News: CJ Exclusives

Friday Interview: Renewable Energy Mandate Mess

JLF analyst says N.C. law will cost jobs, cause large-scale economic hit

Two years ago, North Carolina lawmakers passed a law that supporters said would help fight global warming. They believe climate change is a problem the state should address. But a new analysis of what’s known as Senate Bill 3 details some very negative unintended consequences. Daren Bakst, John Locke Foundation legal and regulatory policy analyst, discussed the issue with Donna Martinez for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)

Martinez: Give us the headline of the study [about Senate Bill 3], which was done by the Beacon Hill Institute.

Bakst: Well, in simple terms, North Carolinians will be paying more for electricity, we’re going to have a lot less jobs in North Carolina in the coming years, and we’re going to have a smaller economy. So basically, because of this legislation that was passed in 2007, it’s going to hurt the average North Carolinian, basically almost every North Carolinian.

Martinez: Let’s talk a little bit more about those areas. First of all, impact on jobs. Right now, of course, that’s something everyone is concerned about — we’re in the middle of a recession. How many jobs and why?

Bakst: Well, the low estimate would be about 3,500 jobs lost by 2021. The reason why we’d have lost jobs is because you’re driving up the price of energy. If you drive up the price of energy, it’s not going to be good for the economy or for jobs. Now, that’s the low estimate. Realistically, it’s possible that the numbers could be as high as 15,000 jobs lost by 2021.

Martinez: What about higher electricity rates? Why will our bills go up?

Bakst: Well, what’s happening is, Senate Bill 3 requires utility companies to generate electricity from renewable energy sources that are just a lot more expensive than coal, nuclear power, and other sources. And, as a result, because our utilities are going to be paying extra for their electricity, they pass on this cost to the customers, and as a result, the customers pay a more for electricity.

Martinez: You’re talking about renewable energy, and in Senate Bill 3, which is the law that we’re discussing right now, there is something called the renewable and energy portfolio standard. Now I’ve got to say, that’s kind of gobbledygook. Explain to us what that is.

Bakst: There is a requirement that utilities generate 7 1/2 percent of their electricity from renewable energy resources such as wind and solar power. Then there is an additional 5 percent requirement to have energy efficiency measures. But really, the focus is on the renewable energy side. The costs are going to be driven up, and that’s what it is.

Martinez: Why will that drive costs up, if utilities have to generate more of their electricity from these other sources?

Bakst: Because they’re going to be generating electricity from sources that cost more money than they otherwise would be. If coal costs less to generate electricity than wind, then it is better to go with coal. In addition, even when you generate this additional electricity, you’re simply generating a lot of electricity that also requires what’s called backup power, because wind is intermittent and you never know when the wind is going to blow, so you have to have a lot of backup generation as well. So you’re not only paying extra for wind power, you’re also having to worry about the cost of backup generation as well. So in some ways, you’re paying for something you don’t even need; you’re paying twice. I will say there is a significant part of this bill where utilities can actually — and will — be paying to buy electricity outside the state, for electricity that will never come back in the state. In other words, a significant portion of this requirement would allow Duke Power, for example, to buy energy in Texas, and meet the requirement. And that would help subsidize the Texans who want to buy electricity. That doesn’t do much good for North Carolinians. And we’re paying extra for that.

Martinez: Is it fair to say as a bottom line that the utilities would already be doing this — using more renewables — if it made business sense to them and if they thought it made sense for their consumers?

Bakst: Sure, they don’t care.

Martinez: But now they’re mandated by the state.

Bakst: Right. There was a voluntary program that we had in North Carolina, and still do, called North Carolina Green Power. The public actually had a chance to help subsidize these renewable energy resources. The problem was, the public wasn’t supporting it; they didn’t want to pay extra for electricity. So, we have to mandate it. And that’s exactly what happened in 2007. So forget the utilities; even the public didn’t support.

Martinez: Daren, this report from the Beacon Hill Institute — which by the way is part of Suffolk University — this report was commissioned by the Locke Foundation and the folks at Suffolk did the actual research. One of the things they say in this report is that, potentially, this could get even worse for North Carolina consumers and residents. How is that possible?

Bakst: Well, one of the provisions in Senate Bill 3 is a cap on how much pain — or how much cost — consumers have to suffer. Now, the problem with the cap is — it’s great there’s a cap, assuming you even like the bill in the first place.

Martinez: And it passed, so enough people do.

Bakst: So it’s good there is a cap. But the problem is, the utility companies are not going to meet their mandates without having to spend a lot more money in going right through those caps on the cost. So, there is going to be a lot of pressure to get rid of those caps, I’d imagine, in the next few years. So if you got rid of those caps — that’s what the Beacon Hill Institute was looking at — what happens if you didn’t have these caps on cost, and the utilities actually met the requirements, and we actually had to pay what was necessary? Then it just changes the math completely.

Martinez: So if that were to take place, does that mean that our electric rates would go even higher?

Bakst: Yes, they’d go higher. The mandates would cost us more than $4 billion by 2021; the state economy would be $600 million smaller in 2021. And as I did mention before, we’d have about 15,000 less jobs by 2021. So there would be major harm.
Martinez: There is another potential scenario that the study points out, and this has to do with what I would refer to as a domino effect. Tell us what might be happening at the local government level, because of this law.

Bakst: Well, the local governments will receive less revenue, potentially, and they also have to buy electricity as well. …

Martinez: Because of fewer people working, right?

Bakst: Right, and economic harm — they’re going to have to make up for it somehow, and that might just be [to] increase local taxes.

Martinez: Give us a quick primer on why it is that the utility companies haven’t voluntarily invested in all of these renewables. What are the downsides of the things that are being presented as, really, panaceas — solar, wind, biomass?

Bakst: In very simple terms — in North Carolina especially — North Carolina does not have good renewable energy resources. We’re not a good state for wind or solar, so that’s one key reason why utilities here haven’t done it. And bottom line also is, electricity is about being low-cost and reliable. None of these resources can be claimed to be low-cost or reliable. That’s why they don’t invest in them.