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Renewable costs vs. coal costs in Michigan

Public Act 295, passed in 2008, requires the Michigan Public Service Commission (MPSC) to report annually on nine aspects of that legislation. Thus the current report, "Report on the Implementation of the PA 295 Renewable Energy Standard and the Cost-Effectiveness of the Energy Standards.

Among those nine items: report on the status of renewable energy and advanced cleaner energy in Michigan, discuss the difference between the retail cost of the renewable energy (RE) and the cost of electricity generated from new, conventional, coal-fired electric generating facilities and, in sum, how the state's 10 percent renewable energy standard (RES)—to be reached by all utilities by 2015—affects retail prices and other aspects of the market.  

The qualifier "new," placed before "conventional, coal-fired electric generating facilities, foreshadows the MPSC's argument on the relative costs of RE vs. coal. 

Lots going on there, but it's clear that the Michigan legislature and the MPSC are very focused on cost-effective additions of RE and its impacts on prices and existing utilities. There's no substitute for reading the report, so I urge our readers to do so. And if you decide to comment on our forum, have something substantive to say based on the report's specifics. 

The point here is that Michigan has been devastated by the recession and its legislators and utility commission have moved cautiously and carefully to see what effect local RE generation might have on prices and the market. That deserves respectful consideration. 

We'll look just at the provocative statement that RE now costs less than coal—the statement that caught everyone's attention yesterday and, upon closer examination, appears to mean new RE vs. new coal generating facilities.

So far, entities in Michigan have deployed RE that is 94 percent wind (991 megawatts), 2 percent solar (17 MW, of 12 MW is slated for 2012-2015), 2 percent landfill-generated (24 MW) and 2 percent biomass (20 MW). (These figures exclude a few resources.) With additional RE slated to come online in the next three years, the MPSC expects utilities to hit the 10 percent target on time.

Here's language around the mandate to compare RE and new coal-generated electricity: "rate-regulated electric providers' REPs were required to show that the life cycle cost of renewable energy acquired, less the life cycle net savings associated with Energy Optimization Plans, did not exceed the life cycle cost of electricity generated by a new conventional coal-fired facility."

The MPSC staff worked with the state's utilities to "develop the required life cycle cost of electricity generated by a new conventional coal-fired facility in terms of a guidepost consisting of a levelized busbar rate, in $/MWh, of an advanced-supercritical pulverized coal plant with a life cycle of 40 years. The commission ... finds that the number is $133 per MWh."

Further, "this guidepost rate was derived from consulting services provided to Consumers Energy as a result of the company's inquiry into a new 830 MW coal-fired power facility."

Later, "Consumers Energy updated the levelized cost of a conventional coal plant to $107/MWh using the same construction cost estimates used in determining the $133/MWh rate." The difference was due to carbon emissions standards expected but not enacted and to a drop in coal prices. 

"However, the Commission continues to believe there is merit in the $133/MWh guidepost rate.

"In the later part of 2011, the U.S. Environmental Protection Agency (EPA) finalized the Mercury and Air Toxins Rule, one of four proposed regulations that have the potential to dramatically impact electric providers' generation sources, primarily coal-fired plants. As of December 2011, the Cross State Air Pollution Rule is on hold pending further review. The remaining two regulations are in draft form awaiting finalization. 

"These EPA regulations, should they become effective, could have a considerable impact on the price of electricity going forward, as electric providers will have to make the decision to either retire or retrofit existing generators with emissions controls and technology to regulate cooling water temperatures. Any new coal capacity would likely require significant capital costs (and potentially increase rates for customers) and make the cost of new renewable energy development even more competitive.

"Coupled with recent increases in fuel prices, the potential costs associated with these federal regulations provide support for the original guidepost rate approved by the Commission. By comparing the calculated levelized cost of $133/MWh in 2008 dollars for a new conventional coal-fired power facility with the combined average levelized contract prices in Figure 9, the cost of all renewable energy technologies is less than the coal guidepost rate ..."

Figure 9 shows that Consumers Energy's average, levelized RE contract price for wind averages $101.33, while Detroit Edison's average price is $94.27. Prices are given for the other RE resources, but with wind at 94 percent of current efforts to meet Michigan's RES, these numbers suffice. Note that the cost of wind still beats Consumers Energy's updated, reduced cost for coal-fired electricity.

I'd expect RE advocates to cheer and RE opponents to sneer. What's important to Michigan's and the nation's energy future, however, is a middle tack that examines the assumptions here about the forward-looking cost of RE vs. coal. If indeed the assumptions withstand scrutiny, then Michigan has a path forward. Nationally, of course, the assumptions and numbers will be different. The key to maintain American greatness lies in the ability to set aside our biases and look at the data, both in snapshot form and in trends going forward. And making smart, forward-looking choices, rather than angry, backward-looking ones.

While we cannot afford feel-good investments in clean energy—if in fact the playing field is level with regard to a century of subsidies for fossil fuels—we also cannot afford not to invest in alternatives to coal's known, deadly qualities, from mining to air and water pollution. 

Phil Carson
Intelligent Utility Daily







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