October 13, 2021
If Washington policymakers want to see what happens when you push renewable-energy mandates too far, too fast, they only need to read the news stories coming out of Europe. Last month, the Associated Press reported that “The European Trade Union Confederation, which represents 45 million members, said that 15% of the EU’s working poor – the equivalent of 2,713,578 people – lacks enough money to turn on the heating.”
On Sunday, the news outlet Mucia Today reported that in Spain, “The cost of electricity is still a staggering six times more expensive than it was a year ago.” A day later, the Spanish steel producer, Sidenor Group, announced it was halting production at one of its plants in Spain “amid exorbitant electricity prices.” The company said it was paying about 227 Euros per megawatt-hour for electricity, which is nearly four times what it was paying at this time last year.
Yesterday, Reuters reported, “Soaring European wholesale gas prices are encouraging more utilities to switch to carbon-heavy coal to generate electricity just as the region tries to wean nations off the polluting fuel.”
Indeed, energy poverty, soaring energy prices, industrial shutdowns, and a surge in coal use are the obvious results of Europe’s rush to embrace renewables without considering how that rush would affect the affordability, resilience, and reliability of the region’s energy and power systems. As several news outlets have noted, the U.K. and other European countries have been pushed into an energy crisis that is due, in part, to a wind drought which has reduced the output of the region’s wind sector by as much as 20% over the past few months.
Despite these facts, the Biden administration and top Congressional Democrats have included the Clean Electricity Performance Program in the latest version of the multi-trillion infrastructure package now pending before Congress. The CEPP, which could provide tens of billions of dollars per year in new subsidies to the solar and wind sectors, is buried in the Build Back Better Act, also known as H.R. 5376, a mammoth piece of legislation that totals about 380,000 words and by my count if printed out, would cover about 1,900 pages.
News reports suggest that the CEPP will cost about $150 billion. That’s a huge amount of money given that the domestic electric sector’s revenues are about $400 billion per year. But the language in the legislation doesn’t include a cost cap. Indeed, it’s difficult to know exactly how much the CEPP will cost and what all of the consequences of its passage will be. That said, a few things are clear: If the CEPP becomes law, it will drop a multi-billion-dollar cash bomb on electricity providers who are able to increase the amount of zero-carbon electricity they sell and penalize the entities that don’t. Second, it will further distort wholesale electricity markets and impose significant penalties on coal- and gas-fired generators. Third, the CEPP, along with the possible extensions – yet again – of the lavish subsidies for wind and solar, could result in the biggest changes in the domestic electric grid since the passage of the Public Utility Holding Company Act of 1935.
If the CEPP becomes law, and Big Wind and Big Solar get extensions of the production tax credit and investment tax credit, the federal subsidies for wind and solar could exceed the wholesale cost of electricity in several parts of the United States. In addition, a new report from the Center of the American Experiment has found that the CEPP could cost Arizona consumers nearly $120 billion in higher electricity rates between now and 2052. More on those numbers in a moment.
Thankfully, the headlong rush to increase renewable energy capacity in the U.S. is facing opposition from public power producers. It’s also getting the stink eye from at least two federal regulators.
Last month, Joy Ditto, the CEO of the American Public Power Association, said that compliance with the CEPP, will “result in substantially increased costs for customers.” Also last month, during an oversight hearing in front of the Senate Energy and Natural Resources Committee, Federal Energy Regulatory Commission Commissioner James Danly said that while there’s “a great deal of enthusiasm to build out the transmission system” between rural areas where renewable resources are abundant and urban areas where demand is high, “I am concerned the cost of transmission may prove to be extremely high. Ratepayers bear the all-in cost for generation and transmission.”
FERC Commissioner Mark Christie also expressed concerns about the effect that the renewable-energy push would have on ratepayers. His spoken remarks focused on West Virginia, which gets about 90% of its electricity from coal-fired generation. “If a national standard forces West Virginia to shut down 90 percent of their generation mix, you obviously have a reliability problem. That isn’t hard to figure out. But from a cost standpoint, West Virginians have to pay for replacement power. Paying to replace 90 percent of their generation mix is going to be extremely costly.”
As I said, the language of the CEPP is confusing. But the gist of it is this: If an electricity provider meets a certain threshold, it would get at least $18 for each megawatt-hour of “clean” energy it produces over the eight-year period from 2023 to 2030. If the PTC for wind energy is extended at $25 per megawatt-hour, then a company that is able to significantly increase (by at least 4% over the previous year) its production, could collect a total of $43 per megawatt-hour per year for each new megawatt-hour of wind energy it sells. That’s a staggering sum given that the wholesale price of electricity in New York last year was $33 per megawatt-hour. In Texas, the wholesale price of juice was $22 per MWh.
Put another way, if the Democrats get everything on their climate-change wish list, an electricity provider operating in Texas could, within a few years, be collecting nearly twice as much in federal tax incentives for some of the output from its new wind energy production as it could get for selling that power into the wholesale market.
Today, Isaac Orr a policy fellow at the Center of the American Experiment, and his colleague, Mitch Rolling, released one of the only in-depth analyses of the CEPP that I’ve seen. Their 21-page report estimates the cost of the CEPP on the state of Arizona. Their findings: “Achieving this goal would cost an additional $119.4 billion (in constant 2021 dollars) in the state of Arizona, compared to operating the current electric grid. This would result in a 45 percent increase in electricity prices by 2031, compared to 2019 rates.” They found the cost increases are “driven by a massive buildout of solar panels, wind turbines, battery storage facilities, and transmission lines.”
Despite the impacts that the CEPP is likely to have on energy affordability — and in particular, its impact on low- and middle-income consumers — the proposal isn’t getting a full examination by Congressional committees. Instead, the Democratic leadership wants to effectively sneak it through the reconciliation process without any substantive debate. That said, the inclusion of the CEPP in the final version of the Build Back Better Act is not a done deal. The Democrats may want to include it in reconciliation, but it could be excluded by the Senate Parliamentarian because it is an obvious violation of the “Byrd rule” which as this Congressional website explains, prohibits “the use of reconciliation to move a legislative agenda unrelated to spending or taxes.”
The bottom line here is obvious: The CEPP deserves a lot more scrutiny than it is getting. Europe’s worsening energy crisis should be a five-alarm wake-up call to policymakers in the U.S. about the dangers of pushing renewable energy too hard. Let’s hope that saner heads in Congress prevail and that they prevent this bad piece of legislation from becoming law.
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