From a PowerPoint presentation (posted as a PDF) by Michael Vickerman, RENEW Executive Director:
+ Where We Are Today
+ Renewable Energy Standard
+ Renewable Buyback Rates/Incentives
+ Outlook for Clean Energy Jobs Act bill
Commentary
by Michael Vickerman, RENEW Wisconsin
February 22, 2010
As the Legislature mulls over the pending comprehensive energy bill known as the Clean Energy Jobs Act (SB 450/AB 649), both supporters and opponents have been keeping their artillery banks busy, peppering the airwaves and cyberspace with press releases, position papers, radio advertisements and economic impact studies. It’s a veritable war of words out there.
In pursuit of the larger objective of undermining public support for that bill, several opponents of the energy bill are attempting to manufacture a controversy out of the State of Wisconsin’s purchasing of renewable electricity, an outgrowth of the state’s current energy policy law (2005 Act 141). That law directed the State of Wisconsin to source 10% of its electrical usage from renewable resources by 2007 and 20% by 2011. In the initiative’s first year, the purchase of renewable energy added $1.4 million, or 1.7%, to the state’s overall electric bill.
The critics, led by Rep. Brett Davis (R-Oregon), contend that the state’s purchase is a budget-straining extravagance that taxpayers cannot afford at this time. In a letter sent to the Department of Administration, Davis insinuated that one of the energy purchase contracts amounts to a sweetheart deal for the utility provider, WPPI Energy, because it charged higher premiums than the other two utilities. Davis has asked the Legislative Audit Bureau to review the WPPI contract. WPPI, it should be noted, is a nonprofit wholesale energy provider serving more than 40 municipal electric utilities in Wisconsin.
Before we plunge into the politics behind this puffed-up molehill, a brief primer little on energy pricing is in order. First and foremost, the renewable energy in question is acquired by the state under long-term contracts that set forth a fixed price. Whether we’re talking about windpower, solar or biogas, the price of that resource remains steady over time. It does not yo-yo up and down the way certain fossil fuel prices do.
By contrast, an unregulated energy commodity like natural gas is especially susceptible to price volatility. Even though natural gas is primarily used as a heating fuel in Wisconsin, its price behavior strongly influences wholesale electricity costs at the margin.
Back when the State of Wisconsin signed its contracts with its renewable energy providers, natural gas prices were significantly elevated. After July 2008, they plummeted, which took the air out of wholesale electric markets. As a result, the cost differential between conventional energy and renewable energy widened going into 2009. But the renewable resources didn’t become more expensive; their costs stayed the same as it was two years ago.
The energy provided by WPPI Energy comes from the Forward Wind Energy Center located in Fond du Lac and Dodge counties. Keep in mind that the Forward project is a local energy source; no state dollars leave the state to procure the electricity. This 129-turbine installation pumps more than $1 million a year into the local economy in the form of land rental payments, local government revenues and maintenance crew salaries. Not a single dollar from the State of Wisconsin stays with WPPI Energy.
The State’s arrangement with WPPI Energy is nothing more than a standard hedge contract. This type of arrangement is common between suppliers of propane or fuel oil and their customers. Those businesses routinely offer their customers an opportunity to lock in a certain fuel price in advance of the heating season. Sometimes it works out for the customer, sometimes it doesn’t. But many customers and suppliers elect to enter into hedged contracts, because both parties can lock in their fuel expenses for the winter regardless of how the energy markets behave.
Yet, if wholesale electricity prices are slumping, then so is the cost of heating buildings with natural gas. According to a recent post by Milwaukee Journal Sentinel reporter Tom Content, residential and business customers are spending 15% to 30% less on heating bills this winter. The primary cause of the reduction in heating bills is the ongoing slump in the price of natural gas.
Content goes on to say that while electric rates rose at the beginning of this year, the savings on the heating side are neutralizing the impact on customer pocketbooks. If you and I and every other utility customer are seeing significant reductions in our heating bills, then it stands to reason that the State of Wisconsin is too. Put another way, the very dynamic that lifted renewable energy premiums last year also lowered energy bills statewide this winter.
Most people expect fossil fuel prices will rise again, and history will not disappoint them. Rep. Davis knows this too, which is why he and every other Republican legislator except one lone dissenter voted in favor of the state renewable energy purchasing initiative four years ago. But the Republicans were in the majority back in 2006, and thus took credit—deservedly so–for their leadership in passing Act 141.
In a further irony, the source of Davis’s ire was a pet policy of a fellow Republican legislator, former representative Scott Jensen. As a member of Gov. Doyle’s Task Force on Energy Efficiency and Renewables, Jensen championed the idea of the state acting as a “model customer,” whose leadership by example serves to educate other customers on the virtues of renewable energy.
