Mutually Exclusive

"...and never the twain shall meet."

In January 2008, President Barack Obama stated that “electricity rates would necessarily skyrocket” in the process of a transition to a “clean” energy future, referring specifically to the effects of a “cap-and-trade” regime intended to internalize the costs of “carbon pollution”. The expected effects of other variants, such as “cap-and-tax” and “cap-and-invest” would be similar. This Obama statement appears to have been an instance of excessive candor regarding the effects of the proposed energy transition and it is largely being ignored by state governors, legislators and regulators continuing to pursue the transition.

The governors of states aggressively pursuing a transition of the electricity generation infrastructure from fossil fuels to renewable sources such as wind and solar have been promoting it as a transition to cleaner and cheaper electricity, as have the leaders of the European Union, many developed nations such as the UK, Germany, Canada, Australia, New Zealand, Japan and the previous US Administration.

However, the experience of the effects of the ongoing transition to renewable generation suggest that renewable generation and cheaper electric rates are mutually exclusive. Electric rates have increased in every country which has pursued the renewable transition, including in the US. However, the electric rates in US states continuing to aggressively pursue the transition to renewables have increased further and faster.

Several factors contribute to the rate increases, including: redundant investments in intermittent renewable generation infrastructure which requires continued conventional generation support; increased investment in transmission infrastructure required to connect frequently remotely located wind and solar facilities to the grid; increased conventional generation capacity charges resulting from displacement of output by renewable generation; and, the premature closure of conventional generators, primarily coal-fired, which remain partially depreciated in utility ratebases.

Governor Kathy Hochul of New York is apparently unique among the governors promoting the energy transition in that she has both recognized and acknowledged that the transition to renewable generation is increasing utility rates and that the rapid transition required under New York state law would likely cause a massive, rapid increase in rates, which might complicate her re-election prospects. Governor Hochul’s approach appears cynical, since she has acknowledged the effects of the transition on rates, but has proposed only to defer the renewable generation percentage legally required by 2030 while retaining the percentage required by 2040. That approach would not reduce the rate increase effects of the transition but merely defer them.

The other governors continuing to promote the transition have not acknowledged the effects of the transition on electric rates, though they have certainly noted the rate increases. Rather, they are blaming the utilities in their states and the RTOs and ISOs in which the utilities participate for not adopting “cheap” renewable generation rapidly enough to keep costs down. Their positions are purportedly based on the Levelized Cost Of Energy analyses which focus only on the cost of intermittent renewable generation and ignore the costs of firming that generation to make it dispatchable and the costs of the transmission interconnections and enhancements required to connect that generation to the grid and bring it to the market.

Originally published here.