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Maine’s “renewable energy” mandate increases electricity rates, results in job losses

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By Peter A. Steele

The Maine Wire

Maine’s Renewable Portfolio Standard legislation, which requires that some of the state’s electricity must be generated by expensive “renewable” sources, will raise the cost of electricity by $145 million within five years and will result in the loss of 1,000 jobs.

Homeowners will pay $85 more a year for electricity—and businesses will pay over $600 more—just because proponents of “green energy” have mandated that a certain percentage of Maine’s electricity must come from wind, solar, tidal and biomass sources.

But industrial businesses are in for a real shock: their electricity costs will increase by an average of $14,350 per year.

According to a new study, “The Economic Impact of Maine’s Renewable Portfolio Standard,” the state’s electricity prices will rise by eight percent by 2017, thanks to the RPS law.

Produced by The Beacon Hill Institute at Suffolk University in Boston in partnership with The Maine Heritage Policy Center, the study concludes that “increased energy prices will hurt Maine’s households and businesses and, in turn, inflict significant harm on the state economy.”

Because of RPS, Beacon Hill found that in five years Maine’s will suffer:

Reduced employment by an average of 995 jobs;

Reduced real disposable income by an average of $85 million;

Decreased investment by $11 million; and

Increased the average household electricity bill by $80 per year; commercial businesses by an average of $615 per year; and industrial businesses by an average of $14,350 per year.

The Maine RPS law will raise the cost of electricity an average of $145 million for the state’s consumers in 2017, based on a low-range estimate of $120 million and a high-range estimate of $175 million.

Maine’s first RPS law was created in 1999 under former governor Angus King. The RPS law was then strengthened in 2006 under former governor John Baldacci. In 2007, Angus King and Rob Gardiner, the former president of the Maine Public Broadcasting Network, formed a wind-energy company, Independence Wind.

Before RPS, Maine was already using a significant amount of renewable energy to create electricity, such as biomass and hydropower. Hydropower is a clean, abundant, reliable and affordable form of “green” energy that is readily available to Maine. Using more hydropower could easily reduce electricity costs to consumers and businesses. But the RPS law excludes any hydropower over a 100-megawatt cap as a source of “renewable energy.”

Gov. Paul LePage tried to lift the 100-megawatt cap, which would allow Maine to buy low-cost hydropower that still meets the renewable standard. But as the Energy Committee debated the governor’s bill, two competing proposals emerged. The Senate approved the governor’s version of the bill, but the House voted for the Energy Committee’s majority report.

The majority report changed the governor’s proposal by creating a bid process that would require the Maine Public Utilities Commission to seek requests for proposals, then determine whether to lift the 100-megawatt cap.

When the House and Senate could not reach agreement, the governor’s proposal to use low-cost hydropower failed.

Maine has two different sets of Renewable Portfolio Standard (RPS) laws. The first went into effect in 1999 under former governor Angus King and simply codified the existing 30 percent of retail energy that was derived from renewable sources. Maine’s abundant natural resources, including numerous lakes and rivers, as well as forestry byproducts, were already providing ample and cost-effective resources to produce renewable electricity.

Many small and efficient hydroelectric plants produced low-cost energy, while electric utilities burned wood waste and other biomass byproducts. The 30-percent mandate had minor—if any—effect on the energy market in Maine.

So in June 2006, former governor John Baldacci signed new legislation to counter the perception that the RPS law lacked real environmental benefits. The second RPS law, commonly referred to as the Class I standards, does not mandate a share of total production for renewables.

Instead, the law requires that from 2017 onward, at least 10 percent of total retail electricity sales must be generated from new renewable sources.

The goal was to increase the amount of new renewable energy to 10 percent by mandating annual increases of one percent beginning in 2008 until the goal is reached. Since renewable energy costs much more than conventional energy, many citizens have voiced legitimate concerns about higher electric rates.

But the U.S. Energy Information Administration (EIA), a division of the Department of Energy, provides optimistic estimates of renewable electricity costs and capacity factors. In most cases, the EIA’s projected costs can be found at the low end of the range of estimates—but the EIA’s capacity factor for wind is at the high end.

The EIA does not take into account the actual experience of existing renewable electricity power plants.

So the Beacon Hill Institute applied its STAMP® (State Tax Analysis Modeling Program) to estimate the economic effects of these RPS mandates. While Beacon Hill based its estimates on EIA projections, the study also provides three examples of the cost of Maine’s RPS mandates—low, average and high—using different cost and capacity estimates for electricity-generating technologies.

The study determined that the RPS mandate would increase electricity prices by an average of 1.24 cents per kilowatt hour or by 8 percent. Over the entire period between 2012 and 2017, Beacon Hill estimates that RPS will cost Mainers an average of $655 million.

“The state’s ratepayers will face higher electricity prices that will increase their costs, which will in turn put downward pressure on household and business income,” according to the study. “By 2017 the Maine economy will shed 995 jobs, within a range of estimates from a low of 820 to a high of 1,165 jobs.”

Beacon Hill estimates that job losses and price increases will reduce real incomes as firms, households and governments spend more of their budgets on electricity and less on other items, such as home goods and services.

The study shows that in 2017, real disposable income will fall by an average of $85 million, and net investment will fall by an average of $11 million.

In 2017, the RPS will cost families an average of $85 per year; commercial businesses $615 per year; and industrial businesses $14,350 per year.

Between 2012 and 2017, the study found that the average residential consumer could expect to pay $365 more for electricity, while a commercial ratepayer would pay $2,715 more and the typical industrial user would pay $63,305 more.

“Governments enact RPS policies because most sources of renewable electricity generation are less efficient and thus more costly than conventional sources of generation,” the study states. “The RPS policy forces utilities to buy electricity from renewable sources and thus guarantees a market for them. These higher costs are passed on to electricity consumers, including residential, commercial and industrial customers.”

Increases in electricity costs are known to have a profound negative effect on the economy—not unlike taxes—as prosperity and economic growth are dependent upon access to reliable and affordable energy.

“Since electricity is an essential commodity, consumers will have limited opportunity to avoid these costs,” according to the study. “For the poorest members of society, these energy taxes will compete directly with essential purchases in the household budget, such as food, transportation and shelter.”

Chris O’Neil, government relations director for Friends of Maine’s Mountains, said he welcomes the report. Citing Energy Information Administration statistics from 2011, O’Neil said that Maine gets only .4% of its electricity generation from oil, and Maine is among the very cleanest electricity states in America.

“Maine’s highest-in-the-nation RPS is a solution in search of a problem,” he said. “Half of our generation is already coming from renewables, And 99.6% of Maine electricity generation comes from clean sources other than oil. There comes a time when we just have to stop mandating misguided solutions to undefined problems.”

Pointing out that Maine’s generation capacity is over 4300 megawatts, but average usage is about 1500 megawatts, O’Neil criticized the RPS as “unnecessary and unsustainable.”

“Most of our biomass generators are idle and losing money,” he said. “We have more dams than we can use, yet the annual escalator essentially mandates that we build more generation. Unfortunately, that means wind, which is unnecessary, unaffordable and unsustainable.”

 

About Steve Robinson

Steve Robinson is the former editor of The Maine Wire and currently the executive producer of the Kirk Minihane Show. Follow him on Twitter @BigSteve207.

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