Vermont Bucks New England Trend of Lower Electricty Prices

by Robert Maynard

I have written numerous articles critical of Vermont’s energy policy of trying to prematurely drive us toward so-called renewable fuels.  From an economic standpoint it makes no sense in terms of keeping our economy competitive.  It seems that the only beneficiaries of this policy are what John McClaughry has referred to as the “renewable indistrial complex.”

I have pointed out that it alson makes no sense from an engineering standpoint. To understand more clearly why it makes no sense I would recommend reading “The Bottomless Well” by Peter Huber and Mark P. Mills. Peter Huber is a senior fellow at the Manhattan Institute writing on the issues of drug development, energy, technology, and the law. Mark P. Mills is founder and CEO of the Digital Power Group, an energy-tech focused consultancy and capital advisory group. He is a Senior Fellow at the Manhattan Institute, and was formerly the co-founder and chief tech strategist for Digital Power Capital.

In their book Huber and Mills explain that some of the so-called “renewable” energy sources like wind and solar power have a very low energy density. That means the process of converting the potential energy stored in the fuel source into usable energy is extensive. Having a low energy density makes such energy sources very expensive and unreliable. In fact, when you factor in the energy conversion process, such technologies may even be more environmentally intrusive than conventional fossil fuels.  This may change if the technology further develops in the future, but it is a reality in the present.

I have been over this before but wanted to bring it up again to point out a contrasting trend between Vermont and the rest of New England when it comes to energy/electricity prices. In October of last year the Campaign for Vermont sounded an alarm regarding the economic consequences of our policy of aggressively pushing less efficient sources of energy over more efficient conventional sources:

State Policies Force Higher Electricity Costs: Vermont’s elected officials promise an energy future built on efficiency and clean, renewable power. But, the 2011 Vermont Comprehensive Energy Development Plan (VCEP), as presented by the Shumlin Administration, fails to harness the powerful drive of consumer choice. Instead, expensive, inefficient renewable power is promoted as the dominant power supply solution. VCEP sets Vermont on a path to have renewable sources provide 75 percent of our electricity in 20 years.

This top-down approach to development of instate renewable power suffers from one inherent fatal flaw – it costs too much. Renewable energy developers require large government subsidies to make their business plans work. While state leaders force consumers to buy expensive electricity, on the rare occasions in which consumers have been offered the choice to pay more for renewables – such as the well-known the CVPS Cow Power program – the great majority have declined. In response to consumer rejection, elected officials simply mandated renewable power purchases. Vermonters were told in effect, “if you won’t buy it, we’ll make you buy it.” This was accomplished at the urging of renewable power developers, some of whom contribute generously to political campaigns.

One might wish otherwise, but the unfortunate truth is that renewable energy is expensive and has been expensive for a long time. While power from the New England grid (mostly natural gas, nuclear, coal, and hydro) costs about 5-cents per kilowatt-hour (KWH) wholesale, Vermont’s elected officials passed laws and the PSB issued mandates that require wind and solar developers be paid upwards of 27 cents per KWH. This cost is passed on by the utilities to Vermont’s electricity ratepayers. So, who benefits from this policy? Renewable power developers benefit over Vermont’s ratepayers.

Despite decades of extensive investments and research, the solar alchemy has yet to be found that makes the production of solar electricity in Vermont affordable. The renewable power industry predicts it will happen thanks to economies of scale and technological breakthroughs. Campaign for Vermont believes small Vermont cannot afford these steep upfront market development costs. The time to deploy cutting edge renewables is when these technologies are actually cost effective. Until then, taxpayer and ratepayer money is better left in consumers’ pockets rather than used to fund the deployment of immature and costly technologies. The high cost of renewable power and serious, unsolved technological problems of transmitting large amounts of intermittent power dictate the “tipping point” is still well in the future. When the economic environment is friendlier, Vermonters will jump on board. Alone, Vermont’s energy use is not of the scale to materially affect research and development or generate the necessary economies of scale to push these new technologies to economic effectiveness. Yet, our state leaders extract millions of dollars from ratepayers to fund the promotion of these expensive technologies, including feed-in-tariffs projected to cost $17.3 million at 50 MW, net metering credits at $.20 per kWh, efficiency charges at more than $40 million, among others.

Contrast our rising costs with the falling electricity costs in the rest of New England as reported in last month’s ISO New England report.  According to that report the wholesale electricity prices in New England fell 23% last year to their lowest since 2003. This resulted in lower retail prices across the board for residential, commercial, industrial and transportation customers. Vermont, on the other hand appears to be bucking this trend. While industrial and commercial customers got a slight break, residential customers saw a 20.4% increase in retail electric rates from November of 2011 to November of 2012 when measured in cents per kilowatt-hour. That was enough to offset price drops in other sectors and cause our overall retail electric rates to rise by 8.13%. In fact, in a national comparison Vermont’s residential wholesale electricity costs as of Novermber 2012 are only exceeded by Hawaii.

As the ISO report points out, the electricity cost savings across New England comes largely from the a drop natural gas prices. While natural gas does not have as high an energy density as conventional gasoline, and nowhere near nuclear material, it is a fairly reliable source of clean energy and a resource that the U.S. has an abundant supply of if we could ever get through all the regulations and red tape to actually extract it. Hopefully our political class in Montpelier will return someday from the Fantasy Island world that characterizes their current energy policy before they price energy/electricity beyond the reach of all of us.