Since 2014, the Exelon Corporation – which owns ComEd, the largest provider of electricity in Illinois – has been lobbying state legislators to create a “low carbon portfolio standard” (LCPS). The LCPS would mandate electric utilities purchase energy credits from sources that emit low amounts of carbon dioxide when used. LCPS would require 70 percent of the electricity used in utilities’ distribution systems to come from qualified low-carbon-dioxide sources, including solar, wind, hydro, nuclear, tidal, wave, and clean coal. This bill would benefit Exelon, but it would harm all those who use electric power.
In 2015, Exelon threatened to shut down up to six of its nuclear power plants due to their unprofitability and falling prices of coal and natural gas energy sources. Exelon later backed off its threat to close the nuclear plants, but Exelon is now renewing its efforts to promote the LCPS. Under the newly proposed mandate, utilities falling short of the 70 percent mark would be required to buy credits to bridge the difference. LCPS would also cap price increases at 2.015 percent per year, compared to 2009 rates.
Crain’s Chicago Business says the mandate would charge ratepayers $300 million annually, while making it both technologically and financially difficult for other wind and solar bidders to compete. Illinois currently has a renewable portfolio standard (RPS) mandating 25 percent of power distribution be composed of renewable energy (not including nuclear) by 2025. The new mandate would include nuclear energy as a qualifying power source.
The average retail price of electricity in Illinois is already 20 percent higher than in Indiana, 24 percent higher than Iowa’s, and 25 percent higher than in Missouri. This means Illinois residents and businesses pay $2.1 billion per year more for electricity than they would at Indiana prices and $2.5 billion more than they would at Iowa or Missouri prices. That adds up to a significant cost to homeowners, around $442 to $526 per Illinois household per year, according to the U.S. Energy Information Administration.
In a cost impact analysis conducted by Kestler Energy Consulting in 2015, the authors found LCPS could increase electricity costs by “$2.38 per MWh ($0.00238/kWh) for ComEd ratepayers and $2.17 per MWh ($0.00217/kWh) for Ameren ratepayers.” The average electricity supply cost could increase “approximately 8.45% for ComEd customers and 8.35% for Ameren customers.”
Since the establishment of the state’s RPS, Illinois has been unable to meet the intended mandates. Renewable energy mandates are unlikely to work in Illinois for three main reasons. First, these mandates increase the cost of energy for consumers because the mandated renewable energy sources are more expensive and less dependable. Second, Illinois standards are more restrictive than other states’ standards because the RPS sets specific percentages for different types of renewable power, not allowing renewable sources to compete with one another on a level playing field. Third, the state does not have the renewable capacity other states do: Illinois has minimal wind generation potential compared to its regional neighbors and little to no solar potential.
The ideal policy approach for Illinois would be to repeal the RPS altogether. Short of that, the state could take smaller steps to help make its electricity less expensive and more competitive.
Illinois should make the program more flexible by adjusting the targets downward and extending deadlines to reflect the real potential for renewable energy and available technology. State lawmakers should also make the program voluntary. Together, these reforms would allow utilities and consumers to adapt to new technologies.
The proposed LCPS mandate would benefit one energy company at the expense of everyone else in the state. The government should not decide winners and losers in any market, and lawmakers should never enact policies that will harm individual consumers and families.
The following documents provide additional information about renewable energy mandates.
Best Options for Potential Nuclear Power Plant Closings in Illinois
https://heartland.org/publications-resources/publications/best-options-for-potential-nuclear-power-plant-closings-in-illinois
In this Heartland Policy Brief, James M. Taylor and Taylor Smith analyze the potential closing of several nuclear power plants in Illinois and conclude the best option for taxpayers and electricity consumers is to allow uneconomical plants to close and let the most economical power options replace them under a free-market system.
Playing Nuclear-Plant Chicken: Exelon’s Crane Makes Springfield Rounds Again
http://www.chicagobusiness.com/article/20160315/NEWS11/160319916/playing-nuclear-plant-chicken-exelons-crane-makes-springfield-rounds-again
Steve Daniels writes in Crain’s Chicago Business about the renewed efforts by Exelon to promote the low carbon portfolio standard.
Research & Commentary: Illinois Low Carbon Portfolio Standard
https://heartland.org/publications-resources/publications/research–commentary-illinois-low-carbon-portfolio-standard
Heartland Director of Government Relations John Nothdurft examines Illinois’ low carbon portfolio standard and concludes imposing “clean energy” mandates on top of those already in place will raise electricity prices, hurting consumers. “An alternative not mentioned by the agencies would be to soften or eliminate the state’s existing renewable portfolio mandate, thereby reducing energy prices and encouraging investment in the most efficient sources of fuel, which today and for the foreseeable future are clean coal and natural gas. Utilities should compete to provide electricity without government assistance or restraint,” Nothdurft wrote.
Study: Illinois’s Renewable Energy Standard No Help to State’s Economy
https://heartland.org/publications-resources/publications/study-illinoiss-renewable-energy-standard-no-help-to-states-economy
The Beacon Hill Institute at Suffolk University finds Illinois’ renewable portfolio standard increases the cost of electricity to consumers and reduces business opportunities and job creation.
The Status of Renewable Electricity Mandates in the States
https://heartland.org/publications-resources/publications/the-status-of-renewable-electricity-mandates-in-the-states
The Institute for Energy Research finds states with renewable electricity mandates have on average 40 percent higher electricity rates than those without such mandates.
Policy Tip Sheet No. 11: Illinois Renewable Energy Mandate
https://heartland.org/publications-resources/publications/policy-tip-sheet-no-11-illinois-renewable-energy-mandate
This Heartland Institute Policy Tip Sheet outlines the fundamental problems of renewable energy mandates in Illinois and recommends an alternative.
Study of the Effects on Employment of Public Aid to Renewable Energy Sources
http://instituteforenergyresearch.org/wp-content/uploads/2015/05/090327-employment-public-aid-renewable.pdf
Researchers at King Juan Carlos University in Spain found each “green job” created in Spain cost about $750,000. Electricity rates would have to be increased by 31 percent to account for the additional cost of renewables.
Study: Consumers Unwilling to Pay More for Renewable Energy
https://heartland.org/news-opinion/news/study-consumers-unwilling-to-pay-more-for-renewable-energy
Relatively few consumers are willing to pay extra for renewable energy offered under voluntary “green” pricing programs, according to a report from the Institute for Energy Research.
Why is Renewable Energy So Expensive?
http://www.economist.com/blogs/economist-explains/2014/01/economist-explains-0
This brief but useful essay in a January 2014 blog post for The Economist states countries with the most renewable power generation also have the highest electricity prices, and government efforts to alleviate this problem have been unsuccessful.
Model Legislation: The Market-Power Renewables Act
http://www.alec.org/model-legislation/market-power-renewables-act/
The American Legislative Exchange Council (ALEC), the largest voluntary membership organization of state legislators in the United States, has been highly critical of renewable power mandates, arguing they unnecessarily raise energy prices and do nothing to protect the environment. In 2013, ALEC’s members approved model legislation replacing these mandates with a voluntary renewable energy credit market.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the website of Energy News at https://heartland.org/topics/energy/index.html, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
