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Original article URL: http://bridgemi.com/2012/10/prop-3-more-renewable-power-but-at-what-cost/

Public sector

Prop 3: More renewable power, but at what cost?

Consumers Energy President and CEO John Russell caused a stir last month when he marked the dedication of the utility’s first wind farm near Ludington by declaring that renewable energy is “clean, reliable and affordable for Michigan.”

Russell’s comments added fuel to the debate over Proposal 3, a proposed constitutional amendment that would require Michigan’s utilities to obtain 25 percent of the electricity they sell from renewable sources — which it identifies as wind, solar, biomass and hydropower — by 2025. The ballot initiative would limit utilities to rate increases of 1 percent annually to comply with the 25 percent renewable energy mandate.

Russell’s comments were curious because Consumers Energy is spending $600 million to build wind farms, while also spending $2.9 million to fight Proposal 3, which would require more renewable energy.

Proposal 3 supporters called Russell’s comments hypocritical.

Consumers Energy spokesman Jeff Holyfield said the Jackson-based utility supports renewable energy, but noted the Michigan Constitution directs the Legislature to handle energy policy. He said a 2008 law requiring Michigan to obtain 10 percent of its energy from renewables by 2015 should run its course before any changes are made.

“Michigan already has a renewable energy standard,” Holyfield said. “We think that standard is reasonable and affordable.” A recent state report said most utilities would meet the 2015 clean energy mandate.

The flap over Russell’s comments highlighted fundamental disagreements over how much of Michigan’s energy should come from renewable sources, how quickly the state should transition to cleaner sources of energy and who should make those decisions — voters directly or through the Legislature.

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The 25 percent renewable energy standard contained in Proposal 3 would give Michigan one of the nation’s most aggressive clean energy mandates. Eleven other states have renewable energy mandates of 25 percent or higher.

Tom Lyon, a professor of business economics and natural resources at the University of Michigan, said Proposal 3 is a reasonable and affordable way to increase the use of renewable energy.

“I think the state could ramp up to 25 percent renewable energy by 2025 … and there would only be a modest cost increase,” Lyon said.

Coal means electricity in Michigan

Coal has been Michigan’s predominant source of power for the past 50 years, even though there are no coal deposits in the state. Michigan’s utilities get coal from mines in Wyoming, Montana and West Virginia.

Michigan has one of the nation’s oldest fleets of power plants; electricity rates here are above the national average and higher than those in surrounding states; and we lag behind other Great Lakes states on renewable energy, according to government data. Among the eight Great Lakes states, only Ohio has less installed wind energy capacity than Michigan.

In 2010, Michigan obtained 59 percent of its electricity from coal. The rest came from nuclear power (26 percent), natural gas (11 percent), and renewables (4 percent).

Importing coal costs Michigan utilities more than $1.7 billion annually, according to the federal Energy Information Administration. But coal has one major advantage over renewable energy: Reliability. Coal-fired power plants produce electricity around the clock and can meet varying levels of demand.

Solar panels only produce energy when there is adequate sunlight and wind turbines produce power about 35 percent to 40 percent of the time, according to industry data.

Despite those limitations, a 2012 study by the government’s National Renewable Energy Laboratory concluded that the U.S., with existing technologies, could obtain 80 percent of its electricity from renewable sources by 2050. The study concluded that renewable energy could provide the vast majority of electricity “on an hourly basis in every region of the country.”

Proposal 3 supporters claim the measure would create thousands of jobs, cut spending on out-of-state coal and reduce air pollution from coal-fired power plants, which has been linked to asthma in humans, global warming and mercury poisoning of fish.

Map of Michigan wind speeds at 100-meter altitude

Proposal 3 also would require the state’s utilities to generate renewable energy in Michigan. Large utilities like Consumers Energy and DTE Energy, as well as municipally owned utilities and electric co-op, could buy renewable energy from independent energy companies — as long as it is generated in Michigan, or adjacent areas served by a Michigan utility.

Critics counter that a 25 percent renewable energy mandate is extreme, would cost utilities and their ratepayers $12 billion to meet the standard, drive up electric rates and require the construction of as many as 3,100 wind turbines.

Proposal 3 also could eat into utilities’ income by reducing the need to build or upgrade coal-fired power plants. Utilities in Michigan earn revenue by building or upgrading facilities and passing those costs, plus a mark-up that can range up to 11 percent, on to ratepayers.

Utilities do not generate income on the sale of electricity, per se. The cost of generating electricity or acquiring it from a third-party provider is merely passed on to consumers.

Energy policy in the constitution?

Several energy and legal experts said they support the renewable energy mandate, but object to having it written into the state constitution. If approved, Proposal 3 would make Michigan the first state to put such a mandate into its constitution.

