TODAY’S STUDY: NEW ENERGY POSSIBILITIES – THE MICHIGAN EXAMPLE

Charting Michigan’s Renewable Energy Future; Accelerating the transition to clean, affordable, and reliable power

Sam Gomberg, Jeff Deyette, Sandra Sattler, March 2014 (Union of Concerned Scientists)

Michigan took an important first step toward a clean energy future…

…when the state legislature passed Public Act 295 in 2008. The law, known as the Clean, Renewable, and Efficient Energy Act, established a renewable electricity standard (RES) that requires electricity providers in Michigan to supply 10 percent cent of the state’s electricity with renewable energy sources like wind, solar, and bioenergy by 2015.

More than five years later, the RES has been a success. Michigan utilities are ahead of schedule in bringing clean energy resources online to meet the 10 percent standard, and they are doing it at a lower cost and with better-performing technologies than originally expected. These investments in renewable energy are creating jobs, boosting local economies, and delivering clean electricity to homes and businesses throughout the state (Quackenbush, Isiogu, and White 2013). But with the RES set to level off in 2015, momentum in renewable energy development is already being lost. Stronger policies are needed to help Michigan take the next steps toward a clean energy future.

At the end of 2012, Governor Rick Snyder launched a year-long initiative to analyze the condition of Michigan’s electricity sector, collect information from stakeholders, and explore potential paths forward for the state (Snyder 2012). In November 2013, the governor’s final report concluded that Michigan can cost-effectively and reliably achieve at least 30 percent renewable energy with in-state resources (Quackenbush and Bakkal 2013a).

Following the report’s release, Governor Snyder announced four energy goals for the state: affordability, reliability, protection of the environment, and adaptability. He acknowledged that increasing Michigan’s commitment to renewable energy would be an important component of achieving these goals. While the governor has not discussed specific policy recommendations, the process has laid the groundwork to strengthen and expand Michigan’s RES.

click to enlarge

This report explores Michigan’s energy future and the role that renewable energy policy can play in transitioning to a clean energy economy. We first look at Michigan’s current shift away from its historical overreliance on coal-fired generation and the state’s experience in meeting its current 10 percent RES. Next, we describe Michigan’s potential to meet more of its electricity demand with in-state renewable energy resources. Then, using the Regional Energy Deployment System model developed by the National Renewable Energy Laboratory, we examine the impacts on consumers, the economy, and the environment of three potential pathways for meeting Michigan’s future electricity demand:

1. Continuing with the current law that maintains Michigan’s RES level at 10 percent from 2015 onward, with no new policies in place that would further increase renewable electricity generation

2. Increasing Michigan’s RES to 17.5 percent in 2020

3. Increasing Michigan’s RES to 32.5 percent in 2030—a 1.5 percent rate of growth in the annual requirements that would keep Michigan utilities on about the same pace as the current RES for the next 15 years

click to enlarge

Our findings show that Michigan can affordably meet 32.5 percent of its electricity needs with in-state renewable energy resources by 2030 while maintaining reliability in the electricity system. Doing so will spur billions of dollars of investment in Michigan, cut power plant carbon emissions, and reduce the risks of an overreliance on coal or natural gas by further diversifying Michigan’s mix of electricity sources. Pursuing a less robust RES—17.5 percent by 2020— significantly reduces the benefits that accrue to Michigan from developing its renewable energy resources without reducing the costs to consumers.

According to our analysis, establishing a 32.5 percent by 2030 RES in Michigan means:

• Sustained and robust development of Michigan’s renewable energy resources. Michigan’s renewable energy y industries would add an average of more than 550 megawatts (MW) of new renewable energy capacity per year, totaling more than 11,000 MW by 2030.1 Without policy support beyond 2015, renewable energy development in Michigan would remain largely stagnant from 2014 to 2030.

• Significant economic benefits. The development of Michigan’s renewable energy resources would drive more than $9.5 billion in new capital investments from 2016 to 2030. By 2030, renewable energy facilities would also add nearly $570 million in operation and maintenance payments and more than $21 million in land lease payments annually.

• Minimal impact on consumers. Electricity sector costs would increase by just 0.3 percent between 2014 and 2030 under a 32.5 percent by 2030 RES compared with the scenario that includes no policy changes. In some years, average retail electricity prices would be lower under the 32.5 percent RES scenario than they are under the other scenarios.

