2. Renewable Power and Electricity Prices:
Historical Evidence from the U.S.
Professor Thomas Lyon
Ross School of Business
School of Natural Resources and Environment
University of Michigan Energy Institute
3.
4. 12 States w/ 25% RPS or More
1. Hawaii 40%
2. California 33%
3. Colorado 30%
4. Maine 30%
5. New York 29%
6. Connecticut 27%
7. Minnesota 25%
8. Oregon 25%
9. Nevada 25%
10.Illinois 25%
11.W. Virginia 25%
12.Delaware 25%
8. For a customer paying
$200/month, this comes to
$1/month or $12/year.
9. This Research Project
• Studied all U.S. electric utilities over the
period 1990-2012
• Instead of trying to measure the stringency of
an RPS, we simply measure the percentage
of power that comes from renewables
• We focus on how price responds to increase
in renewable fuel mix
• We control for
– Fixed utility-specific factors
– Fuel mix: coal, gas, oil, nuke, hydro, renewable
– Fuel prices: coal, gas, oil
– Number of customers of each class
13. WE GET THE RESULTS….
After lots of data collection and econometric analysis…
14. Effects of a 10% Increase in Renewable
Fuel Mix on Prices (cents/kwh)
Average Residential Commercial Industrial
Average .87*** 1.43*** .82*** .97***
Municipal 8.33 5.99 -4.00 11.00**
Private .92*** 1.47*** .97*** 1.12***
*** Significant at the 1% confidence level
** Significant at the 5% confidence level
15. Key Findings
• Effects at investor-owned utilities (IOUs) and municipal
utilities are very different.
• When the percentage of renewable power rises 10%
– For IOUs, average electricity prices rise by roughly 0.9 ¢/kwh
• Impact is about 50% higher for residential customers
– For munis, the only significant impact is on industrial customers,
where the estimated effect is a huge 11 ¢/kwh.
• Caveat: The cost of renewables has been falling steeply
over time, so these results are conservative, i.e. they
may overstate the impact of further increases.
17. Estimating the Effects of 25x25
• Based on historical US experience, what would be
the impact on prices if Michigan went from 10% to
25% RPS?
• Average for IOUs would be 1.35 ¢/kwh, with an
increase of 2.145 ¢/kwh for residential customers.
• Current average price for DTE residential customers
is 13.26 ¢/kwh, so the RPS would raise marginal
rates by 16.2%.
• The average customer’s bill is $100/month, so a
16.2% increase would be $16/month or $192/year.
18. Conclusions
• 20 years of US experience suggests that a
10% RPS raises prices by about 0.9 ¢/kwh.
• If this holds in Michigan, 25x25 would cost the
average residential customer about $192/year.
• Caveats
– This is likely to overstate the impact of new wind
power, which is coming in at around 6 ¢/kwh, less
than DTE’s current power supply rate.
– Analysis does not account for unique aspects of
Michigan’s setting, i.e. excess capacity, slow load
growth, heavy reliance on coal, and sunk costs of
air pollution equipment on existing coal units.
19. Evaluating Options for Michigan’s
Renewable Portfolio Standard
May 1, 2014
Jeremiah Johnson, PhD
Asst. Research Scientist
Center for Sustainable Systems
20. Michigan’s Renewable Portfolio Standard
• Under the Clean, Renewable, and Efficient Energy Act of
2008, Michigan’s load serving entities are responsible for
generating 10% of their retail electricity sales from renewable
sources by 2015.
• Through new utility-owned generation, existing generation,
and power purchase agreements, it is expected that this
target will be met.
• In 2012, groups advocating for higher targets failed to pass
Proposition 3, which would have added a constitutional
amendment mandating higher penetrations of renewable
energy.
21. Objectives
• This research project will employ and advance power systems
modeling to evaluate design considerations for an updated
Renewable Portfolio Standard for Michigan.
• In addition to methodological development, the project will
provide an objective analysis on the impact on emissions
and costs of RPS designs to better inform stakeholders
across the state.
22. Understanding Electricity “Products”
Data: MISO
Example Daily
Electricity Demand
(1) Energy
Generation to meet demand
(2) Capacity
Size of power plants to
meet highest hour of
demand
[Reserve margin]
(3) Ancillary Services
Reliably matching
demand and supply
(4) Energy Delivery
Transmission and
distribution
23. Dispatch Model
• 35 zones
• Inter-zonal transmission
interface limits
• ~10,000 generators
with detailed
operational constraints
• Environmental control
equipment
• Zonal fuel prices
• Hourly load
24. Sample Model Outputs
Sample Week: Michigan Generation in 2013
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
MW
Hydro
Wind
Gas
Coal
Nuclear
25. Calculating the Cost of Renewable
Energy Options
Wind
Project
Costs
Investment Costs
58
Net Taxes 4
Operations & Maint
13
Wind
Project
Revenues
-36 Energy Market Revenues
$19/MWh Above Market Cost
Sample Wind Site Evaluation
Total: $75/MWh
-20 Subsidies
Wind
Subsidies
All Values in $/MWh
28. Work is ongoing, but estimates can be
made
• Envision a 25% RPS met by the least cost wind resources.
• Assume 10% renewables will already be in place in 2015.
• Assume the energy displaced by this wind is valued at
$25/MWh.
• The additional costs of going from 10% to 25% renewables
would be $600 million per year across the state…
• …or a 3-4% increase in retail rates…
• …or $35 per year for my household.
• Without the federal subsidy, the costs become $950 million
per year, 6% increase, or $54 per year for a typical
household.
29. Work is ongoing, but estimates can be
made
• That scenario would reduce CO2 emissions by 11-17 million
tons per year.
• That equates to $35/ton to $85/ton CO2 reduced.
30. RPS Scenarios, Policy Variations, and
Sensitivities
Scenarios Policy Variations Sensitivities
10% by 2015
(BAU)
15% by 2020
25% by 2025
40% by 2035
Base Case
Energy Efficiency
Out of State
Resources
Alternative
Compliance
CO2 Tax
Natural Gas Price
Coal Price
Load Growth
Installed Cost of
Renewables
Alternative MATS
compliance strategy
Offshore Wind
Carve-Out
Solar Carve-Out
35. 35
A flexible energy policy enables us to utilize
the most cost-effective technologies and
minimize the financial impact on customers.
36. 36
Michigan’s energy future requires significant
infrastructure investment. A stable, responsible
regulatory construct attracts new investment in
reliability.
37. 37
There are numerous factors that drive generation
costs to fluctuate. A diverse energy portfolio
enables us to be responsive to market changes.
38. 38
Guided by the right policies,
Michigan’s energy future looks
bright. DTE Energy is committed
to working with legislators and
regulators to deliver affordable
and reliable energy.