“I think 25 percent (renewable energy by 2025) is achievable, but I prefer that it not be built into the constitution,” said Robert Nelson, who served on the Michigan Public Service Commission from 1999 to 2005. “I think that putting it into the constitution is a big mistake; no other state has done that.”

James Clift, policy director for the Michigan Environmental Council, said it took 10 years to get the Legislature and utilities to agree to a modest 10 percent renewable energy standard. He said placing a 25 percent renewable energy standard in the constitution would create jobs, force stubborn utilities to shift toward cleaner sources of energy, curb energy costs over the long-term and put Michigan among the nation’s leaders in renewable energy.

“Michigan’s Constitution isn’t like the federal Constitution — it was designed to be a living document that reflects the values of the people of Michigan,” Clift said. “There have been 68 attempts to amend Michigan’s Constitution and 31 have passed since our constitution was adopted in 1963.”

T. Arnold Boezaart, director of Grand Valley State University’s Michigan Alternative and Renewable Energy Center in Muskegon, said he believes concerns about putting the clean energy mandate in the constitution could be the proposal’s downfall.

“Most people I’ve talked to have said that if they didn’t have to deal with the constitutional issue they’d vote for Proposal 3,” said Boezaart, who supports the ballot initiative. “I think it’s a particular conundrum for this proposal.”

Former Gov. William Milliken, the state’s longest serving governor, recently announced his support for Proposal 3. Milliken said the renewable energy standard warranted the “long-term certainty of constitutional protection.”

By contrast, Michigan Attorney General Bill Schuette and two of his predecessors, Republican Mike Cox and Democrat Frank Kelley, have come out against Proposal 3.

“The constitution very clearly is not the place for energy policy,” Schuette said. “In fact, the constitution itself calls for the Michigan Legislature to set energy policy – in Article IV, Section 50 – so Michigan voters should be wary of this misguided attempt to do an end run around that wise provision.”

About the only thing that both sides agree on is this: Legal challenges are likely if voters approve Proposal 3.

“Furthermore, it is not clear what recourse the people would pursue in the event of non-compliance (with Proposal 3),” wrote the Citizens Research Council. “The Constitution allows the people, through the courts, to cause a person or governmental entity to cease actions deemed unconstitutional and to force actions if needed to comply with constitutional provisions. Would the courts issue a writ of mandamus to compel an electric utility to generate more energy from renewable sources, to purchase more energy from renewable sources, or sell less energy from non-renewable sources to maintain compliance with the 25 percent standard?”

But what would it cost?

Much of the raging ad war over Proposal 3 has centered on the cost question, with opponents warning of huge increases for Michigan families and advocates arguing that renewable is becoming the money-saving method to generate power.

A recent economic study funded by the Michigan Environmental Council said Proposal 3 would add 50 cents per month to the average residential electric utility bill. That result came after authors calculated renewable contract costs and subtracted savings from a reduced use of carbon-based fuels and power plants.

All types of renewable energy now cost less than generating electricity at a new, state of the art coal-fired power plant, according to a February 2012 study by the Michigan Public Service Commission. The average cost of energy from a new wind farm in Michigan was $91 per megawatt hour (MWh) in 2011, with newer contracts as low as $64 per MWh. The cost of electricity from a new coal-fired power plant is $133 per MWh, or 32 percent higher than the average cost of wind power, according to the PSC study.

“The cost of all renewable technologies is less than coal,” according to the MPSC, a state agency that regulates utilities. “The weighted average price of renewable energy contracts … is substantially lower than the cost of new coal-fired power plants.”

Nelson, the former PSC member who is opposing Prop 3, argues that the contract figures used in the MEC report might not reflect true market costs due to a provision of federal law.

The “production tax credit” for wind power will expire at the end of the year, if action is not taken. Nelson said wind farm owners in Michigan have been more favorable in their contract terms recently to ensure they could get their federal tax credits.

A study paid for by opponents of Proposal 3 says renewable power is much more expensive than traditional sources right now.

Both sides’ analyses are based on a variety of — and differing — economic assumptions.

That means voters will enter the voting booth with no definitive answer on what this proposal will ultimately cost.

Jeff Alexander is owner of J. Alexander Communications LLC and the author of “Pandora’s Locks: The Opening of the Great Lakes – St. Lawrence Seaway.” He’s a former staff writer for the Muskegon Chronicle.

At a glance: Proposal 3

WHAT VOTERS WILL DECIDE: If you vote for Proposal 3, it is effectively a vote for a huge investment in renewable energy in Michigan, principally wind power. If you vote against Proposal 3, effectively you are supporting the status quo on energy policy, with decisions made by the Legislature and governor.

WHAT THE ADS SAY: Proponents of Proposal 3 have used ads to argue that renewable power is healthier and cheaper than carbon-based sources and a job-creator for the state. Opponents of Proposal 3 have used ads to argue that Proposal 3 will impose huge costs on ratepayers and be a radical departure in the legal handling of energy policy.

