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An Outmoded Concept
How a Renewable Portfolio Standard in Virginia Will Punish Electric Customers and Erode Competitiveness
by James A. Bacon
What would Henry Howell think of Virginia’s liberals and progressives today? Howell, the populist candidate whose watchword was “Keep the big boys honest,” came within a whisker’s width of defeating the conservative Mills Godwin in the 1973 race for governor. The “big boys” against whom he railed were the senior executives of Virginia’s electric power companies and their minions around the state. The 1970s were a period of soaring electricity prices, and Howell championed the cause of the little guy who saw his paycheck eroded by higher electric bills.
There is no way to know what “Howling” Henry would think of modern-day liberals and progressives if he were alive today, but there is a good chance he would be dismayed by their push for a mandatory Renewable Portfolio Standard (RPS) in Virginia. In contrast to the voluntary goal in place today, a mandatory standard would require power companies to derive a major share of their electric-generating capacity from renewable fuels such as solar, wind or biomass. The reason it is necessary to mandate the use of these power sources is that they are far more expensive than fossil fuels. Mandating an RPS would add billions of dollars to the rate base of Dominion, AEP and the smaller power companies, resulting in higher electric bills for all Virginians.
A new, multibillion-dollar industry of politically connected insiders – ethanol producers, wind generators, solar power producers, electric car manufacturers -- has arisen around the renewable movement on the grounds that the United States and Virginia need to reduce fossil fuel combustion and carbon-dioxide emissions implicated in global warming. Rather than compete on the basis of cost, these rent seekers work the political system to force their uneconomic technologies upon a reluctant populace. They are the unaccountable Big Boys of the early 21st century but there is no Henry Howell to keep them honest.
It is true that renewable power companies have improved their technologies and driven down their costs, and it is entirely plausible to think that they will be competitive with fossil fuels one day. But that day has not yet arrived. The fossil fuels industry has been innovative, too, producing massive volumes of clean-burning natural gas. Thanks to the fracking revolution and the widespread substitution of natural gas for coal – which liberals and progressives never saw coming -- CO2 emissions in the U.S. have fallen to an 18-year low. Meanwhile, thanks to the low cost of gas, Virginia electric companies are filing for rate reductions.
The low cost of energy, including electric rates, is bolstering the manufacturing competitiveness of the United States compared to European nations that have saddled their industries with high-cost, wind- and solar-powered electricity. Among other problems not anticipated by the geniuses who re-engineered the European electric grid, solar and wind power are intermittent power sources that require fossil-fuel back-up to compensate for their fluctuating power generation. Rising electricity prices in Germany and lower energy prices in North America are making German products less competitive and forcing firms to relocate to other countries, concluded global analytics firm HIS in a recent study. There is a growing backlash to renewables in other European countries as well. Among the beneficiaries of Europe’s self-inflicted wounds are American workers employed by a reviving U.S. manufacturing sector.
But liberals, progressives and other advocates of the RPS would short-circuit that revival by compelling Virginia power companies to invest billions of dollars in technologies that are not yet ready for prime time. They would lock uncompetitive energy sources into Virginia’s electric rate base for decades to come, punishing the poor and working class through higher electricity rates and reduced job opportunities. Then they would cry crocodile tears about the inequality of incomes that they themselves helped create!
Opposition to a mandatory Renewable Portfolio Standards should not be construed as opposition to renewable fuels themselves. The federal government is funding basic research (a legitimate role for government) in potential breakthrough technologies. Silicon Valley venture capitalists are spawning new enterprises to commercialize those technologies. Industry is learning and innovating. It is entirely possible that renewable technologies, including some not yet on the public policy radar screen, will be competitive with fossil fuels by the end of this decade. Virginia should invest in those technologies when they are competitive, not before. Delaying the commitment to renewable fuels until then would have a negligible impact on greenhouse emissions; the impact on global temperatures would be so miniscule as to be impossible to measure.
One of the most promising technology clusters to reach critical mass is the so-called “Internet of Things.” The cost of sensors, wireless connectivity and data storage is plummeting. New applications are proliferating, many of which entail energy conservation. The building automation industry can monitor energy usage – heating, cooling, lighting – at less expense and with greater precision than ever, and advanced algorithms can crunch the resulting flood of Big Data to spot patterns and anomalies in electricity usage that no one would have noticed before. While the Obama administration was pumping billions of dollars into rent-seeking initiatives like Solyndra and the Chevy Volt, the building automation industry has been quietly innovating without government assistance.
(Full disclosure: I edit a blog about the Internet of Things for Richmond-based Tridium, whose software is widely used in the building automation sector.)
Today, investments in energy conservation can yield big returns in commercial and industrial buildings. Eventually, innovations spawned in those sectors will seep into residential households. Ironically, Renewable Portfolio Standards reward only electricity production, not electricity conservation.
If Virginians want to reduce greenhouse gas emissions without hurting their economic competitiveness, a better idea would be to allow electric companies to vary rates according to electricity demand. Letting rates spike during periods of peak usage would encourage industrial, commercial and residential users to cut back or shift consumption to periods of low demand. The technology now exists to monitor the usage of every appliance and light bulb in a house and easily modify electric consumption. Not only would variable pricing encourage conservation, it would reduce the capital investment needed to add new capacity, all of which would act to keep rates down. That would give Virginia the best of both worlds, an outcome that even Henry Howell would love.