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Economy’s Ticking Time Bomb

June 29, 2012
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Twenty-nine states, plus the District of Columbia have enacted Renewable Portfolio Standards (RPS) mandating that electricity from renewable sources make up a significant share of the electricity sold in each of these states.

The mandates vary from 10% by 2015 to 33% by 2025. Roughly, the average is 20% by 2020. While some states include renewable sources such as wave power, the common requirement on which the mandates are based are the generation of electricity from wind and solar.

Today, few people see any effect in their electricity rates due to these RPS mandates, because the amounts required are still small – one or two percent.

Obviously the percentages will increase, and as they do, electricity rates will rise.

For 219 million Americans, the cost of electricity will increase: This represents 71% of the population.

Until recently, coal was the least expensive means for generating electricity. With fracking, natural gas is now the least expensive.

This year the national average for the cost of electricity (all customer classes) is 9.8 cents per kilowatt hour (cents/kWh). Prices range from 6.2 cents/kWh (Wyoming) to 25.1 cents/kWh (Hawaii which has few resources other than imported oil) or 17.4 cents/kWh (Connecticut).

Some local prices in California are even higher.

While it’s difficult to forecast how far electric rates will rise because of RPS mandates, the following can provide some guidance. Electricity from:

  • On-shore wind is over twice as expensive as natural gas.
  • Off-shore wind is nearly five times as expensive as natural gas.
  • PV solar is over twice as expensive as natural gas.
  • Concentrating solar is nearly four times as expensive as natural gas.

Each of these also require the added cost of running gas turbines 24/7, ready to step in when the wind stops blowing or the sun stops shining. And they can hardly be called clean, since the back-up gas turbines running 24/7 emit CO2 and other emissions.

Because wind and solar tend to be located in remote areas, dedicated transmission lines will have to be built to transport the electricity from where it is generated to where it is used at a cost of billions and billions of dollars.

And wind has environmental impacts such as killing birds and bats.

A conservative estimate is that RPS mandates, when fully implemented, will cost consumers in these states (in today’s dollars) over $55 billion annually.

While building windmills and solar plants may create some jobs in the short term, the loss of $55 billion annually in discretionary spending by households will kill many more jobs every year. People will have less money to spend on food, clothes, travel and recreation. And many of these families are not rich, so spending $500 per year more on electricity will hurt.

Spain is a good example of how wind energy kills jobs.

This added cost will creep up on us over the next five to ten years. It won’t be visible as are gasoline prices posted on local gas stations and shown ad infinitum on the TV news. It’s hidden in the bill from the electric utility, and no one stands on the street corner shouting, “Your electricity costs more!”

The outrageous truth is that there is no need to force the adoption of wind and solar on Americans, which is the sole purpose of RPS mandates. There are no benefits to using the highest cost methods for generating electricity.

In fact, higher costs hurt families, businesses and industry.

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10 Comments leave one →
  1. Arn Johnson permalink
    June 29, 2012 4:28 pm

    Another renewable which is to date totally ignored by our Government is energy from Biogas: digesting agricultural waste into methane and toxic-free compost. Germany has over 7,000 agri-digesters and the US has maybe 200. Plus this energy is much more reliable than silly windmills; although still much more expensive than from coal or natural gas.

  2. June 29, 2012 5:02 pm

    Anything that is economically sound is a good source of energy.
    I have limited knowledge about the digesters, but what I have seen seems to make economic sense. Of course, this is only small potatoes (my attempt at a joke) with respect to our total needs for electricity

  3. July 2, 2012 12:23 am

    Good, clear writing, Donn. I have cited to it in my analysis, which calls for disentangling the government and subsidies for Solar PV but enabling free market forces to empower individual, grid-tied rooftop (or backyard, or farm field) Solar PV. That way, once Solar PV makes economic sense to individuals to install it, they’ll do so, and on a mass-consumer-product scale. That will result in lowered grid-electricity consumption (same effect as conservation efforts such as better home insulation, higher efficiency appliances) and thus less grid reconfiguration costs.

