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Tam Hunt: The True Cost of Renewable Energy

Despite a conflicting report, the state mandate actually calls for a relatively small rate increase for big long-term gains

What does renewable energy cost? Isn’t it still more expensive than fossil fuel electricity? Way more?

Tam Hunt
Tam Hunt

In a word: no.

A recent Los Angeles Times article typifies the confusion on this issue, misreporting significantly the results of a draft report issued by the California Public Utilities Commission in 2009.

The article stated that achieving Gov.-elect Jerry Brown’s vision of 33 percent renewables by 2020 would cost Californians $60 billion. The article also stated that this goal would require a 14.5 percent electricity rate hike.

Setting aside the fact that it was actually Gov. Arnold Schwarzenegger who put in place the 33 percent mandate with a 2009 executive order, let’s look at these numbers in more detail.

The CPUC’s draft report was never completed, and the updated analysis was instead shunted to the long-term procurement proceeding (R.10-05-006), which guides utilities in their long-term power planning. New numbers will be coming out soon, showing dramatic reductions in wind turbine and solar panel costs since the 2009 draft report was issued.

The $60 billion figure (actually $58.6 billion) from the report is the total expenditures required for all electricity investments by 2020 — not just the cost of achieving the 33 percent renewables mandate.

The 14.5 percent rate hike is the projected hike resulting from the report’s “high distributed generation” scenario, which relies primarily on smaller solar projects to meet the 33 percent mandate instead of larger projects and other technologies, such as wind and geothermal power, that are cheaper than solar. The 33 percent “reference case” found that a 7.2 percent rate hike would result from this scenario, with a total incremental investment of just $3.6 billion (a far cry from the $60 billion cited by the Times article).

More important, the report assumes no reduction in renewable energy costs by 2020. This has already been proven woefully wrong because costs for wind turbines and solar panels have dropped dramatically in the past couple of years. Solar panel costs, in particular, have plummeted about 30 percent in the past couple of years and are projected to fall even further in coming years because this industry has finally reached the point where global production is many gigawatts per year and the market is becoming saturated.

This is good for consumers, but not so good for solar producers competing for the lowest prices. The planet ultimately wins in this price battle (Figure 1).

Figure 1: SolarBuzz retail solar price index.
Figure 1: SolarBuzz retail solar price index.

Last, two additional 33 percent scenarios, one focusing on higher wind power use and the other on higher out-of-state energy projects, found even lower costs to ratepayers. The high wind scenario would result in just $2.1 billion incremental investments by 2020, and the high out-of-state scenario just $1.9 billion.

But isn’t that a lot of money still? Well, yes, $2 billion is a lot of money. But it’s all relative. California ratepayers spend about $30 billion per year on electricity. So $2 billion by 2020 in additional payments (not each year, mind you, just one lump sum) is a relatively small investment to reach 33 percent renewables when compared with the more than $300 billion ratepayers will pay for electricity during that period.

And all of these numbers assume the validity of the analysis in the draft report.

It turns out, however, that the numbers have changed quite a bit in the year and a half since the draft report came out, as already mentioned.

The report states: “Under the Solar PV Cost Reduction sensitivity, the total costs of the (High Distributed Generation) Case are very similar to the costs of the 33 percent RPS Reference Case.” And costs for solar PV have already come down — in just a year and a half — to the level of the “Solar PV Cost Reduction” sensitivity.

The California Energy Commission’s most recent levelized cost of energy report shows that renewable energy can often be cheaper than traditional fossil fuel energy. Wind power, geothermal and in-conduit hydro, in particular, are highly cost-effective. And even solar power can be cheaper when we compare the costs of peak power natural gas plants to the cost of solar energy facilities, which are reliable peak power sources (see Figure 2).

Figure 2: Levelized cost of energy from various renewable energy sources.
Figure 2: Levelized cost of energy from various renewable energy sources. (Source: California Energy Commission, “Comparative Costs of California Central Station Electricity Generation”)

In sum, even if we achieve the 33 percent by 2020 renewable energy mandate with mostly in-state solar PV generation, it costs ratepayers a relatively small amount by 2020. At the same time, the state will see significant job growth in the renewable energy industry, reduced greenhouse gas emissions, more efficient homes and vehicles, and — probably the largest benefit — ensuring that Californians continue to take advantage of the boom in renewable energy around the globe.

More and more investors and other leaders are recognizing that renewable energy is the next big thing. In fact, it’s already here and we are in the exponential elbow of the growth curve — as I’ve written about previously. Next 10, a California nonprofit, tracks renewable energy investments into California. It finds that fully 25 percent of all venture capital investment in California goes to “clean tech,” which includes renewable energy, energy efficiency and green transportation (Figure 3).

Figure 3. Venture capital investments in California in clean tech.
Figure 3. Venture capital investments in California in clean tech. (Source: Next 10 2010 Green Innovation Index)

And Figure 4 shows that California dominates the country in terms of green tech patents, particularly in solar power.

Figure 4. California’s share of green-tech patents as percentage of U.S. total.
Figure 4. California’s share of green-tech patents as percentage of U.S. total. (Source: Next 10 2010 Green Innovation Index)

By investing in the 33 percent by 2020 renewable energy mandate, California ratepayers will see a very small rate increase by 2020 — and will save money long term. At the same time, we will ensure that our state remains at the forefront of the global economy.

— Tam Hunt is president of Community Renewable Solutions LLC, which is focused on community-scale renewables. He also is a lecturer on climate change law and policy at UCSB’s Bren School of Environmental Science & Management. Click here for his blog, Thought, Spirit, Politik.

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