Various factors, including increased use of renewable energy, are combining to drive up power costs in the state of California, said a new report from Navigant Consulting released Aug. 19 by Californians for Affordable & Reliable Energy (CARE).
The report examines the underlying cost drivers associated with California’s aggressive energy mandates and highlights what it said are the “unintended consequences” that can result from California’s complex energy landscape. The report echoes similar findings from policy experts like the Little Hoover Commission emphasizing the risks that California faces from not having a comprehensive energy plan. The state is currently implementing a broad range of costly and often conflicting regulatory programs and there is little discussion amongst policymakers about the cumulative impact of these actions, CARE said.
“There is not a single, credible source of analytics and data that can inform companies and policymakers regarding the cumulative costs of these climate change policies and regulations in combination with many other recently approved and/or proposed energy-related policies,” said Patrick Mealoy, Managing Director in the Energy practice at Navigant Consulting. “The uncertainty about cumulative impacts is a serious challenge for policymakers.”
Navigant examined key cost drivers of three prominent energy programs and issued the following warnings:
- Renewable Portfolio Standard: The 33% RPS requirement is leading to increased prices and rates as utilities attempt to incrementally get renewables into their portfolios—while adjustments already made have created new challenges in the management of providing reliable electric service. “Navigant’s ongoing analysis of California’s RPS progress indicates that while some California utilities have already procured a large percentage of their energy supply from qualifying renewable resources, others depend highly on newly contracted resources currently under development,” said the report. “The costs of these resources are not yet reflected in electricity rates.”
- Cap and Trade: Implementation of state law AB 32 has added to electricity prices attributable to the “carbon component” of energy costs. The impact of these carbon price increases on electricity bills will be felt disproportionately by end consumers, the study said. The California Independent System Operator (CAISO) has indicated that wholesale bids of gas-fired capacity in 2013 are reflecting the additional costs of carbon. At current carbon prices, this can increase bids into the wholesale market between $6 and $10/MWh, depending on the efficiency of the plant.
- Low Carbon Fuel Standard: California Air Resources Board assumptions that full compliance with the LCFS will result in negligible price increases have been called into question by a number of detailed studies, Navigant found.
Big electricity rate hikes loom in California’s future
According to Navigant, the difference in energy costs between California and its neighboring states impacts business, job creation and local communities. Such effects include increased costs for city or county vehicle fleets, heating and cooling costs for schools, electricity costs at water treatment facilities, and costs for providing other essential public services.
The industrial community alone has dropped 17% of its electricity demand in the last two decades, in part because of implementing efficiency measures, the study found. Now, consumers are about to get hit with the first big electricity rate increase from the California-only renewable power requirement, the study added.
“Our businesses and communities need a comprehensive energy policy that balances our environmental goals with real economic considerations,” said Rob Lapsley, president of the California Business Roundtable and member of the CARE coalition. “Because of the threats outlined by the Little Hoover Commission, then by Navigant and other experts, we are asking for the state to develop an energy strategy that can enhance our economic recovery and job outlook before we add additional layers of new energy laws and regulations.”
The CARE coalition was launched Aug. 19 in Los Angeles with a presentation by both Navigant Consulting and the Little Hoover Commission.
The California Energy Commission has projected electricity rates to increase between 26% to 42% by 2020. The price of California electricity across all sectors combined (residential, commercial, industrial, and transportation) is notably higher than comparable prices in the neighboring states of Arizona, Nevada, Oregon, and Washington, the Navigant report found.
The study notes how intermittent renewables can add extra costs. “Solar and wind resource intermittency can vary significantly from year to year, season to season, and in some cases hour to hour. Therefore, in order to maintain reliability on the grid, the energy output of intermittent renewable production is supplemented by other dispatchable resources, which can be ramped up or down as intermittent resources increase or decrease production. The need to have available power facilities introduces additional costs on the system. Even if these costs are not represented in contracted prices, they are still recovered at the expense of ratepayers. However, there is not yet a method to calculate those integration costs or determine the precise extent of the ongoing need.”