Over the past year, the Exelon Corporation, which owns ComEd, the largest provider of electricity in Illinois, has been pushing state legislators to create a “low carbon portfolio standard” (LCPS). LCPS would mandate electric utilities purchase low-carbon energy credits to match 70 percent of the electricity used in their distribution systems from qualified sources, including solar, wind, hydro, nuclear, tidal, wave, and clean coal. This bill would benefit Exelon, but not those who use electric power.
Exelon argues it is pushing this plan because three of its nuclear power plants have become uneconomical because of falling prices for coal and natural gas. The company has threatened to shut these plants down unless the Illinois General Assembly passes the new mandates, which favor nuclear power over other sources of energy.
Crain’s Chicago Business noted 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 proposal emerged from a May 2014 legislative resolution calling for the Illinois Commerce Commission, Illinois Power Agency, Illinois Environmental Protection Agency, and Illinois Department of Commerce and Economic Opportunity to study and prepare a report on the potential nuclear power plant closings. Under the new mandate, utilities falling short of the 70 percent mark would be required to buy credits to bridge the difference. Price increases would also be capped at 2.015 percent per year compared to 2009 rates.
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.
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.
First, Illinois should broaden the RPS standard to include all next-generation energy technologies, including nuclear, combined cycle natural gas, and geothermal. This is part of what Exelon wants – to include nuclear power in the renewable standard – but does not give the company a subsidy at the expense of other power sources, such as coal. Second, the state should make the program more flexible by adjusting the targets and deadlines to reflect the real potential for renewable energy in Illinois and available technology. Finally, the state should make the program voluntary. These reforms would allow utilities and consumers to adapt to new technologies.
The proposed mandate would benefit one energy company at the expense of others. The government should not decide winners and losers in any market.
The following documents provide additional information about renewable energy mandates.
Best Options for Potential Nuclear Power Plant Closings in Illinois
https://www.heartland.org/policy-documents/best-options-potential-nuclear-power-plant-closings-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.
Research & Commentary: Illinois Low Carbon Portfolio Standard
https://heartland.org/policy-documents/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
http://heartland.org/policy-documents/study-illinoiss-renewable-energy-standard-no-help-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
http://heartland.org/policy-documents/status-renewable-electricity-mandates-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
http://heartland.org/policy-documents/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://heartland.org/policy-documents/study-effects-employment-public-aid-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
http://news.heartland.org/newspaper-article/2013/07/21/study-consumers-unwilling-pay-more-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 Environment & Climate News at http://news.heartland.org/energy-and-environment, 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 MaryAnn McCabe, Heartland’s state government relations manager, 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.
