Tony Anderson – Affordability/No Silver Bullet

Transcript

energy-101.org : So why don’t we start with the affordability issue, and, I guess, why don’t we frame it in a general sense? What’s your sense of that? What’s the issue?

Tony : The issue is affordability is our number one goal. Right now I get power to my door at 7 cents. And that’s a mix of coal, nuclear, and a very small amount of renewables mixed in there. But when I buy it from my power supplier, Wolverine Power Cooperative, I get it to my door, on average, at 7 cents. I sell it for 8.4 cents to my residential customers. There’s also a $13 monthly availability charge there. So my markup is very small. So operating on a small margin, we have to look at all the alternatives that the government and the environmentalists and society wants us to look at, but we have to look at them based on affordability. When you look at wind… A local municipality just signed a wind contract at 10 ½ cents. That’s almost 30% more, almost 50% more, than my 7 cents I’m paying. We have a wind farm in the thumb, the Harvest Wind Project, that we have a 20-year contract for. We got that before state mandates and before there was a requirement that we have wind energy. We got that for far less than the 10 ½ cents that we’re seeing today. Wind at 10 ½ cents isn’t affordable. We know after 2 years of purchasing power from the project in the thumb that win i’s only available 30% of the time. So we’re always going to need something to back up wind no matter how much wind we build. And that backup is going to be coal or nuclear because it burns 24/7.

So you leave wind, and the next option is solar. Solar is 40 to 60 cents a kilowatt hour. That’s far and above the 7 cents I can get it to my door at today. So solar is just not realistic. You know some people will talk about feed-in tariffs. You know if you subsidize solar, there will be more solar built. Well, a feed-in tariff is a tax or a subsidy. What a feed-in tariff does is you put up solar panels on your home, and I pay you 40 or 50 cents for that. So you get a return on your investment so you can recover your investment in 5 to 7 years. Well if I do that, I have to recover that money from the rest of my membership. So they’re subsidizing your solar project. Not in favor of that at all. Electric co-ops in Michigan are very much opposed to feed-in tariffs, because it is just simply not affordable.

So from solar energy, you go to biomass. Woody biomass is going to run 12 to 14 cents…

energy-101.org : We’re going to go back to biomass, but let me finish this feed-in tariffs so it’s a little bit clearer.

Tony : Sure.

energy-101.org : Why don’t you explain how that’s taxed and what do we mean by a feed-in tariff and who’s that imposed on?

Tony : Ok. Feed-in tariffs, we don’t have any in Michigan today. But what a feed-in tariff would do, say it’s a state law, they would require us to pay a set amount for solar energy. You put up solar panels on your home, and then I would be mandated from the state to pay you 40, 50, or 60 cents for that solar energy. So you could get a return on your investment that’s 5 to 7 years, let’s say, rather than the 50 years that we’re seeing on solar systems today. So if I do that, as a utility, if I pay you 40 or 50 cents a kilowatt hour for your solar energy, I have to get that money from somewhere. And I’m a not-for-profit electric cooperative. I have one place to get my revenue, and that’s all the members we sell electricity to. So if I’m going to pay you 50 cents, I’ve got to charge it across the board to my membership. So for me, it’s a subsidy or it’s a tax, because the rest of my members are subsidizing the fact that you want to put on solar and you want to recover your investment. It’s not their fault the solar panels cost too much. It’s not their fault that the sun only shines part of the time, but some of the environmentalists feel like if we subsidize solar, and you recover your investment in 5 to 7 years, that more people will put up solar and it will increase the production of solar panels, etc. Not going to argue that. I’m just going to point to Spain that’s had feed-in tariffs for a number of years, and 40% of the electric bills in Spain are subsidizing solar panels. And that’s, again, not affordable. So the co-ops in Michigan… The have a wide paper they publish, it’s for public consumption, listing why feed in tariffs are not good public policy. Solar panels need to stand on their own, and the market needs to drive the price down. It should not be subsidized by rate payers at any utility, non-profit cooperative or for-profit ¬investor or utility. I just don’t think it’s good public policy.

So from there, then we go on to biomass. Woody biomass, the numbers we’ve seen, again a local municipality looked at woody biomass, and they were talking numbers in the range of 12 to 14 cents a kilowatt hour. We’ve not looked at biomass because, again, it’s not affordable. I can get coal and nuclear and my mix of renewables that I have for 7 cents again. We also think that when you do woody biomass, there’s a lot of truck traffic and environmental issues with cutting down trees and disturbing the woods. And it just doesn’t make sense. So we’re moving past that.

One issue we’d like to look at, but we probably will be unable to is hydro. Hydro is typically around 2 cents. Hydro is your best form of renewable energy, but the environmentalists are opposed to that as well, because they would like the rivers and the streams to be like they were 100 years ago. So it’s almost impossible to build a new hydro facility.

I was involved with a small hydro in Wisconsin when I worked at a cooperative there, and it took us 8 years and over $200,000 to relicense that small hydro. It had been on that river for 50 years. There were environmental groups that were… They wanted it out. We had fishermen happy below the dam that fly fished in the trout stream. And we had fishermen happy above the dam that did bass fishing and game fishing in the flowage that the dam created. But they still wanted it removed. So we’re doing all we can to maintain the hydro we have today in this country. It is the most affordable renewable. It’s also the only renewable to have the potential of running 24/7 as long as the water runs. So that’s a viable option.

