Really Mr. Voss?

Recently Mr. Voss of the Michigan Land Use Institute (MLUI) wrote an article in support of Proposal 3, the ballot initiative to amend Michigan’s constitution to require 25% renewable energy. In this article, Mr. Voss was speaking from an expensive and now shopworn script assembled by the American Wind Energy Association (AWEA) and their “Big Fossil” heavy leadership board. And that is the first red flag; this 25×25 effort is almost exclusively funded by out-of-state interests.

Michigan campaign disclosures reveal that $1.3 million for this ballot initiative came from the GreenTech Action Fund of San Francisco, CA.  Another $450,000 came from the Natural Resources Defense Council of New York, NY.  $250,000 came from the Michigan League of Conservation Voters, $100,000 from the Regeneration Project, San Francisco, CA. and $50,000 from AWEA, the wind industry activist group. In total, nearly 90% of the funding for this effort came from outside Michigan. Interestingly enough, GreenTech Action Fund’s sole benefactor is a group called “The Energy Foundation”. They are also listed as benefactors of MLUI:

Among these closely related environmental and green energy advocacy groups, Sierra Club and AWEA have both decided to place a bull’s-eye on Michigan. They are using Michigan as a test case for ballot initiative-driven renewable energy mandates. At their Chicago wind energy seminar earlier this year, AWEA presenters championed a drive for more state-level mandates as the lavish federal Production Tax Credit (PTC), roughly equal to the wholesale price of electricity, is set to expire. Absent the price support of the PTC, AWEA believes state mandates like 25×25 would create a market for wind energy irrespective of price. In essence, Michigan is a test case for constitutional RPS mandates because large out-of-state political/industrial forces see an advantage to them and their constituents, not because they have the best interest of Michigan ratepayers/taxpayers at heart. Mr. Voss and MLUI are working in lockstep with them.

Will 25×25 create some jobs? Any activity that is both mandated and paid for by governmental fiat will produce jobs. Legislating that we produce electricity from incinerating baby ducks would also create many jobs. Would that justify mass “duck-icide”? Certainly not. Jobs creation alone does not give economic justification to the underlying activity.  In addition, if one looks closely at the modeling used to measure green job creation we see that only projected jobs gained are counted. Job losses in other sectors due to increased energy costs and state-mandated reallocation of finite capital are not counted. So rather than asking “Will 25×25 create jobs,” the more relevant question is whether it will create more jobs than it eliminates through its economic ill effects. The best evidence suggests it will not.

There can be no meaningful discussion of renewable energy without evaluating electricity rate impacts. Mr. Voss mentions Proposal 3’s 1% annual cost cap, but there is a high likelihood that such a cost cap is illegal and would be severed from the amendment. Some even argue that it is only included for cynical reasons, knowing it will be struck down under judicial scrutiny while giving the false appearance of cost control.  The fact that a rate cap is necessary (even if only a PR tool) tells us the 25×25 promoters recognize a ratepayer impact that cannot be ignored. By using their own 1% number, we realize that in 8-9 years (with compounding of interest) our electrical rates will rise another 10%. (Using DTE’s projections of 4-5% per year makes it far worse. How would that affect Michigan residents? The University of Michigan spends $60 million annually for electricity. A 10% hike in UM’s electric rates is essentially a tuition increase of $146.00 per student. What would a similar 10% rate increase mean nationwide? The US steel industry consumes $18 billion of electricity per year — a 10% increase in power rates is a surcharge of $18,000 per year per employee. That money would no longer be available for union wages, fringes, healthcare or pensions. It certainly will not make Big Steel more competitive globally. Does Michigan Energy, Michigan Jobs computer modeling consider these impacts? Certainly not.

Moreover, is producing wind energy in Michigan getting cheaper? Not according to Appendix F of Feb 2012 Report on the Implementation of PA295. Power Purchase Agreement (PPA) contracts approved by MPSC in 2010 were all in the $94-100 Megawatt Hour (MWh) range. 2011 saw the much ballyhooed $61.00/MWh PPA for the DTE/Tuscola Bay project. But, the next three PPAs in 2012 are all back to the  $98.00 to $106.00/Mwh range, this coincides with the Berkeley National Lab’s 2011 report on wind turbines costs. Since 1997, turbine prices have varied from $1600/kW in 1997 to a low of $750 in 2000-2001. It then doubled to $1,500 through 2008, and in low wind resource regions like MI, current turbine pricing is near that peak at $1,400/kW. The equipment itself has not grown cheaper in Michigan either.

