News analysis: The high cost of clean power

by Chris Braithwaite

copyright the Chronicle 4-17-2013

BARTON — Solar energy may come to town soon at the Barton Solar Farm at 1603 Glover Road.  A fairly large project at 1.8 megawatts (MW), it would produce the amount of power consumed, on average, by more than 300 Vermont homes.

The project has no local permits yet, the developer said last week, and still faces the detailed scrutiny of the state Public Service Board under Section 248.  What it does have is acceptance as a SPEED program, a key ingredient in the state’s effort to make a major shift to renewable electric energy.

“We’ve come out of the gate,” said developer Robert Grant of Essex County, Massachusetts.  “Now we have to start running the gauntlet.”

Meanwhile the voters in Newport Center approved at Town Meeting a selectmen’s proposal for a $200,000 “Community Energy Solar Garden.”

Steve Mason, chairman of the Lowell School Board, is looking into working with a Westminster, Vermont, company called Soveren to install a solar system that would provide power to Lowell’s town and school buildings.  Under a deal with Brattleboro Schools that caught Mr. Mason’s eye, the schools will pay none of the capital cost, and save 10 percent on its energy bills.

And small solar installations are popping up at homes in the area at what looks like a steadily increasing pace.

The trend to solar energy is not being driven by the fact that, with no fuel required, it’s cheap energy.  It’s nothing of the kind.

But solar energy is clean energy, and in its haste to clean up Vermont’s electric energy supply, the state has compelled its utilities to buy solar energy at prices that make installations financially attractive.

Those premiums get passed on, through the utilities’ rate structure, to customers who don’t have solar panels on their roof or a wind turbine in their yard.

That’s a concern to some observers, who fear that the state’s strong embrace of renewable energy is based on more emotion than reason; that policies were adopted without due consideration of what they may ultimately cost.

There are, indeed, two programs in Vermont, SPEED and net metering, that pursue the goal of more renewable electric energy in different ways, and with no apparent coordination.

It also puzzles some energy critics that this battle to reduce the state’s carbon footprint, thus contributing to the effort against global warming, is focused on an energy sector that is already remarkably clean.  Vermonters use relatively little electricity.  Vermont residences, on average, consume 573 KWh of power a month, compared to a national average of 940 KWh.

In its “Vermont Greenhouse Gas Emissions Inventory,” the state Agency of Natural Resources said that, in 2008, electricity accounted for 4 percent of the 8.37 metric tons of carbon dioxide the state releases into the atmosphere.  The bulk of carbon dioxide came from heating and transportation.

The end of contracts with the Vermont Yankee nuclear plant may have altered that picture since 2008, but utilities have turned to other nuclear plants to make up at least some of the difference.

One concerned observer is Willem Post, a frequent source of widely disseminated e-mails on the Vermont energy picture.  In a recent interview, Mr. Post said he is a mechanical engineer with 40 years’ experience in the utility business.

Mr. Post is concerned about a program called SPEED, which stands for Sustainably Priced Energy Development.  It supports moderate to very large renewable projects by offering premium prices for their power.

Any sort of renewable energy gets a premium price compared with the current wholesale price on the New England grid of about 5 cents a kilowatt hour (KWh).  But solar power sits at the top of the heap at five times that rate, 27.5 cents per KWh.  Other prices, freshly recalibrated by the PSB for SPEED’s Standard Offer program, range down to a “levelized” price (which starts lower and climbs higher over 20 years) of 25.3 cents for wind projects over 100 KW, 11.8 cents for larger wind projects, 14.1 cents for farm methane, 12.5 cents for biomass, 12.3 cents for hydro, and 9 cents for landfill methane.

SPEED projects that exceed the 2.2 MW limit of the standard offer program negotiate rates with the utilities, like the 40 MW Sheffield wind project, or are owned by the utilities themselves, like Green Mountain Power’s 63 MW Lowell project.  (One megawatt is 1,000 kilowatts.)

The 2017 SPEED goal, according to its Internet site, “is to have 20 percent of total statewide electric retail sales during the year commencing January 1, 2017, generated by SPEED resources that constitute new renewable energy.”

Vermont consumes about 5.5 million MWh of power a year, so the SPEED goal is about 1.1 million MWh.

According to a recent status report, SPEED projects are already generating an estimated 570,843 MWh, a little over half its target.