    Ironically, increasing electricity rates perversely advances Solar PV to the point where it makes economic sense to Joe Six Pack. He’ll cross-over and invest in a personal, home Solar PV system when he can erect it for $1/watt installed and when his utility power costs him $.13/KWH or higher and he is paid $.08/KWH for any excess electricity that his Solar PV arrays feeds into the local grid. That cross-over point will be accelerated by now-unfolding technology that enables optimum self-consumption of one’s rooftop electricity output (hence, Joe in effect pays himself the full retail cost of electricity his utility is charging him).

    To summarize, “a chicken in every pot” Solar PV (i.e., millions of small, individual Solar PV installations) is something I project will occur at $1/watt installed cost and electricity rates of $.13/KWH or higher, with a reverse-meter rate of $.08. A 10KW, $10,000 system will thus pay for itself within 7-10 years and “Joe” will own the back 20 to 23 (30-year systems).

    The best the government can do here is just get out of the way, and also let the Chinese “donate” their labor and tax dollars to us via heavily subsidized PV panels. All a matter of price.

    THAT (100 million individual homeowners owning/operating/optimizing Solar PV) is the most prudent path for subsidy-free Solar PV in America.

    More here:

  4. July 2, 2012 11:46 am

    We’ll see what happens, but the government would still be in the picture mandating that utilities pay the owner for his excess electricity. Utilities won’t buy electricity at 8 cents/kWh when they can produce it for considerably less. Without government mandated feed-in tariffs or net-metering, utilities probably won’t buy from the homeowner.

  5. July 2, 2012 4:51 pm

    RE: “Utilities won’t buy electricity at 8 cents/kWh when they can produce it for considerably less.”

    I’m not so sure. You’re thinking base-load wholesale (like, $.04/KWH) rates but much of Solar PV production is at peak rate, which is in the $.08/KWH zone.

    Still, let’s assume you’re right. There are then only two ways to go: Solar PV becomes even more efficient so that it makes economic sense at, say, $.04/KWH (the wholesale price of cheap gas or coal, depending on the region).

    Or (the more likely result), government imposes a “right to brown-up the fishbowl with your crap” tax on all Brown Power (the color of crap) sources. That, in turn, raises the wholesale price to $.08/KWH and thus my utility “naturally” wants my electricity, obviating government mandates.

    A Brown Power tax would be assessed against coal, gas, nukes — anything that requires that the earth be disturbed, water be consumed, and pollution be produced. To make it more palatable, I’d advocate that 100% of any tax collected would pay down our $16 Trillion debt.

    Sure, that’s a political choice. And, as much as I disdain Big Government and over-taxation, hey, we gotta tax something, so why not tax the thing that Americans waste the most — energy?

    Conversely, why not reward clean-energy production and thrift (energy efficiency and conservation)? My 10KW prototype home costs LESS than a conventional home, consumes FAR LESS electricity than a conventional home (50-100KWH/month), and makes me money every month (it’s literally a positive energy home).

    With just a simple tax (hence, no other mandates and the bureaucracies that must come with them), the economic balance is altered just enough to trigger a tidal wave of energy production (and we’re talking net new wealth, not “government-printed” wealth), all of it owned, self-consumed and sold by millions of Joe Six Packs.

    And hey, I’m only asking for $.08/KWH, not Euro-rates (reverse-meter credits were as high as $.51/KWH in Germany). And again, in many areas $.08/KWH is reasonably close to peak wholesale rates.

    We’re still not at $1/watt installed costs. It may be a while. But geez, as much as you and I eschew government entanglement in the free market, can you imagine the economic-multiplying impact of PV getting on the same path of PC’s? I can. I owned one of the first desktop PCs, and watched that sector grow from small niche to tidal-wave category in less than a decade.