A lot of the talk is about conservation. If we conserve energy, we can avoid building power plants. But conservation has a cost as well. We’ve now had a state mandate in Michigan that we’ve been operating under for almost a year (I think we’re in 10 months now) where we have to reduce our sales by X percent every year, and ultimately by 2012 we have to reduce our sales by 1%. So we’ve now had 10, 11 months of the state mandate where we’re giving out CFL bulbs, we’re collecting refrigerators, we’re putting on pipe wrap, we’re doing energy audits. And all these conservation efforts… We’ve been able to meet our goals so far. A low-hanging fruit like CFL bulbs is easy to get. But even that, those conservation efforts, are costing my members 8 cents. It’s still more expensive than the traditional mix I’ve had for decades. So again it comes back to affordability. When you mandate conservation, that puts it on all the membership, and everybody has to pay for it. Rather than making it an individual choice as it’s been for the last 70 years, it’s now been somewhat socialized where everybody’s going to pay for conservation. I now have line item on my bill where, on average, we charge a residential member 40 cents a month to help fund all our conservation efforts. And that’s where the 8 cents comes from.

The other thing with the whole renewables issue is transmission. Nobody’s talking about the cost of transmission right now. If we’re going to build wind farms everywhere, be it in the lake or out in the prairie in the Dakotas, we have to get that power somewhere. And that’s going to involve lots of transmission lines. That’s going to have a cost. And that cost is going to be spread over everybody, cooperative members, IOU customers. So is that going to be affordable? We have a transmission network today that can handle the coal plants and everything we’ve got. Granted, it needs some upgrading, and we’re doing that locally here, but as we add more and more renewables, that transmission system is probably not going to be able to handle it. So we’re going to need a new system just for the renewables coming on the highway. Who’s going to pay for that? If the wind farm is in the Dakotas and the transmission line goes to Chicago, do the people in Chicago pay for that? Or do the people in the Dakotas pay for that? How do we put that in the mix? And then you’ve got that transmission crossing across farms and ranches and rivers and streams. And who’s going to want it there? Nobody’s really talked about that yet and what that’s going to do to our cost, our affordability, as we go forward. So for me, over and over again, it comes back to what produces electricity 24/7? That’s what we call base load generation. It can operate 24/7, 365 days a year. And that’s coal. And with coal we certainly have the emissions issues. I think we need to do coal better. We’re trying to do coal better. Is it ever going to be totally clean? No. But it’s a fuel that we have a 100 to 200 year’s supply of. And it’s a fuel that produces affordable electricity. So we’ve got to watch out for the carbon tax that’s been proposed in the federal government. That will raise the price of coal-fired electricity. We have to keep track of the railroads, because we’re shipping that coal all over the country. And the railroads have somewhat of a monopoly for that coal traffic. So we have to make sure that we get decent costs from them. But coal, if you talk about getting off foreign oil, we have coal in the United States that we can use. But people don’t see coal in the same fashion as getting us off foreign oil.

The second base load form of generation that’s affordable is nuclear. Certainly nuclear has some construction cost issues. You have to build it on a big scale where you have to spend a lot of money. But if you can do that, if you’re a large investor or utility that can do that, you can get electricity that’s in that 2-3 cent range. That’s very affordable. Again, there’s opposition to that type of construction. We need to build more nuclear in the United States. If you don’t like coal emissions, you need to be for nuclear, because those are your best two options for affordable electricity 24/7. There are, I think, currently 104 nuclear plants in the United States. And I believe it’s been 30 plus years, maybe even closer to 40 since we built the new nuclear plant. So we need to get focused on that. We need to get building. It takes 8 to 10 years. We have a lot of old coal and nuclear plants that are going to need to be decommissioned and retired. And we’re starting no new construction hardly. So we’ve got to get moving on that if we’re going to have affordable electricity in the future.

The third option for base load, which some people are pointing to, is natural gas. Right now we use natural gas for peaking, because natural gas is more expensive. It’s going to be above that 7 cents range. A lot of people want to use natural gas for base load generation. And you can do that with a combined cycle plant, but for us to do that affordably, we need gas that’s below $4. And we need gas that’s below $4 on a consistent basis. We’ve not seen that in the history of gas. We build some gas generation, and then the gas price goes way up, and it becomes unaffordable. So if there’s no CO2 tax, and the gas stays above $4 a gallon or $4 an MBTU there’s going to be no base load gas generation. Because again, it’s not affordable. But again, it takes us back to coal and nuclear.

So right now we have a delicate balance to keep things affordable. We have renewable mandates, so we are putting renewable in the mix. But we’re putting in higher-cost renewable power in that mix, which is raising our rates. And right now you can’t rule out any option. Everybody’s looking for the silver bullet, and there is no silver bullet in the production of electricity. If you’re going to have affordable rates and grow the country, you have to have a mix. And coal and nuclear are going to be two big parts of that mix. We can throw in some wind, and we can throw in some solar, but it’s always going to be on a small basis, because it’s simply not affordable.