  CNET, or any other private efforts emerge to provide energy efficiency standards that make manufacturers compete for environmentally friendly labels.  The consumer is informed, labels are held accountable, and energy is actually saved – probably some money, too.

If you have a good idea for holding energy-efficient labels accountable, leave it in the comment section below.

SCIENCE IS THE DISINTERESTED SEARCH FOR THE OBJECTIVE TRUTH ABOUT THE MATERIAL WORLD.

– Richard Dawkins

This post in our series looks at how the integration of wind variability affects thermal activity on the grid, favors flexible natural gas generators, and influences economic dispatch and the spot market. It also examines how estimates of carbon emissions are derived and summarizes the limitations of statistically based knowledge. It concludes with a discussion of what Energy Information Administration (EIA) actually says about the causes of carbon emission reductions in the country over the last three years

It is true, as AWEA notes, that any wind production must displace some existing generation, but only in terms of electricity–not any of the underlying energy forms transposed into electricity. It is rather due to the stricture that supply match perfectly with demand at all times (and this is another oversimplification of a complicated situation).

Just as the grid must reduce supply in precise increments to keep pace with specific reductions in demand—or increase supply in just the right increments to keep pace with increasing demand, the grid must respond to increased wind penetration, which, to a grid operator, looks much like a reduction in demand. Since wind plants are continuously generating between zero and 100% of their rated capacity in flux, providing who-knows-what for any future time, conventional generation must infill any reduction in wind energy at the precise increment of that reduction and, conversely, it must be withdrawn in increments that match any wind increases.

If wind generation were merely intermittent and unpredictable while producing at a steady rate, it might achieve some of its claims about backing down coal. However, wind’s relentless variability imposes daunting challenges for integration. Clever engineering schemes can mask the problem, but not without imposing increased costs and thermal activity.

Any fossil fuel saved when it is sporadically displaced by wind is often consumed in even greater volume as it is called upon to compensate for wind’s relentless skittering—the phenomenon described by Bentek. Wind existentially reduces the efficiency of these compensatory plants, raising the heat rate penalties of older, less efficient coal plants such that they may be forced to emit 40% more CO₂ than when operating efficiently. Even efficient penalties of 2% can increase emissions up to 16%.[1] Depending upon the fossil-fired plant involved and the circumstances, a reduction in output in response to the addition of wind “can cause a very small reduction in the efficiency of that fossil-fueled power plant,” as AWEA claims. But over time, these inefficiencies accumulate. But where is the evidence for any of this activity in the real world, aside from the Bentek study?

Evidently, AWEA understands and agrees with Bentek’s recommendation that its product would do much better paired with “more flexible, less polluting natural gas units.” The association knows nuclear plants are not designed for load balancing purposes and that cycling coal-fired boilers in a wind following role is just as problematic, as AWEA obliquely conceded.

Yet as Australian engineer, Peter Lang, has shown, even the best possible thermal entanglement with wind, comprised of both open and combined cycle natural gas systems, can save only 15% more CO₂ than can be achieved by the natural gas systems alone, without any wind. However, the direct and indirect costs of replacing coal with such a tandem would insure that all grid-connected Americans would see their utility bills skyrocket, given wind’s capital costs, which, on per kWh production basis, are on a par with nuclear’s.[2]

Inefficient use of natural gas systems with wind, such as responsive open cycle units normally used only at peak demand, would save no carbon dioxide emissions. And as Canadian Kent Hawkins shows, modeling a combination of coal and natural gas for wind balancing results in more carbon emissions than would be the case without any wind, despite wind’s huge capital costs. Moreover, as Lang has said, “ So wind cannot contribute to reducing capital investment in generating plants. Wind is simply an additional capital investment.” And one that seems entirely unnecessary if the goal is reduced CO₂ emissions.

Any valid attempt to measure the effects of wind integration must account for all the variables at play, including what generation wind displaces, what generation is used to follow and balance its volatility, the cycling rates and heat rates, type of fuels, even voltage regulation systems, among other things. All of these back end factors must be tallied and weighed against any initial carbon savings claimed for wind at the front end. Here’s how energy expert Tom Hewson, in an article for POWER magazine, summarized the havoc wind’s presence plays on economic dispatch:

“…new wind generation will displace highest incremental cost generation on the regional powerpool margin. This marginal generator constantly changes throughout the day due to continuing load fluctuations. This constantly changing market makes it extremely difficult to predict what resources would be displaced throughout a given year. Without use of a regional dispatch model in combination with the project generation profile, wind developer consultants

make simplifying and often flawed assumptions. These assumptions often center on the displaced generation being either coal-fired generation or a weighted average regional blend of fossil fuel generation. Given that higher cost gas and oil can be on the margin, a weight average fossil fuel average that better reflects the dominant baseload generation resources (more heavily coal based) result in even overestimating displaced emission characteristics for their selected historical period.”[3]

One should add that not only does the marginal UNIT change, but so does that unit’s operating characteristics (i.e., ramping heat rate) and the need to match actual wind speed data and (via performance of its turbines) wind output.[4]

Given the inherent complexity, it is problematic to speculate about how wind volatility either lowers price or improves reliability on the spot market, as AWEA stoutly affirms that it does. Regional transmission operators are obliged to obtain the lowest cost set of suppliers to achieve high reliability, often deploying “redispatch” rebundling of the power mix to solve impromptu predicaments.