But the real reason why Rep. Davis and others have sought to make a federal case out of this molehill is to blow up the Clean Energy Jobs Act bill before it can pass a Legislature that is, this time around, controlled by Democrats. Unlike their rivals four years ago, Republicans don’t see any electoral advantage to working with the majority party on this bill, even though it is clearly the most important economic development initiative that the Legislature will entertain this session.
During most of my 19 years as a renewable energy advocate, there has been an implicit recognition that both parties should share in the risks and rewards associated with something as fundamentally important as state energy policy. But times have certainly changed. Bipartisanship is completely MIA in this debate, as evidenced by the unnecessary and unconvincing posturing over the state’s renewable energy purchase. To echo the great Irish poet W.B. Yeats, the center is not holding.
Michael Vickerman is the executive director of RENEW Wisconsin, a sustainable energy advocacy organization headquartered in Madison. For more information on the Clean Energy Jobs Act bill (SB450/AB649), visit RENEW’s web site at: www.renewwisconsin.org.
February 12, 2010
Senator Mark Miller
State Capitol, Room 317 East
Madison, WI 53707
Representative Spencer Black
State Capitol, Room 210 North
Madison, WI 53708
Dear Senator Miller and Representative Black:
RENEW Wisconsin and our members appreciate the opportunities you created for public input into the Legislature’s deliberations on the Clean Energy Jobs Act legislation. Certainly, the more we can ground public discussion in fact, the better the final outcome.
To that end, RENEW is pleased to provide the enclosed copy of the narrative and appendix of tables from an economic analysis that we commissioned.
The analysis concludes that special buyback rates (sometimes called Advanced Renewable Tariffs) designed to stimulate small-scale renewable energy installations would have negligible impact on residential utility bills, averaging about $10 a year. That’s less a dollar a month for the typical customer. And it’s less than a household’s cost of purchasing the smallest block of green power from Madison Gas and Electric, for instance.
Compared with other forms of economic stimulus, promoting small-scale renewables through utility buyback rates would deliver a substantial and long-lasting economic punch with minimal impact on the Wisconsin citizen’s pocketbook.
Prepared by Spring Green-based L&S Technical Associates, the study modeled rate impacts from the legislation’s provisions for ARTs on the state’s five largest utilities. The modeling predicts cost impacts ranging from a low of $8.12 a year for a residential customer of Wisconsin Public Service to as high as $11.07 for a Wisconsin Power and Light (Alliant) customer. The projected impact would amount to $8.81 a year for a We Energies customer, $9.71 for a Madison Gas and Electric customer, and $10.11 for an Xcel Energy customer.
The projections assume that when each utility reaches its maximum threshold of 1.5 percent of total retail sales. In the aggregate, this percentage equates to 1/70th of total annual sales. That’s one billion kilowatt-hours a year, out of total annual sales of 70 billion kilowatt-hour.
Though the principals of L&S Technical Associates serve on RENEW’s board of directors, they have prepared numerous renewable energy studies for other clients, including the U.S. Department of Energy, Energy Center of Wisconsin, and the Wisconsin Department of Natural Resources. L&S has also co-authored renewable energy potential studies in response to requests from the Wisconsin Public Service Commission.
The bill’s renewable energy buyback provisions would unleash a steady flow of investment that would lead to new economic activity and jobs while moving us toward energy independence – exactly what we all hope to accomplish by passage of the Clean Energy Jobs Act legislation.
Sincerely,
Michael Vickerman
Executive Director
A Commentary
by Michael Vickerman, RENEW Wisconsin
February 15, 2010
In the next six weeks the Legislature will make a truly momentous decision on the state’s energy future. Either it can embrace an ambitious 15-year commitment to invigorate the state’s economy through sustained investments in clean energy or decide to coast along on current energy policies until they lapse and lose their force and effect.
Arguably the most innovative feature in the Clean Energy Jobs Act, as it’s now called, is a proposed requirement on larger electric providers to acquire locally produced renewable electricity with Advanced Renewable Tariffs (ARTs). These are technology-specific buyback rates that provide a fixed purchase price for the electricity produced over a period of 10 to 20 years, set at levels sufficient to recover installation costs along with a modest profit. Now available in more than a dozen nations in Europe as well as the Province of Ontario, ARTs have proven to be singularly effective in stimulating considerable growth in small-scale production of distributed renewable electricity.
From what we’ve observed, Focus on Energy and federal incentives (the current mix of financial support) are not sufficient to drive significant installation activity when utility buyback rates are pegged to the cost of operating 40-year-old coal plants. It’s unrealistic to assume that a brand-new farm-sized renewable energy system, regardless of the resource used, can compete head-to-head with central station power plants that have been fully amortized.