WHAT THE TRUTH SQUAD SAYS: Reports by the Michigan Truth Squad have found that ads favoring Proposal 3 have been generally fair, but misleading in one key respect: how many jobs the mandate would create. The Truth Squad found that ads opposing Proposal 3 have been misleading on several points, such as the actual cost to consumers, the cost to construct the generating capacity and the lifespan of a modern wind turbine.

ON THE BALLOT: PROPOSAL 12-3

A PROPOSAL TO AMEND THE STATE CONSTITUTION TO ESTABLISH A STANDARD FOR RENEWABLE ENERGY

This proposal would:

Require electric utilities to provide at least 25% of their annual retail sales of electricity from renewable energy sources, which are wind, solar, biomass, and hydropower, by 2025.

Limit to not more than 1% per year electric utility rate increases charged to consumers only to achieve compliance with the renewable energy standard.

Allow annual extensions of the deadline to meet the 25% standard in order to prevent rate increases over the 1% limit.

Require the legislature to enact additional laws to encourage the use of Michigan made equipment and employment of Michigan residents.

Should this proposal be approved?

YES __

NO ___

7 comments from Bridge readers.Add mine!

  1. Robert Buckler

    I am on the Board of Directors of NextEnergy one of the groups that advocated for the original RPS and we are against this new proposition. While it is bad energy policy it also adds significant cost to Michigan citizens. In the last 7 years Michigan’s energy needs have dropped about 5,000 gWh (or about 8%). This is due to energy efficiency, the restructuring of our manufacturing base and to a lesser degree the reduction of Michigan’s population. As a result, not only does Michigan not need additional wind turbines it needs nothing beyond the current 10% RPS. Proposal 3 advocates state that wind is cheaper than new coal, but wind is not cheaper than doing nothing. If Michigan citizens were to spend an additional portion of their income on energy needs it should be for additional energy efficiency and not additional wind.

  2. Andrew Paterson

    Well stated article. I was having a hard time reconciling 1) the Consumer’s CEO statement that wind was cheaper — I think he said something like: “Our accountants have looked at this 40 different ways and wind is clearly cheaper than coal” , and 2) Consumers (and DTE) funding the opposition to Proposal 3. Your article gives the answer:

    “Proposal 3 also could eat into utilities’ income by reducing the need to build or upgrade coal-fired power plants. Utilities in Michigan earn revenue by building or upgrading facilities and passing those costs, plus a mark-up that can range up to 11 percent, on to ratepayers.”

    Michigan, at 10% — with that being met not only by clean Mw purchases, but also by “efficiencies” — is pretty modest. So raising it makes sense. But asking the people to decide this — and to put it in the constitution no less –reflects a failure of our state government. Neither the Governor(s), the Legislature or the MPSC has offered much leadership on what is a fairly difficult technical, political and economic long term issue. Asking the people to decide this does not reflect well on our governance.

    1. Joe

      Well said! Americans have seldom planned or invested as a nation or as a state unless we’re at war. Countries like Germany are building and using the clean energy sources that China and other nations will demand as the global commodities oil, gas and coal increase in price. Let’s invest and build the future in Michigan. If the price of energy goes up, I’m confident, as in the auto industry, energy efficiency will come to the fore on its own.

  3. Dave Friedrichs

    As a SE Michigan builder with an econ background, I find Prop 3 worthy of support AND placement in the constitution for a couple of significant reasons – most due to market timing and a fear of the inertia of “legislated monopolies” (which, ipso facto, the utilities are).

    First, the new goal for a 25% threshold (renewable energy) has ALREADY been either achieved or committed to by surrounding states (and Ontario), making demonstration of our willingness to compete “common sense”. Why?

    Because a “Yes” on #3 gives us a lock on investor confidence in “Pure Michigan” – and allows us get on with growth (of past 4 -years) via competition for investments without delay or partisanship. The clean tech investments are happening now — and Michigan needs to both avoid loss of momentum on introducing clean energy technologies and to sustain the important statewide progress made possible by 2008’s “10% by 2015”, now on auto pilot.

    Second, to catch up with other states requires both an achievable new goal (already committed to one way or another by our main competitors) AND a constraint flexible enough to allow utilities to optimize operations and production MIXES according to dictates of the market and individual obsolescence schedules, i.e., 75% can remain old-line fossil fuels and nuclear well beyond 2025. “25 x 25” is achievable largely by replacing outdated coal generation scheduled either for upgrade or replacement by the end of 2025. (And, if it can’t be done on a cost-controlled basis, the proposal has an “off ramp” that allows postponements.)

