October 28, 2021 – Jay Warmke
There has been a lot of talk in the media lately about how Joe Manchin is trying to destroy the environment by killing the “clean electricity” provision in the reconciliation bill before the Senate. The Left hate him saying he just wants to get rich off coal and the Right hate him just because he’s a Democrat.
But are we being fair to Joe Manchin, or does he have a point?
What exactly does this provision do anyway? I’m all for government helping in our transition to renewable energy. But just because someone says a proposal is a “renewable energy” provision – is it really a good and logical use of taxpayer money?
What does the Clean Electricity Provision Do?
If the $150 billion plan is described at all, reports generally state that it would reward utilities for installing clean renewable generating capacity and punish them for using fossil fuels. Sounds simple enough.
Digging into the details, it appears (I say appears because nobody really seems to know), that the bill would pay utilities if they increase the amount of energy they produce “cleanly” by 4% per year, and fine them if they don’t. Remember, “clean” also includes nuclear – so be careful what you wish for. And it will pay them a lot. About three times as much per MWh as they could sell the energy for.
Initially this sounds like a good thing. Currently renewable energy sources account for about 20% of national utility electrical generation. Nuclear accounts for another 19%. So the “clean” energy on the grid is at about 39%.
If we increase the amount of clean energy generated by 4% each year, year after year, then by 2030 we should get to about 60% of all electricity generated on the grid coming from clean sources. All good, right?
It is argued that with this bill we will get to 60% (or better). Without the bill – Armageddon. Alright, here is where I have a problem with the narrative.
Does the Clean Energy Provision Actually Delay the Adoption of Clean Energy?
Wind and solar electrical generation have grown at an annual compound rate of 16.5% each year over the past decade. And that rate of growth is accelerating. Last year (2020) renewables grew by 45%. In 2020, renewable energy accounted for 90% of all new energy generation worldwide.
The reason for this is that renewable energy is far and away the least expensive form of generation. Utilities make a lot more money from renewables than they do from coal, oil, and natural gas. And with fossil fuel prices skyrocketing – the stampede to renewables should accelerate even more.
So as I see it, this proposed “renewable energy” provision will pay utilities $150 billion to do what they would do anyway because of market forces. In fact, it incentivises them to slow down the adoption of renewables to ONLY 4% per year. A utility that was planning a major solar installation may decide to spread out the development over a longer term.
For example, if they planned a large solar installation that would grow their renewable energy portfolio 8% in one year, they would only be rewarded for 4% of that growth. But the next year, if they did nothing, they would receive a fine. The obvious choice would be to only build half of the project this year, delaying the other half by a year.
Another dynamic that this bill ignores completely is that the electric market is changing – and changing in dramatic ways. Over the coming decades, centralized utilities will play a less and less dominant role in our lives as more and more consumers (industry, businesses, and homes) install their own power systems.
Imagine if, during the 1980s, the government’s plan to expand the Internet was to give billions of dollars to Bell Telephone. Three decades later our communication system looks nothing like the monopoly days of “Ma Bell.” Three decades from now, most people will not know the name of their local electrical utility company.
So What are the Alternatives?
One alternative is the Manchin alternative. Just proclaim it a waste of money and refuse to fund it. History will let us know how well that works out.
Another dynamic to consider stems from the wonders of compound growth. Four percent renewable energy growth in 2029 is a lot more than 4% in 2021. So most of the benefits of this plan come late in the program. Perhaps it would be wiser to wait and see. If renewable energy growth continues at a double digit rate – well then the incentive money was not needed and would have been wasted. If the growth rate slacks off, well then that would be the time to push out incentives.
Another alternative would be to give the money directly to consumers to install solar. If you are determined to spend $150 billion – I think this would be money better spent (rather than increasing profits for utilities).
Currently the US has about 100 gigawatts (GW, or a billion watts) of solar capacity installed. To install solar at the residential level, it costs about $2.50 per watt. So if the government paid half the cost of installing solar on your home, $150 billion would install another 90 gigawatts, almost doubling the amount of solar installed in this country in one stroke and meeting the climate goals well before 2030.
That probably is not going to happen. I think the utility companies have better lobbyists.
In our polarized political world, everything is simplified and painted in black and white, good and evil. Joe Manchin is evil because he is trying to destroy the planet. The clean energy provision in the Build Back Better bill is good, because it is going to reduce carbon emissions by 50% in 9 years. Neither is likely true – but that doesn’t make a good story or feed my internal narrative.
About 8 years ago we, as a society, experienced the end of the age of fossil fuels and entered the age of renewables. No government program will change that. Renewable energy will soon become the dominant source of power on this planet. Why? Because it is far and away the cheapest source of power. Government can speed that up a bit or slow it down a bit – but they can’t change it.
Jay Warmke is author of a number of renewable energy books and textbooks, former board member of Green Energy Ohio, former chair of the SkillsUSA renewable energy committee, board member and chair of the renewable energy committee for the Electronic Technicians Association, International and teaches renewable energy at a number of colleges and universities across the Midwest.