However, when existing incentives and tax credits are supplemented with an additional source of financial support, such as higher buyback rates, installation activity picks up noticeably.
Consider the much-vaunted Dane County Cow Power Project, which should be operational before the end of the year. Using anaerobic digestion technology, this Waunakee-area installation will treat manure from three nearby dairy farms and produce biogas that will fuel a two-megawatt generator. This community digester project, the first of its kind in Wisconsin, will be built with private capital and a State of Wisconsin award to support a technology that reduces the flow of phosphorus into the Yahara Lakes. A second digester project is also planned for Dane County.
The key element that makes the financing of this project work is the special biogas buyback rate that Alliant Energy, the local utility, voluntarily put in place a year ago. With the higher rate, the project’s return on investment was sufficient to interest outside investors.
Unfortunately, once this initiative reached its predetermined capacity limit, Alliant discontinued the special biogas rate. This complicates matters for future digester installations, in that the other utilities that serve Dane County, including Madison Gas & Electric, do not offer special buyback rates to customers who generate electricity from biogas.
While voluntary initiatives are laudable, they are too small and sporadic in nature to make much of a dent in converting Wisconsin’s organic wastes into energy. Indeed, unless a policy is adopted statewide that requires utilities to increase their purchases of locally generated renewable electricity, there is no guarantee that Dane County will see a second digester project built.
If we are serious about neutralizing the algae blooms that turn the Yahara lakes green each year, we’ll need to adopt a clean energy policy, including ARTs, that facilitates the development of biodigesters in farm country.
Please communicate your support for this bill by writing letters to your state legislators and to your local newspaper. But time is of the essence — we have only a few more weeks left in this legislative session.
Michael Vickerman is the executive director of RENEW Wisconsin, a sustainable energy advocacy organization headquartered in Madison.
Summary of Michael Vickerman’s (RENEW Wisconsin)
testimony before the
Assembly Special Committee on Clean Energy
February 2, 2010
RENEW Wisconsin strongly supports the provisions in SB450/AB649 to expand the state’s Renewable Energy Standard to 25% by 2025, which includes a 10% in-state renewable energy set-aside. RENEW has evaluated the availability of specific resources to reach that standard and has concluded that meeting such a target is technically feasible. If adopted, the in-state set-aside will become the most powerful engine for job development and capital investment over the next 15 years.
We expect such a requirement to be achieved through a combination of utility-scale power plants and smaller-scale generating units dispersed throughout Wisconsin. With respect to distributed renewable generation, we note the following:
1. The vast majority of the distributed renewable generating units installed in Wisconsin serve schools, dairy farms and other small businesses, churches and local governments.
2. Utilities are not in the business of installing these systems themselves.
3. In many cases the renewable energy installation went forward because there was a special buyback rate available to accelerate the recovery of the original investment made by the customer. Last week, I gave the example of the Dane County community anaerobic digester project that, once operational, will treat manure taken from several nearby dairy farms in the Waunakee area and produce two megawatts of electricity with it. The electricity will be purchased by Alliant Energy through a voluntary biogas tariff worth 9.3 cents/kWh. Unfortunately, Alliant’s biogas program is fully subscribed and is no longer available to other dairy farmers, food processing companies and wastewater treatment facilities served by Alliant.
4. Companies that install solar, wind and biogas energy systems are quintessentially small businesses, many of them family-owned. Renewable energy contractors and affiliated service providers constitute one of the few market sectors where young adults who have acquired the necessary skills to do the job well can find meaningful work at decent pay.
5. By its very nature, distributed renewable energy delivers nearly 100% of its economic punch to the local economy.
In stark contrast to other states, Wisconsin has a well developed market structure for supporting small-scale renewables. Through the ratepayer-funded Focus on Energy program, there is in Wisconsin a human infrastructure that trains and educates thousands of young people to work in the renewable energy arena. Indeed, Wisconsin is a leader in this area. Our expectation is that these workers will apply their skills in the state, fabricating and installing renewable energy equipment in a thoroughly professional manner.
But if we don’t take equal care to create and sustain demand for their skills and services, these workers are apt to leave the state for greener pastures, and Wisconsin’s investment in their education will have gone unpaid. This is why the issue of Advanced Renewable Tariffs is so important to RENEW members.
One final point: Last week several utility representatives recommended that the Legislature strip out the Advanced Renewables Tariff section. RENEW urges you not to heed their advice. While we would support a reworking of this section, including a program cap to limit rate impacts, we cannot support abandoning this initiative altogether and cannot further support a bill that is silent on policies to advance the distributed energy marketplace. That is a bottom-line priority with us.
Submitted by:
Michael Vickerman
Executive Director
RENEW Wisconsin
February 2, 2010