Renewable Energy by Choice, Not Force
Summary
Existing voluntary green power programs can increase renewable energy generation without forcing unnecessary costs on the entire population. Just as with organic food, customers who value green power can purchase it. Unfortunately, Senate Bill 838 mandates utilities to provide renewable power that 98% of Oregonians currently choose not to purchase.
Word count: 779
Imagine going to the grocery store one day and noticing that food prices are up to 30% higher due to a recently passed government mandate. This mandate forces grocery stores to stock their shelves with a certain percentage of organically grown food, and customers are required to purchase at least 25% organic products each time they shop. No, this isn’t happening in Oregon…at least not anytime soon. Currently, shoppers have the choice to purchase organic or non-organic products, and grocery stores have the choice to provide customers with either or both.
The Oregon Renewable Energy Act (Senate Bill 838, signed into law in June 2007) has taken the opposite route and mandated that electric utilities must offer a “product” that consumers have shown they do not want. Renewable power is the “organic” version of electricity generation for the electric utility industry; and Senate Bill 838 imposes a mandate, called the Renewable Portfolio Standard (RPS), on most electric utilities. Large utilities (those with 3% or more of the state’s load) are required to use more renewable energy in their electricity generation: 5% by 2011 until 2014; 15% for 2015-2019; 20% for 2020-2024; and 25% by 2025.
Although several utilities already offered this program for many years, SB 838 helped to establish a green power program that accurately reflects the above market cost of renewable energy generation and allows customers to voluntarily opt into buying 100% renewable energy at this price premium. Ironically, these voluntary renewable energy purchases cannot be included in meeting the renewable portfolio standard. This program does however provide a litmus test for whether the market and Oregonians are ready and willing to have more renewable power sources as part of the state’s electricity generation mix. More than 98% of Oregonians have said NO.
Currently wind, solar and geothermal energy cost more per kilowatt-hour (KwH) than fossil fuel power plants or hydroelectric power. The green power program premium pays for meeting the above-market cost of renewable generation, similar to organic food premiums. The Organic Trade Association estimates that total organic food and beverage sales were $13.8 billion in 2006, and it is estimated that sales of organic foods will increase by 71 percent from 2006 through 2011. Clearly, organic food has become mainstream without restrictive mandates and has done fantastically in the free market, even at a price premium. Consumers value the product and are willing to pay for it.
Renewable energy advocates promote renewable generation to reduce the threat of global warming by offsetting fossil fuel generation and the greenhouse gas emissions associated with it. Like organic food, green power program participators value the product and thus are willing to pay a premium for it.
According to a recent poll, 76% of Oregonians agree that “global warming is so urgent a problem that even in these difficult economic times, we should take action now.” However, actions speak louder than words. Participation rates in the voluntary green power program show just how many Oregon households really value renewable energy sources. The statewide average participation rate is a dismal 1.29%. The latest available figures show that PGE boasts the highest participation rate in the state, and one of the highest in the nation, with a residential participation rate of only 6.34%, meaning only about 6 out of 100 households value renewable power enough to pay the above-market premium. The program does show some promise, however, and a few utilities have seen increasing participation rates since the beginning of the program.