    Give investors (ours and the world’s) confidence that “Pure Michigan” isn’t a marketer’s trumped-up dream and vote YES on Proposal 3. Michigan’s health and wealth hangs in the balance.
    Dave Friedrichs
    Homeland Builders of Michigan

  4. Tom

    I drove by the Ludington facility twice within a week. Not a single wind turbine was moving. Wind power may be cheaper than coal hypothetically, but only if it produces energy. The proposal is an attempt to grab taxpayer dollars and lock in technologies that may become antiquated.

    If wind power is cheaper, more effective, and cleaner, no minimum mandates are necessary, the market will cause the percentage to exceed the proposed standard.

    1. Alex

      The issues is that Michigan utilities do not operate in a free market economy. If they did, then the market would be the ultimate source and the people could decided by participating in free exchange. But given the strangle hold that DTE and Consumers have on the system, Michigan ratepayers are beholden to their whims. DTE is also heavily invested in coal, they transport 40 million tons across the nation every year. Making a shift to renewable resources, as Proposal 3 does, hurts their profits. They however, are not thinking about the harm their coal-fire plants cause public health, Increased lung disease, cases of exacerbated asthma and heart disease. This is not a purely economic issues, this is an issues at affects all Michigan residents and future generations. I am Voting Yes on 3!

  5. Janna Wieland

    Proposal 3 in Michigan creates an important opportunity to protect Michigan’s environment, attract new jobs, and attract millions of dollars of new investments to our economy for decades. Yet despite these many benefits, there is still remote opposition to increasing renewable energy in Michigan. In regard to Jeff Alexander’s article dated Oct. 18, there are a few misconceptions about Proposal 3 and wind power that need to be addressed.
    The Michigan Constitution provides multiple pathways to create law: citizen initiative, citizen referendum and the Legislature. It has been amended by the voters 32 times since 1963. The amendments are diverse and include the minimum drinking age, definition of marriage, stem cell research, Proposal A school financing and the Headlee Amendment (local property taxes).

    According to polls the majority of Michiganders support renewable energy, yet the local utilities have been reluctant to be forced to increase renewable production. Therefore including this goal in the Constitution, a working document that represents the desires of the public, may be the most effective way to encourage additional production. Polls have shown that Michigan voters favor renewable energy in our state yet the entrenchment of the utilities with both political parties has made passing legislation related to renewable energy challenging.

    Michigan’s economy is still working to recover. One of the most exciting benefits of the 25×25 goal is its potential economic benefit to Michigan. According to a recent report by MSU economists and academics, the 25 by 2025 proposal will create thousands jobs and generate $10.3 billion of private investment in Michigan’s economy.

    Over the past few years we have learned the importance of diversifying our manufacturing industry in Michigan so that we are not completely reliant upon the automotive sector. According to the Michigan Economic Development Council, Michigan currently has at least 120 manufacturing companies supply the wind industry and 121 manufacturing companies supplying the solar industry. For example, wind turbines are manufactured in Saginaw, and wind towers are now being made on a former brownfield site in Monroe. Proposal 3 would continue to create new business opportunities for manufacturing companies and their skilled workforce. Local manufacturing of the required components is critical to be able to economically supply proposed projects in Michigan, surrounding states and Canada.

    In regard to the cost of renewable energy competing with other energy sources, renewable energy costs, particularly those of wind energy, have been dramatically decreasing over the past decade. A Michigan Public Service Commission (PSC) report in February found that electricity from new wind farms is well below the cost of electricity from new coal plants. The cost of energy from conventional sources such as coal and oil has been rising at more than 3.5 percent annually for the past 15 years. Diversifying Michigan’s energy portfolio with wind, which is not subject to fuel price volatility, makes good economic sense.
    An argument has been made that wind generation uses too much land. Wind power is capable of producing a sizable share of America’s electricity needs using only a tiny amount of its land. Currently, the wind energy industry is on track to supply 20 percent of U.S. electricity needs by 2030, with the wind turbines, service roads, and electrical substations occupying less land than the city of Anchorage, Alaska. The vast majority of land used to host wind turbines can continue to be used for its original purposes – such as ranching, farming, wildlife habitat, and recreation. Only 2-5% of the land is needed for the turbines, roads, and other equipment. Furthermore the land rental fees provide a supplemental revenue source for the landowner or agriculturalist allowing a secondary benefit – saving our state’s farmland.

    Finally, proposal 3 is supported by a diverse range of supporters. More than 230 Michigan businesses, prominent Republican and Democratic leaders, unions, health professionals such as the Michigan Nurses Association, environmental groups, faith leaders, 33 manufacturers, developers and suppliers, the Young Conservatives for Energy Reform and the Michigan League of Women Voters. With all of its benefits, it’s no wonder that Proposal 3 is supported by such a diverse range of groups and consumer advocates.

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