That total comes overwhelmingly from big projects outside the Standard Offer Program.  Led by Lowell Mountain, nine big projects are expected to make more than half a million MWh a year, while about 30 Standard Offer projects make about 54,000 MW.

Another 213,162 MWh are expected from SPEED projects “in active development,” about evenly split between four large projects and various standard offer projects.

That would bring total SPEED production to 784,000 MWh, 316,000 MWh short of its goal.

Existing Standard Offer projects lean heavily to farm methane (14) and solar (12).  But on a list of pending projects that will take advantage of high Standard Offer Prices 18 are solar, five farm methane, and three hydro.

The clear preference for solar power worries Mr. Post, the engineer, because of its high, 27.5-cent cost to utilities.

He calculates that the Standard Offer projects already online cost utilities — and their customers — $3.4-million above the average New England grid power price in 2012.

If enough solar Standard Offer project were permitted to meet the SPEED goal, he calculates, the excess cost would rise beyond $50-million in 2017.  And that doesn’t count the cost of the big projects like Lowell, he notes.

In SPEED, he sees a program that was not rationally designed, and is running on autopilot.

He uses the metaphor of a frog in a frying pan of water, with the stove on.  The effect may be gradual, he said, “but it will eventually ruin the Vermont economy.  We will end up with rates that are significantly higher than other states, put ourselves at a further disadvantage.”

But the man who bears the title of Vermont SPEED Facilitator, John Spencer, said Monday that, with their relatively small, 2.2 MW maximum size, Standard Offer projects can’t close the gap between SPEED’s target and its current and scheduled production.  That would mean that the expensive solar projects Mr. Post worries about can’t be hurried forward at the rate he fears.

Mr. Spencer is executive director of a non-profit called VEPP, Inc., that serves as a sort of broker between SPEED producers and the utilities.

Under state law, he said, “I can only take Standard Offer programs at the rate of five MW a year.”

When it comes up against a capacity limit, solar energy is hampered by its low capacity factor of 15 percent.

Five MW of solar power would yield about 6,570 MWh a year.

To fill that 316,000 MWh gap by January 1, 2017, SPEED needs to add about 105,000 MWh a year.

So where will the renewable power come from?

Probably from out of state, Mr. Spencer said.

That is apparently a loophole in the program that has been devised to close the gap.  In 2011, when the Lowell Wind project was being debated before the Public Service Board, the SPEED program was key to its economic justification, and SPEED projects were defined then as in-state renewable generation.

But, somewhat to Mr. Spencer’s dismay, “in-state” has been dropped from the definition.  Energy from new renewable projects in other states can be counted toward the SPEED goal, Mr. Spencer said, as long as they carry their renewable energy credits with them when they cross the state line.  Vermont utilities don’t need those credits, so can sell them to utilities in other states.

Robert Dostis, head of external affairs and customer relations at Green Mountain Power, confirmed Tuesday that his utility is buying SPEED power from Granite Reliable Wind, a New Hampshire project.

That will help GMP meet its 20 percent target, Mr. Dostis said.  “It won’t be easy, but we’re working on it.”

 

Net metering

 

Net metering is a program designed for smaller renewable projects that are linked directly into a utility’s lines through a meter that spins backwards when the customer doesn’t need all the power he or she is producing.

For wind, methane or hydro systems, net metering offers the local utility’s retail rate for power from small renewable projects up to 500 kilowatts (KW) — compared with the 2,200 KW limit on SPEED Standard Offer projects.  But people who install solar panels get a premium big enough to assure them a rate of 20 cents per KWh, a bit above the state’s average residential rate of 17.7 cents.

Not surprisingly, solar installations account for 88 percent of net metered projects, and are driving a growth rate in the program that the state’s Public Service Department (PSD) recently described as “exponential.”

Net metering goes back to 1998 in Vermont, though limits on the size of both individual projects and their total statewide capacity have been increased several times.

In a recent report on the program to the Legislature, the PSD noted that the statewide limit on net metering was raised from 1 percent to 2 percent of Vermont’s peak load of about 1,000 MW in 2002, and that was doubled again to 4 percent in 2011.

In terms of capacity, the PSD said, net metering has climbed past 20 MW statewide, and so is approximately halfway to its current 40 MW limit.

However because it is so heavily weighted to solar power with its low 15 percent capacity factor, net metering accounts for considerably less than 1 percent of the state’s power consumption.

