Here’s a shot across the bow of renewable enthusiasts across the grid: The clean energy boom and forced coal-fired plant retirements are going to cost U.S. ratepayers billions of dollars extra and reduce jobs while doing very little to cut carbon emissions.
So says a feisty new report by IHS Markit, written with the blessing of some of the nation’s top business, nuclear energy and investor-owned utility entities. It takes sharp aim at the renewables and shale gas revolutions going on in the power grid industry, claiming that the numbers clearly don’t add up to benefit consumers despite varied regulatory and investment pushes for environmentally cleaner fuel mixes.
In fact, the IHS report argued, the opposite is happening.
“In the past three years, the disharmony between public policies and market operations has worsened and devalued the U.S. electric supply portfolio,” the report reads. “Increasingly, the U.S. electricity supply is being shaped by subsidies and mandates for favored technologies and fuel sources based on flawed cost assessments typically involving simple levelized cost analyses that ignore the power supply-cost implications of balanced electricity demand and supply in real time.”
IHS’ report, “Ensuring Resilient and Efficient Electricity Generation,” comes on the heels of a U.S. Department of Energy report which made similar claims. The IHS research was its own, but is supported by the Edison Electric Institute, the Nuclear Energy Institute and the Global Energy Institute at the U.S. Chamber of Commerce.
“The fact that the costs have been declining for the raw materials and equipment necessary to install solar and other renewables is only part of the picture,” Heath Knakmuhs, Senior Director of Policy at the Global Energy Institute, said in a separate statement to Electric Light & Power Executive Digest after the report’s release. “Integration costs are a significant portion of the costs that must also be considered when intermittent generation resources are priced into the mix of grid resources.”
In real money, report authors Lawrence Makovich and James Richards say the current but quickly changing “diversified” electric supply portfolio–which favors a larger ratio of baseload power– saves about $114 billion per year, which lowers the average retail cost of electricity by 27 percent below “less efficient” diversity models factoring in greater renewable percentages and coal plant retirements, among other things.
“The 27 percent power price increase associated with the less efficient diversity case causes a decline of real U.S. GDP of 0.8 percent, equal to $158 billion (in 2016 dollars),” the report reads. “Labor market impacts of the less efficient diversity case involve a reduction of one million jobs.”
This contention cuts at the very heart of distributed energy orthodoxy, surely. Whether it’s correct will be a matter of fierce debate within the industry.
Renewable supporters, of course, counter that current market dynamics and the exponential fall in solar power costs contradicts the key IHS points.
“On the contrary, solar provides significant cost savings, relieves pressure on our nation’s infrastructure and improves the grid’s overall performance,” Alex Hobson, senior spokesperson for Solar Energy Industries Association, said in an emailed response to Electric Light & Power Executive Digest.
“By increasing the amount of solar and other technologies, our electricity supply is easily achieving the goal identified in the first sentence of this report that “˜current U.S. consumers benefit from a reliable, resilient and cost-effective electric supply portfolio,’ “ Hobson added.
IHS gets specific in how it frames the inefficiencies of regulatory and market favor for sources such as solar, wind and natural gas. It points to the ground zero of renewables integration–California. The Golden State has burnished its image as the vanguard, reducing in-state coal- and oil-fired generation by 88 percent and nuclear power by 45 percent since 2002.
Meanwhile, the resiliency of the grid system has suffered, the report contended.
“Current power system operations involving natural gas-fired capacity operating with an average plant factor of 26 percent in an inefficient net load-following mode to back up and fill in for the intermittency of the renewable generation,” it reads, noting infrastructure risks highlighted by the recent outage of the Aliso Canyon gas storage facility.
“California employed command and control policy initiatives to increase the generation share of wind and solar resources in response to climate change concerns,” the report continued. Yet those policies “did not produce a declining trend in the carbon dioxide (CO2) emissions associated with the two-thirds of electric supply coming from the in-state electric generation resource mix since 2002, when California mandated its first policy initiatives for future renewable generation shares.”
Like the recent DOE report, IHS fretted about the accelerating retirement of coal-fired and nuclear generation. DOE blamed much of this devaluing of coal and nuclear on the falling cost of natural gas, while also noting that renewables require quicker ramping up and down of base-load plants, which hastens their aging process.
The report also aimed at other geographical targets, noting the California is not alone in its rush to renewables and forsaking baseload generation sources.
“For example, in Texas the expansion of wind energy required about $6 billion of transmission investment to link the Competitive Renewable Energy Zones (CREZs) to load centers,” the report reads. “The transmission cost adder in ERCOT (which oversees reliability on the Texas grid) was $600 (per) kW of installed wind capacity.”
It also disputed the contention–noted in the DOE report–that low natural gas prices have made nuclear power plants uncompetitive. It pointed out the wholesale electricity mark cash flows to natural gas generators such as competitive firms such as Calpine, NRG, delivery firms such as ITC and numerous utilities. Calpine, ITC and NRG each have struggled financially in recent years, with the first two acquired by equity firm Energy Capital Partners and corporate powerhouse Fortis, respectively, while NRG has suffered hundreds of millions in operational losses in recent years due to lower gas margins and other dragging effects. NRG’s CEO, who helped take the company out of bankruptcy more than a decade ago, resigned two years ago and now the company is embarking on a transformation plan including asset sales.
“If this were the case, then the market outcome would involve profitable natural gas-fired generators displacing unprofitable nuclear power plants. However, the market results do not show such outcomes,” the report reads. “Wholesale electricity cash flows to the natural gas generators (listed in the report) do not produce market valuations indicating that these competitors are winning the marketplace by cost-effectively replacing obsolete generating resources.”