    I want to help open the same investment channel here, with minimal government involvement and taxation. It’s an enormously complex topic, and the chaotic subsidy schemes and government coercions all over the planet confuse the free-market picture/potential.

    Anyway, thanks for listening. And keep up the GREAT work. I really enjoy your stuff.

    Here’s my home, by the way:

  6. July 4, 2012 9:19 am


    Below is a link to piece describing an interesting policy twist being hawked as fair to everyone, and apt to accelerate distributed Solar PV across Joe Six Pack’s rooftops. I’d be interested in your take on it, as I now have Chinese Solar manufacturers contacting me directly and publicly offering buy-direct solar panels for less than $1/watt.

    $1/watt, as you know, is considered by many to be “grid parity” — equal to the cost of Brown-Power-sourced electricity. Based on the data coming off my own 10KW system, I conclude that $.70 – $1/watt installed costs will ignite a huge market for UN-subsidized Solar PV electricity, because as my own experience shows, that turns Solar PV rooftop systems into net wealth generators for Joe Six Pack. This proposal contemplates the facilitation of a framework for even economic low-enders to profit-participate:
    — James

    • July 4, 2012 9:47 am

      When I tried the link you suggested it was broken, however I believe it was commercial in nature and commercialization isn’t permitted.
      You may believe there is a huge market for PV solar if the government makes other forms of producing electricity too expensive. You suggested taxing coal, natural gas etc so it would be non-competitive.
      I disagree with you on at least two counts.
      First, I don’t think it’s appropriate to force people to buy expensive electricity, which everyone, except possibly those who install the cheap PV solar panels, will have to do.
      Second, there really isn’t the market with which you seem infatuated. Remember, suburbs that have the greatest population, north of say, Raleigh, NC, don’t get that much sunshine. Insufficient sunshine make solar unreliable and expensive, even with cheap Chinese panels.
      Also people who live in cities can’t install PV solar on their roof tops, and will have to pay for the very expensive electricity your proposal will force on them.
      I’ve done the math and PV solar doesn’t make sense in these cities.
      Finally, as an aside, I wouldn’t denigrate people by referring to them as “Joe Six Pack.” It probably isn’t a good marketing ploy.

  7. July 5, 2012 12:07 am


    I am “Joe Six Pack.” I wear Wal-Mart clothes, clip coupons and drive a 1989 Honda Civic Wagon (30 mpg City, 33 mpg Hwy) to work. No pejorative resonates within that label, I think you’re seeing a sensitivity ghost there.

    Meanwhile, I think we agree on the following:

    1. The government can, must and will tax us based on income and consumption. But it’s crazy to punish industriousness and thrift, so taxing corporations, productivity, investment income, etc. is like driving a car with the brakes on.

    2. Tax policy can quickly alter mass behavior, especially the self-destructive kind that costs us all (e.g., jack up tobacco taxes, reduce consumption, impose guzzler taxes, reduce air pollution and watching wealth go up in smoke).

    3. If we must tax, we should do so in a way that constrains higher and higher efficiency and thus less pollution. Hence, tax pollution-causing consumption (coal, gas, oil, nukes) and don’t tax (reward) efficiency (millions of Joe’s making their own electricity and back-feeding excess into the grid).

    All that is pretty basic stuff, and common-sense driven.

    Here lies the rub:

    You say that you “don’t think it’s appropriate to force people to buy expensive electricity, which everyone, except possibly those who install the cheap PV solar panels, will have to do.”

    I think you do. Once you agree that we must tax something, and that it might as well be negative-effects-causing consumption (cigarettes, junk food, gas guzzlers), then why wouldn’t you want to tax Brown Power, which admittedly will raise electricity rates, but ALSO price-encourage (rather than bureaucratically jawbone) conservation and thus higher efficiencies? At the same time, consumption tax gains can pay for the elimination of corporate, investment-income and other productivity-hampering taxes. Ditto for the tax-collection bureaucratic savings with narrowing taxes to the vastly simpler source consumption (tax coal coming out of the mines, oil and the well-head and ship terminal).

