Ohio Senate Public Utilities Committee
Written Testimony of James Taylor, Senior Fellow, The Heartland Institute
March 19, 2013
Chairman Seitz and Members of the Committee,
Thank you for the opportunity to testify today. Energy prices are one of the most important factors encouraging or stifling economic growth. Objective data show renewable power is substantially more expensive than conventional power, and renewable power will continue to be substantially more expensive for many decades to come. As a result, government policies that encourage or mandate renewable power will impoverish Ohio citizens, punish the Ohio economy, and kill far more jobs throughout the statewide economy than are created within the narrow renewable power economy.
The price of electricity in states with renewable power mandates is 25 percent higher than in states without renewable power mandates. This substantial price differential is not a coincidence. The levelized cost of electricity, after stripping away preferential subsidies and tax treatment, reveals a large price differential between renewable power and conventional power.
An MIT study on the levelized cost of electricity production shows wind power is at least 75 percent more expensive than conventional power, and solar power is several hundred percent more expensive. Federal government reports show this substantial price differential will continue for at least the next several decades.
According to U.S. Energy Information Administration (EIA) forecasts, wind power (which is the least expensive source of commonly defined renewable energy) will remain at least 50 percent more expensive than conventional power for the next several decades. Even this large price penalty is likely understated, as EIA assumes a 34 percent capacity factor for wind power even though wind power’s real-world capacity factor is closer to 23 percent. Assuming a more realistic wind power capacity factor, wind power will remain more than twice as expensive as conventional power for at least the next several decades.
Importantly, wind power largely supplements rather than replaces conventional power generation. Because wind power is intermittent and unpredictable, conventional power plants must continue cycling to fill in the hour-by-hour, minute-by-minute, and second-by-second peaks and valleys in wind power production. High wind power prices add to, rather than replace, conventional power prices.
Another important development during the past few years is new natural gas discoveries and technological advances that dramatically lower natural gas prices. EIA forecasts that natural gas power will soon become less expensive than coal power, which eliminates the asserted need for expensive renewable power. According the U.S. Environmental Protection Agency, natural gas power reduces emissions of the Six Principal Pollutants by 90 percent versus coal power. Natural gas is essentially an emissions-free power source.
Forcing expensive renewable power upon Ohio consumers will have devastating consequences. Ohio electricity prices are already 10 percent higher than in neighboring Indiana and 26 percent higher than in neighboring Kentucky. If Ohio electricity prices were the same as those in Indiana, state electricity consumers would save $1.2 billion in electricity bills. If Ohio electricity prices were the same as those in Kentucky, state electricity consumers would save $2.7 billion in electricity bills. Averaged out over Ohio’s 4.5 million households, the average Ohio household pays an extra $267 every year than it would with Indiana electricity prices, and an extra $600 every year than it would with Kentucky electricity prices.
This punishing price differential will merely increase as Ohio begins to enforce renewable power mandates. As already shown, renewable power is substantially more expensive than conventional power.
The high cost of renewable power will be accentuated in Ohio, as Natural Renewable Energy Laboratory (NREL) data show Ohio wind power potential is below the national average and substantially lower than that of the Great Plains states and states with plentiful hilltop ridges. Worse yet, NREL data show Ohio solar power potential is among the lowest in the nation.
Renewable power lobbyists often seek to divert attention away from these economic facts by asserting renewable power mandates create jobs. While it is true that renewable power preferences and mandates will create jobs within the narrow renewable power sector, these preferences and mandates kill a larger number of jobs elsewhere in the economy. A job created in the renewable power industry as the result of government mandates is a job eliminated in the conventional power industry. More importantly, as electricity consumers must set aside more money to pay for electricity generated by expensive renewable power, this means electricity consumers have less money to pay for housing, clothing, health care, education, and durable consumer goods. Jobs are destroyed in all these sectors, in addition to the conventional power sector, every time government mandates or tilts the playing field in favor of expensive renewable power.
Real-world studies have quantified the job-killing nature of renewable power mandates. Spain embarked on an ambitious renewable power program during the middle of the last decade. Economists at Spain’s King Juan Carlos University studied the effects and reported that Spain’s green energy programs killed 2.2 jobs in the Spanish economy for every 1 job created. Not coincidentally, Spain’s unemployment rate rose from 8 percent in the middle of the last decade to 26 percent today.
A similar study by Verso Economics reports renewable power mandates in the UK kill 3.7 jobs for every 1 job created.
In summary, renewable power mandates raise electricity prices, kill jobs, and severely punish the economy. Efforts to encourage free markets in the power sector will benefit Ohio electricity consumers, while efforts to enforce renewable power mandates will severely punish Ohio electricity customers.
Thank you, Chairman Seitz and Members of the Committee, for the opportunity to present this testimony.