Mixed rate impact from MN renewable standard

In May, we surveyed a handful of electric utilities to ask how complying with Minnesota’s renewable portfolio standard was affecting their costs and rates.

For the most part, what we heard was that these utilities would be adding wind power capacity regardless of Minnesota’s renewable mandate because it’s economical and a good hedge against natural gas price volatility. There were outliers, though, namely Minnkota Power Cooperative, whose aggressive purchase of long-term wind contracts had resulted in a surcharge to customers.

At the time, the Minnesota Chamber of Commerce was lobbying for legislation that would require regular reporting from utilities on how much it was costing their customers to comply with Minnesota’s renewable standard, which calls for 25 percent of electricity to come from renewable sources by 2025. The bill was signed into law later in May with little opposition, because both critics and supporters of the state’s renewable standard believed the data would be in their favor.

We’ve just had a chance to review the first round of reporting generated by that legislation. The reports were due Friday and can be viewed in the Minnesota Public Utilities Commission’s edocket filing system (Search for docket #11-852).

Of the fourteen utilities that submitted reports, eight said that complying with the renewable standard has resulted in little or no additional costs, if not a slight savings for customers. Six utilities, including Minnkota and Great River Energy, reported that their efforts to comply with the policy are leading to increased costs for customers.

On one end of the spectrum, Minnkota reported that the cost of complying with the renewable standard resulted in a nearly 16 percent increase in its average wholesale power rate in 2010, which was $53.31 per megawatt hour instead of the $46.03 it said it would have been without the Minnesota law.

On the other end, Xcel Energy reported that its renewable investments have been cost-effective and actually kept prices in 2008-2009 about 0.7 percent lower than they would have been without renewables.

The impact doesn’t seem to split based on utility type or size. For example, the Central Minnesota Municipal Power Agency, a wholesale and transmission company, reports that between 2005 and 2011 it expects renewables to cost the same or carry just a slight premium — no more than 1 percent.

Meanwhile, the Southern Minnesota Municipal Power Agency reports “significant losses” related to renewables. It says it’s been spending between $10 million and $11 million more per year, which equals about 5 percent of the agency’s annual revenue, it reports.

Basin Electric, a Touchstone Energy Cooperative in Bismarck, N.D., with customers in Minnesota, says bluntly that the renewable standard has had “no impact” on rates. “Basin Electric has developed renewable resources which it believes are valuable and economical assets,” its report says. Meanwhile, Dairyland Power, a Touchstone co-op in La Crosse, Wisc., says renewable generation has driven up its wholesale rates an average of 6.6 percent.

Among larger, regional utilities, Great River Energy reported that, like Minnkota, it too is selling wind energy to the grid at a loss because of a long-term purchase agreement. It attributes those losses as a cost of complying with Minnesota’s law and says they contributed to a $22 million expense to members in 2010. Meanwhile, Minnesota Power says the state’s “exceptional access to high quality wind resources” means renewables are not inevitably more expensive.

“Minnesota Power firmly believes that renewable expansion plans prompted by the 2007 Act have had a positive impact on its retail energy supply portfolio,” the company writes. “[T]he implementation of the RES coupled with Minnesota Power’s renewable strategy is not expected to create any additional cost increase.”

Xcel Energy projects that complying with the renewable standard will lead to slightly higher rates in the long term. Its report says customers will pay approximately 1.4 percent more for energy over the next 15 years as a result of meeting the renewable goals. But that forecast is just that: a forecast. The actual cost of ramping up renewables — and how they compare to other power sources — will depend on a slew of variables, including energy demand, natural gas prices, federal subsidies and the terms and timing of utilities’ investments and contracts.

Photo by Olivander via Creative Commons

4 thoughts on “Mixed rate impact from MN renewable standard

  1. This is quite an interesting report. Although, I imagine that the results from state to state will vary substantially and drawing any conclusions would be difficult.

  2. You’re right. Shortly after our March article came out, Doug Allen wrote a piece explaining that impacts are likely to be lower in the Midwest in part because of abundant wind resources.
    There’s no disputing that an RPS has the potential to increase utility rates. But what Minnesota’s experience shows so far is that it’s not a foregone conclusion – utilities can take steps to minimize this impact as they integrate renewable sources into their portfolios.
    We’re planning on looking more deeply at this over the next few weeks.

  3. Iowa Case Study – wind energy helps keep electric rates low and creates jobs

    From 2006 to 2011 May, Iowa’s overall electric rate rose just 4% while it rose 9% in the total US. Since 2006, wind’s share of Iowa electric generation increased from 5% to 21% (YTD). Wind accounted for 25% of Iowa’s net electric generation in May alone. Iowa has strong RPS, 25% by 2025. According to a recent poll by pollster Neil Newhouse, 81% percent of Iowa voters believe that the growth of the wind industry has been good for the state’s economy. Furthermore, Iowa voters chose wind, by a 3-to-1 margin, as their preferred energy source to power their state. Over 200 wind-related businesses now operate in 56 Iowa counties, adding over $5 billion to the Iowa economy. In 2010 alone, wind farm owners paid $16.5 million in property taxes. The wind industry alone supports 2,667 manufacturing and operation/maintenance jobs. http://www.nawindpower.com/naw/e107_plugins/content/content.php?content.8385