• Reduced carbon dioxide (CO2) emissions. Reduced dependence on coal and natural gas would lower CO2 emissions by more than 65 million tons from 2014 to 2030—equivalent to the annual emissions of 15 typical-size size (600 MW) coal plants.

• A more diverse electricity supply for Michigan. Renewable energy development, led primarily by wind energy, would displace both coal and natural gas in Michigan’s electricity generation mix, leading to lower risks to con sumers resulting from an overreliance on fossil fuels to meet electricity demand.

click to enlarge

Michigan’s Current Shift Away from Coal-fired Generation

Like many states in the Midwest and throughout the country, Michigan’s electricity sector is going through a historic transformation. While coal plants are still the largest source of the state’s electricity, coal’s economic competitiveness has been eroding for years. From 2008 to 2012, coal-fired generation in Michigan declined from 60 percent to 49 percent as lower-cost resources such as natural gas and wind have replaced higher-cost electricity from Michigan’s old, inefficient coal plants.

There are several reasons why the use of coal is declining in Michigan. The state is home to one of the oldest coal power plant fleets in the nation: 87 percent of the state’s coal capacity is more than 30 years old, while nearly a third of the state’s coal capacity began operation more than 50 years ago. Most of the state’s old coal plants lack essential modern pollution controls, and utilities face important near-term decisions about whether to invest hundreds of millions of dollars in upgrades or to retire the plants. Our recent assessment of the viability of the U.S. coal fleet determined that more than half of Michigan’s total coal power capacity (6,719 MW) is economically vulnerable—meaning it will have a difficult time competing with other resource options—and should be considered for closure. This is a greater amount than for any other state (Fleischman et al. 2013).

Coal prices also continue to increase in Michigan, adding to coal’s economic vulnerability going forward. The average price that Michigan utilities pay for coal has increased by nearly 50 percent from 2008 to 2012, from $37.67 to $55.22 per ton. Because Michigan does not have any in-state coal resources, it must import 100 percent of its coal from other states—sending $1.2 billion out of state in 2012 alone (UCS 2014).

click to enlarge

To date, much of the decline in coal use has been replaced with natural gas (Figure 1). Because of the current low costs of natural gas and its abundant supplies nationally, natural gas generation in Michigan more than doubled from 8 percent in 2008 to 20 percent in 2012 (EIA 2013a). While switching from coal to natural gas offers some benefits of near-term air quality and cost, there is growing evidence that an overreliance on natural gas poses significant and complex risks to consumers and the economy, public health and safety, land and water resources, and the climate (Fleischman, Sattler, and Clemmer 2013). For example, a recent cold snap across the nation led to spiking electricity and natural gas prices in the Northeast as natural gas demand for heating and electricity generation exceeded supplies (Jacobs 2014). In addition, as with any fossil fuel, burning natural gas for electricity generation results in the release of CO2 and thus contributes to global warming. While natural gas emits considerably less CO2 than a coal-fired power plant at the smokestack, a natural gas–dominated electricity system would not cut emissions sufficiently to meet U.S. climate goals (Fleischman, Sattler, and Clemmer 2013)…

click to enlarge

Renewable Energy Is Working for Michigan

Most of the recent growth in Michigan’s renewable energy industry is attributable to the state’s successful RES policy. The 2008 Clean, Renewable, and Efficient Energy Act requires all of Michigan’s electricity suppliers to gradually increase the contribution of renewable energy sources to 10 percent of the state’s electricity supply by 2015 (up from about 1 percent in 2008). The state’s two largest power providers—DTE and Consumers Energy—have an additional renewable energy capacity requirement of 500 and 600 MW by 2015, respectively…

Michigan’s Robust Renewable Energy Resources

Michigan has vast in-state renewable energy resources, enough to generate annually several times the state’s total 2012 electricity demand (Table 1). Not all of Michigan’s renewable energy potential can or should be tapped due to conflicting land use needs, cost considerations, transmission constraints, and other hurdles, but the magnitude of the resource gives the state a high degree of latitude in selecting the optimal technologies and locations for development. Even after accounting for these constraints, Michigan has a strong and diverse pool of renewable energy resources to support the state’s continued transition to a clean energy future…Onshore wind…Solar…Bioenergy…Offshore Wind…

click to enlarge

Renewable Energy’s Role in an Affordable, Clean, and Reliable Energy Future

A commitment to greater investments in renewable energy, particularly when paired with strong energy efficiency programs (see the box, p. 8), will help put Michigan on a path toward achieving each of Governor Snyder’s goals for the state’s electricity sector: affordability, reliability, protection of the environment, and adaptability…

