When the Michigan State Senate returns from its summer break, a proposal to overhaul portions of Michigan’s Clean, Renewable, and Efficient Energy Act will be waiting for them. The proposal would repeal the state’s renewable energy standard and amend the state’s net-metering program.
Current law states Michigan electricity providers must provide 10 percent of their energy from renewable sources. Under the proposal, the mandatory requirement would be replaced by a soft “goal” that would aim to make 35 percent of the state’s energy needs be supplied by renewable-energy sources by 2025.
Renewable energy mandates – often referred to as “renewable power mandates” or “renewable portfolio standards” (RPS) – force expensive, heavily subsidized electricity on ratepayers and taxpayers while providing few if any net environmental benefits. The wind and solar power forced upon consumers by renewable power mandates is extremely expensive. A 2014 study by the Brookings Institution found wind power is twice as expensive as the conventional power it replaces. The same study found solar power is three times as expensive as conventional power. These higher costs impose real burdens on electricity consumers: Retail electricity prices in states with renewable power mandates are rising twice as fast as the national average.
By lowering electricity prices, repealing renewable power mandates will raise living standards, stimulate long-term economic growth, and create a substantial increase in net jobs. Living standards increase because lower-cost electricity frees up money for consumers to purchase additional goods and services that improve their lives. Economic growth and net job numbers increase because the newly available money spent on additional goods and services creates additional jobs throughout the economy.
The proposal would also replace Michigan’s net-metering program with a distributed-generation program, in which owners of solar panels would continue to pay the full retail price for their electricity and would receive only the wholesale price for electricity they put back on the grid.
Currently, Michigan utilities must pay the retail price for electricity produced by those who own solar panels and provide additional energy back into the grid, which means solar owners are getting reimbursed not only for the electricity they provide but also for the costs associated with building and maintaining the electric grid. As a December 2013 paper from the Harvard Business Law Review Online noted, “net metering causes a re-allocation of transmission, distribution, and reliability costs to those customers who do not own distributed generation.”
Although owners of rooftop solar panels should be paid for the electricity they sell back to the grid, they should be paid at the same rate conventional sources are paid, reflecting the true wholesale cost of electricity. It is particularly unfair for solar owners to be paid for the costs of maintaining the grid because the intermittency of solar power actually increases those costs. Moreover, these maintenance costs are shifted onto homes without solar panels, unfairly raising homeowners’ monthly bills.
The best policy option is to repeal all RPS mandates, net metering, and energy subsidies. A second-best alternative would be for Michigan to continue to roll back or freeze the state’s RPS mandates at current levels and align net-metering rates with the wholesale price of electricity. This would create a freer, consumer-friendly energy market in which all utilities and all energy providers are given the right to compete for customers.
The following documents provide more information on renewable energy mandates and net metering.
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.
Study of the Effects on Employment of Public Aid to Renewable Energy Sources
https://heartland.org/publications-resources/publications/study-of-the-effects-on-employment-of-public-aid-to-renewable-energy-sources
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.
Net Metering 101
http://www.instituteforenergyresearch.org/2014/01/14/net-metering-101/
The Institute for Energy Research provides an instructive explanation about the fundamentals of net metering, net-metering policies, and renewable energy.
The 50 States of Solar (Q1 2016)
https://heartland.org/publications-resources/publications/the-50-states-of-solar-q1-2016
The purpose of this report by NC Clean Energy Technology Center is to catalogue the proposed and enacted legislative changes to regulatory policy and rate design affecting the value proposition of distributed solar photovoltaics during the first quarter of 2016, with an emphasis on the residential sector.
Residential Solar: Myth vs. Fact
https://heartland.org/publications-resources/publications/residential-solar-myth-vs-fact
This study by the Institute for Energy Research explores several myths surrounding solar power, including the false beliefs roof-top solar is cost-effective, better allows utilities to manage their peak loads, and the view residential solar has achieved “grid parity” in many parts of the United States. The study also shows that without large subsidies, solar energy fails to make economic sense and creates problems for utilities trying to manage the electric grid.
Isaac Orr: Net Metering
https://heartland.org/multimedia/podcasts/isaac-orr-net-metering
In this edition of the Heartland Daily Podcast, Isaac Orr, research fellow at The Heartland Institute, discusses the Champagne wishes and caviar dreams espoused by net-metering proponents.
California Net Energy Metering (NEM) Draft Cost-Effectiveness Evaluation
https://heartland.org/news-opinion/news/california-public-utilities-commission-reports-high-costs-for-net-metering?source=policybot
This California Public Utilities Commission report found net-metering policies are raising electricity prices throughout the state, harming low-income residents more than any other group. The report states rooftop-solar customers have an average household income of about $91,000 per year, well above the state average of $54,000 per year. Under the pricing mechanism of net metering, utilities pay artificially high prices to rooftop-solar customers for the excess electricity they produce, the cost of which is paid by other customers.
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 Environment & Climate News at https://heartland.org/Center-Climate-Environment/index.html, The Heartland Institute 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 additional 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 Nathan Makla, Heartland’s state government relations manager, at [email protected] or 312/377-4000.
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
