SB 168: Allows State Agencies to Open Facilities for the Generation of Electricity

February 12, 2009 0

Testimony for Senate Bill 168
Senate Environment and Natural Resources Committee
Todd Wynn
February 12, 2009

Senate Bill 168 allows state agencies to construct and operate facilities for the generation of electricity and allows certain agencies to purchase renewable energy certificates.

Although seemingly harmless, this bill has vast implications and could significantly increase the cost of energy for state agencies.

Background

In 2005, Governor Kulongoski initiated the Renewable Energy Action Plan, which established a goal of 25% of the state government’s total electricity needs being met by “new” (new is classified as post-1999) renewable energy sources by 2010 and 100% by 2025.

In 2007, Governor Kulongoski stepped the goal up by directing state agencies to meet their electrical needs with 100% renewable resources by 2010 instead of 2025.

These goals have created an obviously difficult position for government agencies. In order to reach the goals, renewable energy certificates would need to be purchased to “offset” the non-renewable energy that the agencies use; or the agencies would need to produce their own renewable power in the form of solar panels, wind turbines, or other “acceptable” forms of renewable energy. These options happen to be prohibitively expensive and thus are quite difficult to implement.

The definition of “renewable” is also quite a problem for meeting the 100% renewable energy goals. “Renewable,” pursuant to Senate Bill 838, excludes major sources that most would define as renewable: large-scale hydro projects, pre-1995 biomass facilities, and, specifically for this goal, any renewable energy form built before 1999. Using a more realistic definition of the “renewable” term would reduce the challenge considerably.

The motivation behind part of this bill is to allow state agencies to purchase renewable energy certificates in order to reach these mandated goals. The perfect example is the City of Portland, which has a comparable goal. In 2001, the City of Portland committed to buying all of its municipal electricity from carbon-free sources by 2010. As of 2009, they are up to 9%, and they will not come close to meeting the goal without purchasing renewable energy certificates (REC)[1].

The second part of this bill allows state agencies to build and operate their own generation facilities. A perfect example of this would be the Oregon Department of Transportation’s (ODOT) solar highway project on the northwest corner of the Intersection of I-5 and I-205. Given the constitutional limits on allowable uses of the Highway Fund, ODOT had a hard time gaining the incentives and the financing to make the project a reality. To make it work, ODOT used a joint venture with PGE, U.S. Bank, and the Energy Trust as a loophole to gain access to the business energy tax credit, the federal incentives, and public purpose tax funds. SB 168 would allow state agencies like ODOT to use highway funds to install and operate solar panels in order to help reach the 100% renewable energy goal by 2010.

Problems

Costs of Purchasing Renewable Energy Certificates

Allowing state agencies to purchase renewable energy certificates to meet their 100% renewable energy goals will be extremely expensive and waste enormous amounts of taxpayer dollars on certificates that simply represent the “environmental attributes” of renewable energy. The local non-profit Bonneville Environmental Foundation sells RECs ranging in prices of $20 to $35, depending on the energy source.

The City of Portland uses 140 million kilowatt-hours (kWh) of electricity in a year; 12.6 million kWh of this is from renewable energy. In order to make the remaining 127.4 million kWh renewable by purchasing RECS, the City of Portland would have to spend anywhere between  $2.5 million (REC price of $20 per 1000 kWh) and $4.5 million (REC price of $35 per 1000 kWh) annually.

State government agencies use approximately 400 million kWh of electricity annually[2]. If RECs were purchased to meet the 100% renewable energy goal, the Oregon government would have to pay anywhere between $8 million (REC price of $20 per 1000 kWh) and $14 million (REC price of $35 per 1000 kWh) per year. If annual total electricity costs are assumed to be approximately $24 million (400 million kWh at 6 cents per kWh), then an increase of $8 or $14 million represents a 33% or 58% increase respectively in electricity costs for state agencies.


Costs of Generating Renewable Energy

Instead of purchasing RECs, the other available option to meet the 100% renewable energy goal is for state agencies to construct and operate their own renewable energy facilities. Using the ODOT solar highway as the example for state generated electricity, the costs of renewable energy generation on the state would be substantial. The full costs of constructing and operating renewable power for state agencies also involve tax credits given to renewable energy generation, as this is a decline in state revenues that would have been available for state purposes such as electricity costs.

The ODOT 104 kW solar photovoltaic highway project total cost is estimated at approximately $1.3 million dollars and will produce 112,000 kWh annually[3]. The estimated lifetime of this system is 20 years. This means the full cost of energy generation is approximately $65,000 a year for 20 years, and the full per kWh cost is 58 cents ($65,000/112,000 kWh). Portland General Electric currently charges ODOT approximately 6 cents a kWh for its energy usage, which means that by using renewable power, the state government could be paying almost ten times as much for energy. In order for all state agencies to reach 100% renewable energy at a full cost rate of 58 cents per kWh, the state would be paying $208 million dollars more annually than what it currently pays.

To be fair, the solar highway project is obviously a high-cost alternative energy project; yet even assuming that solar power costs 20 cents per kWh[4], the state would still have to spend $56 million more per year for electricity, which is over three times higher than current electricity costs.

No matter how the state reaches the 100% renewable energy mandates, the total electricity cost for state agencies will increase significantly with virtually no benefits to taxpayers. SB 168 allows state agencies to use tax dollars to pay for expensive RECs and operate/construct renewable energy generation that could cost taxpayers up to $208 million dollars more annually. A cost increase of this magnitude would mean that other government programs would lack funding or there would need to be a large increase in tax revenue on already economically burdened Oregonians. We should not allow the governor to “buy” his way out of the self-imposed dilemma at taxpayer expense. The solution is to repeal the executive order and just admit it was a bad idea to start with.


[1] Email from David Tooze, Senior Energy Specialist at City of Portland, January 9, 2009.

[2] Oregon Renewable Action Plan. 2005. Oregon Department of Energy. Available at <http://www.oregon.gov/ENERGY/RENEW/docs/FinalREAP.pdf>

[3] Oregon Department of Transportation. Solar Highway Project Fact Sheet. Available at <http://www.oregon.gov/ODOT/HWY/OIPP/docs/solar_factsheet.pdf>

[4] Photovoltaic Industry Statistics: Costs. Available at < http://www.solarbuzz.com/StatsCosts.htm>

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