Among the many difficulties that the state of California has been facing, one in particular is looming larger and larger: the power problem. The state is slowly coming to grips with the fact that its preferred sources of electric power – wind and solar – are neither cheap nor reliable. Yet, California is committed by law to increasing the use of wind, solar and other forms of renewable energy. The economics don’t come close to supporting this model. And so – quite predictably – the folks who operate the wind mills and solar plants want Californians to pay even more for the power, despite the fact that residents of the state pay some of the highest rates in the nation.
According to Department of Energy data, Californians paid an average of 14.74 cents per kilowatt-hour in 2010, compared to the national average of 11.51 cents per kilowatt-hour. Prices have risen by almost fifty percent over the course of the last decade, and a study by Bloom Energy suggests that prices will continue to rise by five to seven percent per year for the foreseeable future. Overall, only five other states in the nation have higher electricity costs than California. Energy is getting more and more expensive just at the time the cash-strapped state can least afford it.
How did California arrive at this crisis point? It started when the legislature decided to adopt a Renewable Portfolio Standard, or “RPS,” for the state. Like most RPS programs (thirty-three states currently have them) California’s mandates the use of more and more renewable power to generate electricity each year. The intent, of course, is to reduce greenhouse gas emissions associated with fossil fuel combustion.
California’s RPS is especially aggressive, with a requirement that thirty-three percent of the electricity sold in the state originate from renewable sources of energy by the year 2020. Other states that have adopted RPS require lower renewable percentages (twenty to twenty-five percent is typical) and the final compliance dates are farther out. That doesn’t mean that the other RPS states won’t face the same kind of problems that California is dealing with, it just means that the day of reckoning won’t arrive quite as quickly as it has in the Golden State.
The leftist myth is that wind power and solar power are “free,” because you don’t have to pay for the energy sources. The reality is quite different. While the energy source doesn’t cost anything, all of the other things that factor into the cost of this kind of power are expensive. First there’s the installed cost of the plant. According to Department of Energy figures, the installed cost of a wind turbine is about on par with building a new coal plant, on a dollars-per-kilowatt generated basis. The installed cost of solar is about four times that of a coal plant, and almost ten times that of a natural gas-fired plant. So, before a single electron goes anywhere, the operator has debt-service to factor into his pricing.
Then there’s the cost of the infrastructure needed to get the power to market. This means new transmissions lines, switchyards and all of the other pieces needed whenever power plants are built. But, the infrastructure is especially expensive because the footprints of wind farms are so large, as compared to a conventional fossil-fuel plant. The large footprint (and relative inaccessibility of wind turbines) also drives up maintenance costs. Add everything up and wind and solar power cannot compete with conventional sources of power in the free market.
The wind and solar industries have heretofore thrived thanks to government subsidies and Renewable Energy Tax Credits. The taxpayer effectively generates roughly one-third of the gross revenue that wind and solar power plants receive, far more than any other portion of the energy sector. Absent that level of government support, wind and solar power plants could not survive given the price-structure that naturally arises in a competitive market. There is a real danger that an assertive Republican-led House will not approve another extension of Renewable Energy Tax Credits in the coming year. Without that program, the wind and solar industries in California will die on the vine, no matter what the state’s RPS demands are. Thus the wind and solar lobbies are pushing legislators hard to approve legislation that will force consumers to pay a premium for their particular forms of power. They can see the writing on the wall: the D.C. gravy train is drying up, so it’s time for Plan B.
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