    I’m betting you’ll agree with me that taxing consumption and un-taxing productive effort can be more than a tax-wash, it can be a net gain for everyone.

    All right, now let’s try some more grayish areas:

    First, you are correct that Solar PV (my “infatuation”) won’t work everywhere. But you know what? You’re not sure, and neither am I, given the ever escalating, compensating efficiencies in Solar PV — just in the last 36 months alone.

    What is certain, however, is that the Northern area Joe can figure out for himself whether it works for him. I say let him decide. He can Google up insolation maps and have his roof or yard or farm field “pyrometered” and then, with that read-out (my solar vendor’s engineer did it for me for free) calculate net electricity yield by inputting Solar PV panel specs into simple equations available to all. Note: My vendor calculated the return on my array and I have continuously EXCEEDED it.

    All of what I just described (Joe figuring out and deciding to invest on his own) is The Free Market at work. Something you no doubt would applaud.

    Second, Canada and Germany are one and two gradations below my (Georgia, USA) insolation region and yet people there are heavily investing. But yes, you’re right, those markets — like NY, CA and NJ — are “subsidy distorted” and thus aren’t the best examples to cite — subsidies distort and thus pollute free market data, and thus scare away venture capital.

    So we’ll agree that all of that is a distortion of, as caused by pernicious government entanglement in, The Free Market.

    But focus here a minute: UN-subsidized Solar PV prices have fallen so far that Joe may (by 2015, I project) soon stand a good chance of erecting what I’ve got (my array produces over 12,000/KWH of electricity a year) and feeling good about it (because it’s a money-maker) based on his self-consumption savings alone (a family of four, according to Georgia Power, consumes 12,000 KWH/year), let alone the $.08/KWH reverse-meter credit which, you must concede is NOT an outrageous subsidy if at all (again, much of Solar PV power’s generated during the peak load phase).

    And if that happens, all of that would be a virtually 100% Free Market result. And Joe will jump on it because for $10,000 ($1/watt) he gets a 30-year system that covers 100% of his power bill if not makes him a few dollars (the reverse-credit, “meter gold” will induce him to optimize his output and minimize his consumption — a double efficiency gain).

    I’m asking you to re-examine some of your premises. It was all theoretical to me until I erected my array. Now I’ve got documented, real time data to show, plus a reasonable market projection to help develop a new investment channel — a free market for Solar PV as a mass consumer (like PCs) product.

    And by the way, there is nothing “unreliable” about Solar PV, unless you mean hey, no sun, no power. But that, as you know, is a specious argument, for with a grid-tied system the issue is NOT whether one enjoys 100% sun all day long, but what the system produces over a month, as levelized out by the net-meter standing between the erected array and the grid.

    My system’s producing over 1000 KWH a month, even though on dark rainy days it produces very little. But it’s the 1000 KWH that constitutes the bottom line, and it would be silly to say my system’s “unreliable” merely because on a rainy day it’s output is maybe 18 KWH instead of 50 KWH or 60 KWH.

    Listen, I’m with you on gutting government, its stifling bureaucracy and its outrageous tax burden. And I’m also a drill, baby, drill advocate.

    But even the most minimalist libertarians like me recognize that some taxation must occur for the basic protections and infrastructure that a minimum government requires.

    You and I also recognize that the business of America is business. We want to see thriving, productive activity that produces net new wealth, not “government-printed” wealth. I’m saying that millions of Joe’s will, on their own, research and figure out that hey, grid-tied Solar PV (“A chicken in every pot”) makes sense. And all of their “home-grown” electricity will become net new wealth — times millions of Joe-owned arrays.