The federal Energy Information Agency now reports that the cost of purchasing and installing wind turbines is $2,400.kW. If we use the wind industry’s projected 20-year lifespan for turbines, include a modest cost of capital and then adjust for Michigan’s 2012 measured wind capacity factor of 25%, the true cost of producing wind energy exceeds $120.00/MWh. Yet the wind developers are selling it for as little as $61.00/MWh. How is this possible? The only way one can sell $120/Mwh energy into the grid at $60-110/MWh is by hiding the taxpayer subsidies and Renewable Energy Credits (RECS) necessary to make that possible. But  irrespective of this accounting legerdemain, ratepayers and taxpayers are still paying in excess of $120.00/MWh for wind energy, either in taxes, utility fees or increased cost of goods and services that depend upon electricity to be delivered. But even the extraordinarily low $61.00 Tuscola Bay PPA is 1.5 to 3x typical wholesale electricity pricing, a substantial premium. These expensive wind contracts have not yet had a significant impact on electric rates because Michigan’s wind production is less than 1% of all production.  At 25%, the rate implications of such expensive wind energy are obvious.

What of the so-called $10 billion “investment” needed to make this happen? Leaving aside the question of whether constitutionally mandated spending is properly called an investment, $10 billion is too low. It is based on a very conservative projected turbine count of 3,100 turbines to reach the 25% mandate. Nevertheless, reaching 25% with only 3,100 turbines would require Michigan turbines to produce wind energy at a rate never seen.  A more sober assessment of the number of turbines needed based on 2011 production data from EIA is in excess of 4,000 units and perhaps 5,000. When we understand that several thousand square miles of land would be required to reach this number, wind developers will be forced to build in less windy regions, thereby depressing already low capacity factors. With so many turbines required, turbine costs alone could reach $20 billion. In addition, this figure does not include the huge cost of new transmission lines; the necessary natural gas fired balancing plants, the loss of revenue from conventional plants due to increased cycling and the cost of stranded conventional assets. A $20 billion dollar price tag (more than the market cap of DTE Energy and CMS Energy combined) amounts to a $8,000 per Michigan household of four in addition to the increased energy costs the renewable mandate will create. To force that much money out of the pockets of ratepayers and taxpayers and into the coffers of European turbine manufacturers and Big Fossil/Wind companies like Duke, NextEra and Exelon is folly. To call such an action an “investment in Michigan’s economy” is beyond absurd.

Finally, will 25×25 make electricity rates more stable? Yes. Only by creating fixed long-term contracts for energy at 2-4 times the current wholesale pricing. We could do the same with cars. Would GM be glad to “stabilize” the cost of a new car by getting you to sign a 10-year purchase contract at 4 times the current retail price? I am sure they would. Would it create some jobs? Of course. Would GM prosper? Absolutely. However, such economic foolishness, like 25×25, would be an absolute disaster for the end consumer.

Kevon Martis, Director of ICC

The IICC, Inc. is a bi-partisan renewable energy citizen’s watchdog group based in Blissfield, MI. The IICC is completely independent and receives no funding from any environmental or industry interests.

From the New York Times, we have this bit of information:

Tax Credit in Doubt, Wind Power Industry Is Withering

Published: September 21, 2012

FAIRLESS HILLS, Pa. – Last month, Gamesa, a major maker of wind turbines, completed the first significant order of its latest innovation: a camper-size box that can capture the energy of slow winds, potentially opening new parts of the country to wind power.

But by the time the last of the devices, worth more than $1.25 million, was hitched to a rail car, Gamesa had furloughed 92 of the 115 workers who made them.

“We are all really sad,” said Miguel Orobiyi, 34, who worked as a mechanical assembler at the Gamesa plant for nearly five years. “I hope they call us back because they are really, really good jobs.”

Similar cuts are happening throughout the American wind sector, which includes hundreds of manufacturers, from multinationals that make giant windmills to smaller local manufacturers that supply specialty steel or bolts. In recent months, companies have announced almost 1,700 layoffs.

Read More here.