Consequently, spot market prices are contingent on many conditions within a series of priorities, some of them temporal, some functional, some related to scheduling. For most regions, about 90% of the spot market supply is purchased in a day-ahead auction in which wind rarely participates since it cannot assure firm delivery 24 hours in advance (and would be liable for financial penalties). Instead, it usually participates in the real-time, at-the-moment market, which historically accounts for only 10% of the overall spot market. In this situation, if wind can deliver, conventional generators may back down and still receive the agreed marginal price set from the day before while saving fuel—a good deal for particularly natural gas generators in many areas of the country.

However, in areas like Texas, where there is no day-ahead spot market, wind is responsible for eroding natural gas prices, as the Wall Street Journal reported last March. Suffice it to say, as Lisa Linowes once did:

“Since the price paid for 90% of the generation is established twenty-four hours in advance of the power day, any low-cost participation from wind will have only a marginal impact on prices limited to those resources operating within the real-time market.”[5]

Government projections, particularly those from the National Renewable Energy Lab, that show wind can provide a substantial percentage of electricity in the United States while substantially reducing CO₂ emissions are uncontaminated by reality; they have no more credibility than college football polls. Simulations based upon even hourly dispatch models without considering the gustiness of the wind and the corresponding heat rate penalties yield incomplete, if not duplicitous, information about a complex process—while assumptions about wind’s ability to replace generation one-to-one are cartoonish misrepresentations of reality.

The NREL projections do not even try to account for the impact of thermal cycling events in response to wind volatility. Politically correct but untested testimonials from independent grid operators are equally problematic.

Measurement of greenhouse gas emissions is imprecise and statistical. Power plants are apparently not equipped with monitoring sensors; consequently, emission data is not based on direct observation. Rather, it is derived by plugging in numbers according to a formula, factoring information about fuel type and operating hours, estimating a plant’s thermal efficiency, and then leavening all that with a coefficient that calculates the pounds of CO₂ produced by particular fossil fuels.

It is unlikely that these averages are computed at time frames less than a day, which greatly disguises the effects of minute-to-minute wind flux. In short, reported numbers are typically formed from indirect model calculations, which themselves are fraught with a series of estimates.

Any statistician familiar with the problem of “averages” knows the difficulty of using them to explain complex phenomena. Wind behavior is different than the rather straight on performance of conventional generation. As stated earlier, trying to describe wind activity with snapshots at any given time masks its volatility, making it seem steady and sober, deceptively giving the impression that the energy yield from wind is the same as that from conventional sources.

For the purpose of more accurately accounting for the way wind volatility distorts the general formula in use for calculating emissions production, given the present limitations for direct measurement, load dispatch analyses at, say, 15-minute intervals, should be the preferred modeling tool, italicized here to emphasize that models are merely a means of examining reality, not reality itself. They would allow a much better look at the way routine wind flux affects the overall thermal activity within the grid.

WHAT THE USEIA DATA REALLY SHOW

No one with knowledge about how CO₂ emission data is estimated should say they represent objective reality, as AWEA does, for the possibility of plus or minus error is non trivial. With this in mind, let’s look more closely at what the EIA has actually said about wind and carbon emissions, in context. Here’s what Robert Bryce had reported in his Wall Street Journal article: “The U.S. Energy Information Administration (EIA) has estimated the potential savings from a nationwide 25% renewable electricity standard…. Best-case scenario: about 306 million tons less CO₂ by 2030. Given that the agency expects annual U.S. carbon emissions to be about 6.2 billion tons in 2030, that expected reduction will only equal about 4.9% of emissions nationwide.” There is a worst-case scenario: all that wind will produce virtually no reductions, a conclusion of the National Academy of Science.[6]

Bryce also reported that the NREL believes that if 20% of the electricity in the eastern U.S. came from wind, “the likely reduction in carbon emissions would be less than 200 million tons per year,” not even a drop in the bucket, as we will see.