Net metering is growing fast in other parts of the state.  A state list of projects “deemed approved” from the first of this year through mid-March listed 136 statewide, but only one in Orleans County.

For people who have the means to do it themselves, net metering can be attractive.  Mr. Spencer, the SPEED facilitator, installed one at his home for $15,000.  Federal tax credits and state rebates reduced his cost to $10,500, he said, and he hopes the system will eliminate his electric bill of about $1,200 a year.  He calculates a return on investment of about 12 percent, a rate, he notes that is “pretty hard to get in other places.”

For people who want to avoid the up-front cost or the complexity of installing their own system, companies like AllEarth Renewables and its competitors stand ready to install one at no cost.  The homeowner gets a guarantee that his or her electric rates won’t rise, and the installer gets whatever tax credits, rapid depreciation and state rebates are available.

AllEarth has more recently teamed up with Green Lantern Capital to offer such deals to municipalities and non-profits like schools and hospitals that pay no income taxes.  In these deals, the tax advantages go to Green Lantern’s investors, and the municipality is offered a modest saving on its electricity and a chance to buy the system at less than half its cost after seven years.

With such a deal on the table, said AllEarth spokesman Andrew Savage, “there is no sane reason an entity that doesn’t pay taxes would bond for the full cost of a project.”

Mr. Post, the energy policy critic, objects to the idea that the many projects are being financed by millionaires who, while their consumers harvest the power of the sun, are harvesting the substantial tax benefits attached to renewable projects, along with the high rates.

Meanwhile, he said in one e-mail, ordinary Vermonters are saddled with higher power rates.

The DPS study was undertaken to answer just that question from a legislator:  “…whether and to what extent customers using net metering systems… are subsidized by other retail electric customers who do not….”

The study found that they were not.  But that was only after a cash value was factored in to reflect the fact that renewable energy doesn’t generate harmful greenhouse gasses.

Without that calculation, the study showed that net metering costs exceeded its benefits by 0.6 cents a KWh for fixed solar installations, 1.5 cents per KWh for solar systems that track the sun, and 9.1 cents for a 100KW wind generator.

Rian Fried has made a close study of renewable energy for his company, Clean Yield Asset Management, which evaluates investment opportunities for its clients in terms of both financial return and social value.

The company decided some time ago not to recommend any large wind projects, but has invested in solar companies.  Mr. Fried recently installed a net metered system at his home in Stannard.

But he’s not sure anyone at the state policy level has a handle on the long-term effects of our pursuit of clean energy.

“I think you have a political situation in this state now, where the Green Mountain Power people, Shumlin’s people, Paul Burns (the head of the Vermont Public Interest Research Group) and a lot of Progressives are talking about the public good and completely whitewashing the numbers part of it,” he said in an interview.  “There’s going to come a time again when we’re going to talk about rates.”

At Green Mountain Power Mr. Dostis said his utility looks carefully at its mix of power sources to make sure its rates remain competitive with other New England utilities.

“We have a voice in the legislative process,” said Mr. Dostis, himself a former state representative.  “In the end the ratepayers will absorb any cost.  We are very mindful of that, and we make sure the Legislature is very mindful of that.”

Mr. Dostis sees big changes ahead in his industry “as more and more people put on solar projects that meet 100 percent of their power needs.  Their bill is zero.  Other customers are paying the cost of maintaining the overall grid.  It’s an issue the Legislature will have to deal with.”

At the Legislature, Senator John Rodgers of Glover has taken the position that Vermont’s renewable electric energy goals should simply be scrapped.

“My concern is that the renewable goals are driving the Public Service Board’s decisions when they’re siting these projects.  I don’t think that’s how siting should be driven.

“Ridgeline industrial wind is absolutely the worst of all the possible tools at our disposal,” the senator said.  Instead he’d like to see more support for “small, local stuff” like farm methane and power dams that have fallen out of service.

Canadian hydro power is another option that should be expanded, he said.  “I don’t see any problem with using very reasonably priced power produced north of the border with renewable resources.”

He challenges the idea that Vermont should not only use more renewable electric power, but also generate it.  “Most of the appeal of Vermont is that we have resisted destroying our environment for the sake of commercial enterprise,” he said.

contact Chris Braithwaite at chris@bartonchronicle.com

 

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