    And again, you may be right — in some areas (Canada reaps pretty low irradiance) Solar PV may not make economic sense. But Joe will figure that out on his own and won’t need you or I or Nanny Governmenteers to “guide” him. More importantly, what I’m advocating is PRIVATE investment by tens of millions of Joe’s, and not a DOE bureaucrat tossing $500 million bundles of OUR cash at political favorites dialed in by their bribologists (lobbyists).

    Finally, let’s you and I touch the Third Rail of Environmental Politics, shall we?

    Do you agree with my premise that if we must tax why not tax “bad consumption” (anything producing ill environmental and health effects) first, and good consumption (productive activity, thrift) second?

    If you do (c’mon, I know you do!), then what exactly is so awful about taxing brown power, not to mention junk food, and other deleterious consumption? Donn, anyone can see the substantial net reduction in Joe’s consumption of gasoline. Step up the pain, Joe becomes more careful, lower the pain (price) and Joe goes back to buying slobmobiles. In our lifetimes did you ever believe MPG would become as prominent a selling feature in vehicle advertising? Well, it’s here! And America’s net, per capita gasoline consumption has declined.

    Price. Pain. Conservation.

    That core human operating system unit (seek pleasure, avoid pain), lies at the root of all government (hence, tax) policy, and undergirds all free markets.

    So really, is it that hard to see the same effect with electricity? Folks who come to my home in the winter are handed “guest sweatshirts” to put on (I got a good, “Seasonal Close-out” deal on them at Sam’s Club). My all-electric, 2150 foot Savannah GA home’s power bill last winter never exceeded $46. Pleasure, pain (the ladies snuggle closer to me to stay warm, too).

    And if coal and gas are taxed (Georgia Power’s prime sourcing) as I advocate (to make my $.08/KWH reverse-meter rate “market natural” and not a coerced subsidy), then I’m guessing my bill will go to $56, and sure, product prices will rise too (I don’t have that calculation), as offset if not washed by the elimination of corporate and other nutty taxes (sure, let’s vote for Mitt).

    I’ll gladly pay that for seeing PV ride the same tidal wave of growth (and engender a similar tidal wave of prosperity) that I saw with PC’s. And you and I will be there, at the head of the huge new investment channel we together will now open by influencing the masses and policy makers toward a sound, rational policy that puts money in the little guy’s pocket, not just the fat cat’s. Doesn’t your gut tell you that the net positive result will more than wash if not greatly exceed the cost of taxing Brown Power?

    I believe that you see, as I do, that markets and attendant government policies are highly dynamic and nuanced. Ergo, some give and take on the ideological front must necessarily occur. Again, I ask you to reconsider your premises.

    The missing link takes you to an analysis about California’s Senate Bill 843, the Community-Based Renewable Energy Self-Generation Program. It’s designed to enable those without solar-radiated roofs and without capital to participate in larger solar arrays, just as farmers form cooperatives to levelize farm-equipment costs amongst their membership. I don’t know if that makes sense, it was just announced. I rely on smart guys like you to analyze these things.



    P.S. Here’s my array’s data report:

    P.S.S. Come stay with me next trip to Savannah, OK? I’ve got some cool stuff to show you at my farm.

  8. July 14, 2012 7:01 pm

    P.S. Consider this lead paragraph of this article: “George Shultz was an economist in the Eisenhower administration, as well as secretary of the Treasury and Labor, and director of the Office of Management and Budget in the Nixon administration. Under President Ronald Reagan, he was secretary of state for almost seven years. Despite the reluctance of his fellow Republicans to embrace action on global warming, Shultz is confident that when the time is right conservatives will support a carbon tax, for a number of reasons.”


  9. July 14, 2012 7:38 pm

    I know of Shultz’s comments, however I don’t agree with him.
    An attempt by the AEI to have Congress pass a carbon tax during the lame duck session this year may get some support from Republicans, but I suspect not.
    It’s a bad idea and will hurt Americans. It’s an energy tax that will raise prices on electricity, gasoline and everything else that energy touches.

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