Here’s what the EIA national generation mix data for 2007 and 2008 reveals:

• US electricity demand in 2008 fell 0.9% from the previous year. Peak summer demand fell 3.8%. Coal generation declined 1.5%; natural gas, 1.5%; nuclear, 0.3%. CO₂ emissions fell 2.5%–”largely due to decreased fuels consumption,” explained the USEIA commentary.
• During this period, wind generation increased 60.7 percent, from 34.5 million MWh in 2007 to 55.4 million MWh in 2008.
• The overall improvement in the average natural gas capacity factor since 2003 reflects both the increased reliance on combined cycle generation to meet energy requirements and further efficiency gains in combined cycle generation technology, leading to lower CO₂ emissions.
• Sulfur dioxide (SO2) emissions fell 13.4 percent, from 9.0 to 7.8 million metric tons, between 2007 and 2008. This amounts to the largest year-over-year decline since 1995, almost entirely due to the improvement in natural gas plant efficiency. The large reductions in SO₂ in 2008 resulted in part from a decline in fuel consumption but mostly from the installation of emissions reduction equipment in response to the Environmental Protection Agency’s Clean Air Interstate Rule.
• “Estimated carbon dioxide emissions by U.S. electric generators and combined heat and power facilities fell 2.5 percent from 2007 to 2008 (from 2,540 million metric tons to 2,477 million metric tons), largely due to a fall in fuel consumption at electric power plants.” (Italics added)

The substantial increase in installed wind clearly had little to do with reductions in CO₂ and other greenhouse gasses. Rather, according to the USEIA, they were almost entirely due to reductions in demand, with corresponding reductions in generation. There were additional reductions of CO₂ emissions attributed to increased use of more efficient CCGT units. Significant CO₂ reductions at a national level in 2008 cannot be tied to wind, even indirectly. And, most likely, no CO₂ reductions can be ineluctably credited to wind activity.

According to the EIA, the total U.S. electricity-related emissions of greenhouse gases in 2008 were 2,499.8 mmt of carbon dioxide equivalent (CO₂e), or about 35% of total US greenhouse gas emissions. In 2009, it experienced a decline of 205 mmt, the largest in recent times. Moreover, this 4% drop in the carbon intensity of the electric power sector, was

primarily due to fuel switching as the price of coal rose 6.8 percent from 2008 to 2009 while the comparable price of natural gas fell 48 percent on a per Btu basis. The carbon content of natural gas is about 45 percent lower than the carbon content of coal and modern natural gas generation plants that can compete to supply base load electricity often use significantly less energy input to produce a kilowatt-hour of electricity than a typical coal-fired generation plant. For both of these reasons, increased use of natural gas in place of coal caused the sector’s carbon intensity to decrease. (bold added)

In discussing 2009 CO₂ reductions, the EIA does state wind was responsible for avoiding 39 mmt. This was 19% of the total claimed CO₂ emissions drop for the year—205 mmt— which also factored reduced demand and improved nuclear (26 mmt) and natural gas (82mmt) efficiency. However, since the total CO₂ emissions tied to electricity production for the year was 2295 mmt, the 39 mmt from wind contributed only 0.016% of the total—a thimbleful, despite the presence of over 35000MW of installed wind capacity. And even this may have substantially overstated the case for wind, given the margin for error inherent in the EIA’s emission savings projection from wind.

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The following provides links to the other posts in this series as they are published:

Part I – Windpower on the Firing Line

Part II – Getting to the Facts on Emissions Reductions

Part III – (This post)

Part IV – Where’s the Empirical Proof?

ENDNOTES

[1] When coal-fired turbines are frequently and rapidly ramped up and down to compensate for wind variation, “the unit emission of CO2 per kWh increases …to cope with load. This can easily be 2% or more…depending on the degree of r1amp-down. On a coal-fired boiler, a 2% reduction in efficiency increases the unit emissions from 950 grams per kWh to nearly 1,100 grams per kWh, a change of 150 grams per kWh….”—a 16% increase in emissions.” David White, Reduction in Carbon Dioxide Emissions: Estimating the Potential Contribution from Wind Power, December 2004, page 16, Renewable Energy Foundation http://www.ref.org.uk/Files/david.white.wind.co2.saving.12.04.pdf

[2] William Tucker, Obama’s Nuclear Power Breakthrough, The Wall Street Journal, February 26, 2010: http://online.wsj.com/article/SB10001424052748703787304575075413484405770.html

[3] Tom Hewson, “Calculating Wind Power’s Environmental Benefits.”Power Engineering. July 2009: http://www.evainc.com/Publications/windpowerbenefit.pdf

[4] Tom Tanton, personal email dated August 21, 2010, and, personal email, dated August 27, 2010.

[5] See Russell Gold, Natural Gas Tilts at Windmills in Power Feud, The Wall Street Journal, March 2, 2010. See also John Chandley, How RTOs Establish Spot Market Prices (and How This Helps to Keep the Lights On), PJM Interconnection, September 27, 2007: http://www.pjm.com/~/media/documents/reports/spot-market-prices-j-chandley.ashx. See also Ross Baldick, Single Clearing Price in Electricity Markets, University of Texas at Austin, February 18, 2009: http://works.bepress.com/cgi/viewcontent.cgi?article=1156&context=cramton.. Quote taken from Lisa Linowes’ essay, WindAction, March, 2010: http://www.windaction.org/faqs/26050. Special thanks to Tom Stacy for providing the Chandley article.

[6] The NAS worst-case scenario—1.2% reductions. “Wind power will offset emissions of carbon dioxide by 1.2-4.5% from the levels of emissions that would otherwise occur from electricity generation.”