Results of the Modeling

In brief, our analysis comparing the three scenarios fi nds that Michigan can aff ordably strengthen its investment in renewable energy and that doing so creates a more diverse electricity portfolio for Michigan. We fi nd that a longer-term, more ambitious policy maximizes the benefi ts to Michiganders. Meeting a 32.5 percent-by-2030 RES requirement increases the economic benefi ts of renewable energy investments in Michigan and reduces power-sector CO2 emissions more substantially than the other cases modeled, and these benefi ts accrue to Michigan with little to no increase in average retail electricity prices…

click to enlarge

Recommendations

Michigan’s electricity demand can be met in a variety of ways over the coming decades, and we support the governor’s process and his goals of increasing affordability, reliability, protection of the environment, and adaptability. The view that Michigan’s energy future should include an extended and strengthened commitment to renewable energy resources has support from several quarters: information provided through the governor’s process, our modeling analysis, and the state’s real-world experience of successfully meeting Michigan’s current RES policy.

Governor Snyder and the Michigan legislature should be working in 2014 toward an extended and strengthened commitment to renewable energy resources and should pass an RES policy for Michigan that includes achieving at least 30 percent renewable energy by 2030. Delaying legislative action only means delaying a cleaner, more reliable, more economically beneficial energy future for Michigan. Enacting a more modest, shorter-term standard delivers fewer benefits at similar or even higher costs for consumers. Based on our analysis and the information available to date, we recommend the following:

1. An extended, strengthened ReS. Governor Snyder and the Michigan legislature should pass in 2014 an extension of and a strengthening of Michigan’s current RES, requiring Michigan utilities to achieve at least 30 percent renewable energy by 2030.

2. long-term power purchase agreements. Governor Snyder and the Michigan legislature should enact policies that will encourage or require utilities’ signing of long- term power purchase agreements to lock in low prices for renewable electricity for 20 years or more. This will ensure more affordable electricity for consumers over the long term and help protect against volatility in fossil fuel prices.

3. A strong commitment to energy efficiency. Michigan’s energy efficiency resource standard should be increased, requiring utilities to reduce electricity demand by 2 percent each year—ramping up from the current standard of 1 percent annually to 2 percent annually by 2020 and each year thereafter. Aggressively developing Michigan’s energy efficiency resource will hasten the state’s transition to a clean energy economy and make the transition even more affordable.

4. the adoption of supporting clean energy policies. To ensure a successful transition to a sustainable energy infrastructure, Michigan should also boost state incentives for clean energy, adopt stronger energy efficiency codes for buildings, and implement efficient and transparent processes for planning, siting, and approving clean energy projects.

5. the establishment of a comprehensive, long-term energy resource planning process for Michigan’s utilities. The Michigan legislature should instruct the MPSC to establish an ongoing, transparent, and comprehensive planning process for Michigan’s utilities that includes a robust cost/benefit analysis of all available options—including renewable energy and energy efficiency—for meeting the state’s electricity needs. Any decisions on electricity sector investments, particularly those that would extend the lifetime of Michigan’s aging coal plants, should be considered in the context of a comprehensive strategy that meets electricity demand over the long term and minimizes the costs and risks to Michigan’s residents and businesses.

click to enlarge

In the last several years, Michigan has built strong momentum in its transition toward a clean energy economy. The state’s current RES has been a success, cost-effectively driving new renewable energy development and providing important economic, public health, and environmental benefits in the process. Absent further action, however, this momentum will stall. Michigan’s vast renewable energy resources would remain largely untapped, and the state would find itself increasingly vulnerable to the many risks associated with an overreliance on coal and natural gas. Michigan has the resources, technologies, skills, and experience needed to be a national leader in renewable energy. With thoughtful and determined political leadership, Michigan can maintain a reliable power supply, ensure affordable electricity for its residents and businesses, and maximize the economic returns and the public health and environmental benefits that a clean energy future brings.

Tweet