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August 01, 2011

How to Increase Your Electric Bill to $630 per Month

The opening of Vermont's largest solar farm last week demonstrates conclusively what a terrible bargain solar photovoltaic electricity at the current state of the industry is for Vermont. If we paid as much for all of our electricity as we pay for the electricity we get from the Chittenden County Solar Partners project and similar projects around the state, the average Vermont residential electric bill would go from just over $100 to over $600 monthly.

As Art Woolf wrote on Vermont Tiger, utilities are required by law to buy electricity from this and other projects at $.30 per kilowatt hour; this is called a feed-in tariff. This is not only twice the average RETAIL cost of electricity in Vermont; it is more than five times the average wholesale price that Vermont utilities paid for electricity in 2010, according to ISO New England which manages regional power sharing. These numbers were well-reported by the media as were David Blittersdorf's comments that the project would not have been built if the subsidy were lower. Blittersdorf is a cofounder of Chittenden County Solar Partners and Founder, President, and CEO of All Earth Renewables, which supplied the solar tracking arrays to Solar Partners.

What has not been reported in this context is the other subsidies this project received. The project is eligible for a 30% federal tax credit, which the Stimulus Bill allows to be collected upon project completion as a grant. The project is also eligible for a 30% Vermont tax credit (which Solar Partners elected to take as a 15% grant instead). In other words, grants and credits from public funds cover 45% to 60% of the depreciable costs – equipment and labor – of projects like this one in Vermont. When the Vermont Clean Energy Development Fund, of which I was then a member, held hearings on the Vermont tax credits, prospective developers told us that they would not be able to build these projects without the Vermont credit even though they would get $.30/kwh for twenty-five years from the utilities plus the federal credit.

Since sunlight is free, the cost of solar power is determined largely by the capital required to build the facility. If the developers didn't receive capital subsidies, then they would have to sell their generated electricity for more to cover these costs. If you take away a 60% subsidy, the cost to the developer goes up 150%. (example: with a 60% subsidy, a million dollar project costs the developer only $400,000. Without the subsidy the developer has to put in $600,000 - $150% of $400,000 – more).To recover that money, the electricity has to be sold for 150% more - $.30/kwh becomes $.75/kwh. BTW, the Vermont subsidy fund, which was paid by Vermont Yankee, is depleted and federal capital subsidies for many forms of energy are likely to disappear in budget cutting. Astute readers will point out that this electricity is already costing us $.75/kwh since our money - or money borrowed in our names- was used for the capital subsidies. As a reality check, Germany, which has no equivalent of our tax credits but has as little direct sunlight as Vermont, until recently paid about US $.75/kwh as a feed-in tariff. So let's look at the math of what this does to residential electric bills in Vermont.

Residential rates for electricity (not counting the mandatory energy efficiency charge) now average about $.15/kwh. Utilities pay about $.06/kwh for electricity at wholesale on the average, so $.09/kwh of what we pay goes for transmission, administrative expense, maintenance and utility profit. Let's assume that $.09 remains constant (conservative assumption) no matter what the cost of the wholesale electricity. If the utilities had to pay $.75/kwh, they'd have to charge us $.84/kwh. According to the Vermont Public Service Department, the average Vermont residence uses 750 kilowatt hours of electricity per month. Cah-ching – at $.84/kwh that's $630/month! At that rate do you agree with Governor Peter Shumlin, as quoted on vtdigger.com, that the project is "a small example of how we make our planet sustainable and livable"? Good thing for us it's only a small example. And good thing for us you can't get solar energy at night or much of it during the winter; we won't really get to $600 plus electric bills any time soon.

The solar subsidies are an example of how a politically well-connected industry can divert public money to its bottom line and use the power of government to force consumers to buy an over-priced product. Not only was the power of the state used to set a rate for solar-generated electricity at 500% of market price; not only were taxpayer monies used to pay direct subsidies; but the utilities are required to buy this over-priced power; and we are forced to buy from our local utility. The subsidies for corny ethanol are another example of political economics; as are prior subsidies (which exist still) for wind, oil, gas, coal and nuclear power. The solar subsidies are a particularly local and egregious example but are not unique.

This is not a partisan issue. There were Republican as well as Democrat office holders at the ceremony opening the Chittenden County Solar Power project. Business people who supported Republican Brian Dubie for Governor as well as supporters of Democrat Peter Shumlin built subsidized projects in Vermont. A literal reading of the position of some Republican US House members would be that removing the tax credits for solar energy is a forbidden tax increase.

A sensible energy policy and an affordable economic policy are dependent on avoiding public laws passed purely for special interest – even if those interests paint themselves green.

A few (dubious) counter arguments:

"Someday the cost of electricity from traditional sources will be even more than $.75/kwh so it's important that we build this solar capacity now."

Answer: This solar plant took about a year to build. The price of solar panels is coming down. In the unlikely event that electricity from Hydro Quebec, our remaining nuclear sources, and natural gas increases tenfold in price in our lifetime, that will be the time to install solar panels. In the much more likely event that the price of solar comes down enough to make it competitive without subsidy or mandate, let's go for it then.

"We need to replace Vermont Yankee."

Answer. We could just NOT shut it down. However, if we do, we'll replace it with other nuclear and hydro (already negotiated). We can't afford the cost of replacing it with solar. And what would we do at night and during the winter?

"These projects create jobs."

Most solar panels used in the US are made in China. None that I know of are made in Vermont. Some work was done in installation and the tracking apparatus is assembled by AllEarth Renewables, but there aren't many jobs involved in running a solar plant. On the other hand, high energy costs definitely drive jobs out of state and make it harder for workers who do have jobs to pay their bills.

"Any price is worth paying to avoid carbon emissions."

Answer: Look at the chart below from ISO-NE to see how carbon dioxide is NOT created by Vermont electricity production. The little bit of oil used (should be replaced by natural gas) is for short duration peaks that solar won't help with but SmartGrid may well eliminate.

"We need to reduce our use of oil from unfriendly places."

Answer: Agreed. And one very good way to do that is to replace oil used for heating and transportation with electricity. That displacement isn't going to happen if we jack up the price of electricity to subsidize the solar photovoltaic industry.

Full disclosure: a few years ago, I put in some solar photovoltaic panels. I got about 10% of the price back from various state and federal programs (incentives were much lower than they are now) and I currently get a credit against my bill of between $.05 and $.16/kwh for what I generate. I knew the panels were no more economically justified – even with incentives – than our vegetable garden, which grows the world's most expensive horseradish; but I wanted to learn about them and I don't like where my money goes when I buy oil (I use electricity for geothermal heat so I am displacing oil). But I would've bought the panels even without the incentives. I got paid for what I was going to do anyway. Should I have refused the incentives? My rationalization in applying for them is that they are funded by my tax dollars so I might as well get them back.

Related posts:

Getting Less Than We Paid for from Efficiency Vermont

Scale Matters

We Need to Use More Electricity

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