Europe’s energy crisis highlights dangers of proposed clean electricity performance program
If Washington’s policymakers want to see what happens when you push renewable energy mandates too far, too fast, they need only read the news from Europe. Last month, The Associated Press reported that “The European Trade Union Confederation, which represents 45 million members, said that 15% of the working poor in the EU – the equivalent of 2,713,578 people – have no not enough money to turn on the heating.
Sunday, the newspaper Mucia today reported that in Spain, “the cost of electricity is still six times more expensive than it was a year ago.” A day later, Spanish steel producer Sidenor Group announced it was halting production at one of its factories in Spain “amid sky-high electricity prices”. The company said it was paying around 227 euros per megawatt hour for electricity, almost four times what it was paying at the same time last year.
Yesterday, Reuters reported: “Soaring wholesale gas prices in Europe are encouraging more utilities to switch to high-carbon coal to generate electricity, just as the region tries to wean nations off polluting fuel.
Indeed, energy poverty, skyrocketing energy prices, industrial shutdowns and an increase in coal consumption are the obvious results of Europe’s rush to embrace renewables regardless of how this precipitation would affect the affordability, resilience and reliability of the region’s energy and power systems. As several news outlets have noted, the UK and other European countries have been plunged into an energy crisis due, in part, to a wind drought that has reduced output from the region’s wind sector until 20% in the past. some months.
Despite these facts, the Biden administration and the main Democrats in Congress have included the Clean Electricity Performance Program in the latest version of the multibillion-dollar infrastructure package currently pending before Congress. The CEPP, which could provide tens of billions of dollars a year in new subsidies to the solar and wind sectors, is buried in the Build Back Better Act, also known as HR 5376, a massive bill that totals around 380. 000 words and by my count, if printed, would cover approximately 1900 pages.
Reports suggest that CEPP will cost around $ 150 billion. This is a huge amount of money considering that the household electricity sector’s revenues are around $ 400 billion a year. But the wording of the legislation does not include a cost cap. Indeed, it is difficult to know exactly how much CEPP will cost and what all the consequences of its adoption will be. That said, some things are clear: If CEPP becomes law, it will launch a multibillion dollar money bomb on electricity providers who are able to increase the amount of zero carbon electricity they sell and penalize entities that do not. t. Second, it will further distort wholesale electricity markets and impose significant penalties on coal and gas producers. Third, the CEPP, along with possible extensions – again – of lavish subsidies for wind and solar, could lead to the most significant changes in the home power grid since the passage of the Public Utility Holding Company Act of 1935.
If CEPP becomes law and Big Wind and Big Solar get extensions to the production tax credit and investment tax credit, federal subsidies for wind and solar could exceed the cost of wholesale. electricity in several parts of the United States. Additionally, a new report from the Center of the American Experiment found that CEPP could cost Arizona consumers nearly $ 120 billion in higher electricity rates by 2052. More on these numbers shortly.
Fortunately, the rush to increase renewable energy capacity in the United States is met with opposition from public electricity producers. It also gets the stinky eye of at least two federal regulators.
Last month, Joy Ditto, CEO of the American Public Power Association, said that adhering to CEPP “will result in a substantial increase in costs for customers.” Also last month, in a monitoring hearing before the Senate Energy and Natural Resources Committee, Federal Energy Regulatory Commission Commissioner James Danly said that although there is “A lot of enthusiasm to build the transmission system” between rural areas where renewable resources are abundant and urban areas where demand is high, “I am afraid that the cost of transmission may turn out to be extremely high. Taxpayers bear the full cost of production and transportation.
FERC commissioner Mark Christie also expressed concern about the effect the renewable energy push would have on taxpayers. His oral remarks focused on West Virginia, which gets about 90% of its electricity from coal-fired power generation. “If a national standard requires West Virginia to shut down 90% of its production fleet, you obviously have a reliability problem. It is not difficult to understand. But from a cost standpoint, West Virginia must pay for the replacement electricity. Paying to replace 90% of their production fleet is going to be extremely expensive.“
As I said, the language of CEPP is confusing. But the bottom line is this: If an electricity supplier hits a certain threshold, it would get at least $ 18 for every megawatt hour of “clean” energy it produces during the eight-year period from 2023 to 2030. If the PTC for wind power is extended to $ 25 per megawatt hour, then a company that is able to significantly increase (by at least 4% from the previous year) its production could receive a total $ 43 per megawatt hour per year for each new megawatt hour of wind power it sells. That’s a staggering amount considering that the wholesale price of electricity in New York City last year was $ 33 per megawatt hour. In Texas, the wholesale price for juice was $ 22 per MWh.
In other words, if Democrats get everything on their climate change wishlist, an electricity supplier operating in Texas could, within a few years, collect nearly double the federal tax incentives for some of it. the production of its new wind energy. the production it could obtain to sell this electricity on the wholesale market.
Today, Isaac Orr, a policy researcher at the Center of the American Experiment, and his colleague, Mitch Rolling, published one of the only in-depth CEPP analyzes I’ve seen. Their 21-page report estimates the cost of CEPP over the state of Arizona. Their conclusions: “Achieving this target would cost an additional $ 119.4 billion (in constant 2021 dollars) in the state of Arizona, compared to operating the current electricity grid. This would lead to a 45% increase in electricity prices by 2031, compared to 2019 tariffs. ”They found that the cost increases are“ propelled by massive construction of solar panels, wind turbines, d ‘storage facilities for batteries and transmission lines’.
Despite the impacts CEPP is likely to have on energy affordability – and in particular, its impact on low- and middle-income consumers – the proposal does not gain full consideration by congressional committees. Instead, the Democratic leadership effectively wants to squeeze it into the reconciliation process without any substantive debate. That said, including CEPP in the final version of the Build Back Better Act is not a done deal. Democrats may want to include it in reconciliation, but it could be ruled out by the Senate MP as it is a clear violation of the “Byrd rule” which, as this congressional website explains , prohibits “the use of reconciliation to advance a legislative agenda unrelated to spending or taxes.”
The gist here is obvious: CEPP deserves much more scrutiny than it gets. The worsening energy crisis in Europe should be a wake-up call to American policymakers about the dangers of pushing renewables too hard. Hopefully the healthier heads in Congress prevail and stop this bad bill from becoming law.