Two years after legislation was passed overhauling North Carolina’s approach to renewable energy, a new study questions the economic impact of the law. What it found could have troubling implications for both employment and consumer energy costs in the state.
Session Law 2007-297, also known as Senate Bill 3, passed in August 2007. It established a new standard for the percentage of North Carolina’s electric utilities’ energy output that must be derived from renewable resources such as wind, solar, biomass, and some hydropower. The law mandates that 3 percent of state retail electricity sales come from renewable sources by 2012; by 2021, that number must reach 12.5 percent.
The law could also cost North Carolina millions in income and investment and thousands of jobs, concludes a study from the Beacon Hill Institute at Boston’s Suffolk University. One scenario has employment falling by 13,412 jobs in 2010.
Beacon Hill teamed with the John Locke Foundation to look at the costs and benefits of North Carolina’s Renewable and Energy Efficiency Portfolio Standard, or REPS. The study looked at two scenarios for implementation of the REPS: the existing one, with cost-recovery caps in place to protect consumers, and a hypothetical one where the caps have been removed. Neither outlook was promising.
Capping costs
To recoup the costs associated with investment in new energy sources, utilities will pass along a portion of their increased expenses to customers in the form of higher utility bills. So state legislators capped the amount that customers could be forced to pay.
Annual cost recovery fees per customer in 2008 were limited to $10 for residential customers, $50 for commercial, and $500 for industrial users. If the number seems small, says Daren Bakst, legal and regulatory policy analyst at the John Locke Foundation, consider this: The fees will increase incrementally more than 250 percent over seven years.
BHI concludes that higher energy prices and job losses caused by S.B. 3 will reduce tax revenues, with state and local governments due to lose $23.8 million in fiscal year 2008-09 and as much as $51.7 million in fiscal year 2011-12.
But even these losses pale compared to those sustained by customers. BHI estimates that by 2021, customers will have incurred cost recovery fees of almost $1.85 billion, with residential consumers paying “the vast majority of the fees,” or $1.6 billion of that total, the report says.
At least one utility, Progress Energy, has already stated its concern about reaching the caps in a matter of several years.
“That’s why, in my opinion, there’s going to be a lot of pressure to remove the caps,” Bakst.
There has been no official discussion of removing the caps, said state Sen. Charles W. Albertson, D-Duplin, the primary sponsor of S.B. 3.
“I have not talked to anyone about (removing the caps). We took what we thought were some prudent steps to make those caps be where they should be,” he said.
Removing the caps at some point “might be reasonable, might be something we need to look at,” he added.
Making adjustments
Removing the caps, however, could magnify the unintended economic effects of the legislation. Even these could be sustained if the energy savings were more substantial, Bakst noted.
“It always used to be about low-cost, reliable electricity,” he said. But wind, solar, and biomass interests superseded those concerns when the General Assembly crafted S.B. 3, he added.
Traditional energy resources such as natural gas are less costly and more reliable than most renewables, Bakst said. “We have very limited wind resources here. The effect on the environment is minimal if at all. Solar is just way too expensive, and it also has the same back-up generation issue that wind has,” he added. “Biomass is (even) worse” in terms of reliability and environment-friendliness.
But supporters of S.B. 3 are relying on the promise of renewable energy development in the state. The Institute for Emerging Issues at the University of North Carolina at Greensboro released a report in August 2008 detailing the promise of these green jobs, finding that North Carolina’s “potential new energy economy supply chain … (employs) just over 61,000 workers.” Wind energy is the largest potential employer, the report notes, citing 32,534 jobs associated with the wind power supply chain. Next was biomass, with nearly 21,000 jobs, and then solar, with more than 16,000 jobs.
Bakst doubts these reports take into account net job losses.
“If (green jobs) are so good, they’d exist (already),” he said. “When we take our own tax dollars to fund an industry that’s producing inefficient energy and high-cost energy, that’s not a good use.”
He continued, “We could tax people a trillion dollars and create some really great high-paying jobs to dig holes. It would create a lot of jobs, (but) is this a good thing? … The point is, there’s an effect on other industries.”
BHI estimates that the tax cuts and fees used to mitigate the costs of developing these still-infant industries will lead to a loss of 1,046 jobs by 2010, with disposable income falling by $8.23 million that year.
If the caps were removed, which Bakst fully expects, the damage to North Carolina’s economy would increase significantly, BHI reports.
“Employment would fall by 13,412 jobs in 2010, increasing to over 15,373 in 2021 as the electric bills of North Carolina’s households and businesses skyrocket,” the report notes. The higher cost of living and higher unemployment would amount to a reduction in disposable income by more than $400 million by 2010. State gross domestic product could drop by nearly $900 million by 2010 as well.
Albertson remains optimistic about the effects of the legislation, lamenting the fact that it has not been implemented sooner.
“Some of us are disappointed that it’s not moving along as far as we’d hoped, but … it’s a new process for us and one we’re willing to take another look at if we need to,” he said.
Colleen Calvani is a contributor to Carolina Journal.