| Green Power Participation Rates For Residential Customers of Oregon Utilities | |||||
| Utility | 2006 | 2005 | 2004 | 2003 | 2002 |
| Portland General Electric | 6.34% | 5.80% | 4.86% | 3.36% | 2% |
| Central Electric | 4.50% | 5.10% | 4.10% | 3.15% | 3.80% |
| PacifiCorp | 4.48% | 3.66% | 2.96% | 2.85% | 1.10% |
| Emerald PDU | 3.62% | 3.27% | 2.77% | 0.17% | N/A |
| EWEB | 2.54% | 2.22% | 2.41% | 2.97% | 3.20% |
| Consumers Power Inc | 2.18% | 2.19% | 1.41% | 2.78% | 3.10% |
| Douglass Electric | 1.09% | 1.54% | 1.19% | 1.39% | 1.60% |
| Midstate Electric | 1.40% | 1.46% | N/A | 1.24% | 1.10% |
| Oregon Trail Electric | 1.10% | 1.16% | 1.18% | 0.92% | N/A |
| Clearwater Power | 0.32% | 0.50% | 0.56% | 0.55% | 0.60% |
| City of Ashland | 0.42% | 0.25% | 0.11% | N/A | N/A |
| Umatilla Electric | 0.03% | 0.07% | 0.05% | 0% | 0.30% |
| Source: Renewable Northwest Project, 2007 | |||||
A voluntary green power program is the free-market way to finance and possibly to increase renewable energy generation without forcing unnecessary costs on the rest of the population. Just as with organic food, customers who value the “product” can purchase it at a premium; those who don’t value it shouldn’t be forced to pay for a minority’s ideology or preferences. Unfortunately, although this voluntary program exists, SB 838 mandates utilities to provide renewable power generation, even if their customers are not demanding it. These mandates create a market distortion in which more renewable power is provided by utilities than is demanded by customers. All ratepayers are forced to pay the cost through increased transmission and integration costs and adjustments for renewable power on monthly bills.
Senate Bill 838 is yet another example of government forcing the market to produce and consume a product that is neither valued nor demanded by Oregonians. Renewable Portfolio Standards should be abolished; and the renewable power market niche should thrive, or not, on its own through voluntary consumer purchases. The free market has worked for organic food; it will work for renewable energy as well.
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You make some very good points. I would like to point out a couple of things, however, and I am interested in your comments.
1. I don’t think the fact that people having chosen to purchase green power (and thus pay more for their utilities) is the same as saying they aren’t willing to pay more for their utilities in Oregon in order to increase its production. Perhaps a significant number of those 76% who say we need to do something about global warming are unaware the availability of green power purchasing. I myself purchase some, but I only heard about it at a booth at a downtown charity fun run several years ago. I, like most people, throw away without reading the Green Power inserts that come with my electrical bill. Or…perhaps people don’t think their individual purchase of green power will make a difference, but they believe that, in aggregate, Oregonians can.
2. I don’t think the energy market is good at recognizing the true cost of energy (e.g. it ignores pollution and its long term effects). Perhaps we could use regulation to recognize these true costs and incorporate them into the cost of burning fossil fuels. If these true costs are realized, people would be stimulated to innovate to reduce consumption. They would be in control of reducing their cost of living and cost of doing business by reducing the amount of energy they consume (e.g. investing in conservation of fuel and production of green energy). I suspect you would disagree with this because of the inhibitory effects increase fuel costs would have on the economy, which brings up my main question for you. Do you think it is possible to offset the increased energy costs with decreases in taxes for corporations and individuals such that the net financial impact is close to a wash? It seems to me that society (government) should tax bad things (e.g. production of CO2 and other pollution) and keep our hands off of good things (e.g. income). I think of a painting contractor like my father-in-law. A large increase in fuel prices would be devastating to him because he pays a huge monthly fuel bill to run many trucks that his workers use for the paint jobs. Corporate income taxes are also difficult for him. The higher they are, the more difficult it is for him to meet his payroll or invest in his company or hire new people when needed. What if we increased energy prices to reflect the true cost of CO2 production (e.g. cap and trade system or fuel taxes)and then offset these increased energy prices with large cuts in corporate and individual income taxes? His trucks that I just mentioned take a beating and need to be replaced far more frequently than the passenger vehicles you and I drive. I bet if his income and ability to make payroll and invest in his company were inhibited by fuel costs instead of taxes, he would be stimulated to replace his current outdated truck fleet with new energy efficient hybrid or even plug in electric vehicles. It would be difficult (all change is) but not devastating. What do you think?
Comment by Greg Eilers — 12/1/2008 @
I think a lot of people want others (corporates) to bear the burden of clean energy. They don’t understand that corporates will just pass on the cost to consumers, and if they don’t like it, they don’t get electricity.
Comment by Dan Sanders — 12/6/2008 @
[...] rates and will continue to raise them even higher. Unfortunately in Oregon, all ratepayers are forced to pay for the costs of renewable energy whether they value it or [...]
Pingback by Cascade Policy Institute - Oregon Public Policy » Renewable Energy Costs for All — 3/4/2010 @