ASSESSING THE CONSUMER IMPACTS OF VARIOUS OHIO RENEWABLE POLICY OPTIONS

In collaboration with

American Wind Energy Association1501 M St. NW, Suite 1000Washington, DC 20005http://www.awea.org

Reviewed by

Institute for Energy Economics and Financial Analysis Cathy Kunkel, Energy Analyst 3430 Rocky River DriveCleveland, OH 44111http://ieefa.org/

A Renewable AmericaWind Energy Foundation1501 M Street NW, Suite 900Washington, DC 20005202-552-8105http://arenewableamerica.org/info@ARenewableAmerica.org

ASSESSING THE CONSUMER IMPACTS OF VARIOUS OHIO RENEWABLE POLICY OPTIONS

May 2016

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This report assesses a range of solutions Ohio could use to return to workable renewable energy policies. The results show that moving quickly to reinstate the Alternative Energy Portfolio Standard (AEPS) and to fix the unduly restrictive wind turbine setback policy will save Ohio businesses and homeowners billions of dollars.

Due to technology improvements, wind and solar energy have achieved 60% and 80% cost declines since 2009.1 As a result, numerous analysts have confirmed that wind power is among the lowest cost electricity generation options.2 Locking down these cost savings now is a key priority for utilities, Fortune 500 companies and other electricity purchasers, especially given that federal tax credits for renewable energy will begin phasing down in the next several years.

Last December, Congress passed an extension of the Production Tax Credit (PTC), which is used by wind energy developers, and Investment Tax Credit (ITC), used by solar developers. Wind projects that begin construction by the end of 2016 qualify for the full value of the PTC, projects that begin construction in 2017 qualify for 80% of the full value of the PTC, 2018 projects get 60% of the full value, and 2019 projects receive 40% of the full value. As a result, time is of the essence for utilities, corporations, and others to be able to lock in low-price renewable energy for their customers.

By reinstating the AEPS and reforming the wind turbine setback policy as soon as possible, Ohio policy makers would maximize savings for Ohio ratepayers and send a signal that the state recognizes the increasing corporate demand for clean, affordable renewable energy.

EXECUTIVE SUMMARY

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In the spring of 2008, Ohio adopted a broad restructuring of the state’s electric industry with a bill that passed Ohio General Assembly by a 132-1 margin.3 Most relevant to this study, the bill required the state’s utilities to purchase advanced energy and renewable energy generation, and provide a growing percentage of their annual retail electricity supply from renewable and solar generation sources, with a requirement that 25% of their annual retail electricity supply come from alternative energy by 2025.4 Half that standard was to be met with “any new, retrofitted, refueled, or repowered generating facility located in Ohio,” including fossil fuels, with the other half provided by true renewable resources, making the renewables portion of the standard 12.5% renewables by 2025.5

In June 2014, Ohio became the first state to freeze its renewable energy standard when Senate Bill 310 was signed into law.6 As a result, the renewable schedule was delayed by two years, with renewable

generation frozen at 2.5% for 2015 and 2016, while the solar requirement was frozen at .12%.7 The Solar Alternative Compliance Payment schedule was similarly frozen at 2014 levels, with both to resume in 2017.8 This bill also allowed utilities to fully meet the requirements with out-of-state resources by removing the previous requirement for utilities to meet half of the standards from facilities within Ohio.9

House Bill 483 was signed into law a few days later, containing revisions to the state’s setback requirements for new and already permitted wind projects.10 For any new commercial wind farms, HB 483 requires a setback of 1,125 feet from the tip of a turbine’s blades to the nearest property line.11 In practice, that will require setbacks of about 1,300 feet from each turbine’s base. This distance makes the Ohio setback law the most stringent in the country, and as a result, the future development of utility-scale wind projects in the state seems highly unlikely.

LEGISLATIVE HISTORY OF THE OHIO AEPS AND WIND SETBACK REQUIREMENT

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This study assesses the impact of various renewable policy changes on the cost of electricity for Ohio consumers, and various timing options for implementing those changes. The study compares the cost of wind energy against conventional energy sources and calculates the savings wind energy can provide to consumers under various policy scenarios. Data on the cost of all energy sources is taken from a single comprehensive dataset complied by a U.S. Department of Energy’s National Renewable Energy Laboratory,12 as described in more detail in Appendix A.

More than 6,500 MW of coal power plants have retired in Ohio over the past five years, equal to 14 million megawatt hours (MWh) or about 9% of the state’s electricity demand. Chart 1 below shows the savings from fixing the AEPS and wind setback policies versus building new fossil generation. Fixing Ohio’s setback policy will allow utilities and other purchasers to go to the market and lock-in wind energy at record low prices. The setback policy currently serves as an impediment to a free market, preventing utilities from contracting with in-state wind projects offering low-cost energy.

POLICY SCENARIOS

CHART 1: SAVINGS TO CONSUMERS FROM VARIOUS AEPS AND SETBACK POLICY SCENARIOS This chart shows the savings of those policies compared with the new fossil generation Ohio is likely to deploy in the absence of building renewable energy, based on the new fossil generation that has been proposed for Ohio.

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A primary finding of this analysis is that moving quickly to implement new renewable policies greatly benefits Ohio consumers. Extending the RPS freeze and unworkable setback policy for two additional years would cause Ohio utilities to miss the opportunity to procure wind resources from wind projects that will receive the full value federal PTC. As listed in the Chart 2, this analysis finds that waiting two years will cause the price of wind contracts available to Ohio utilities to increase from around $43/MWh to over $61/MWh, as wind projects taking steps to qualify for the PTC in 2018 will only be eligible for 60% of the original value of the PTC.

As also shown in Chart 2, waiting two years to implement policy fixes results in far smaller benefits to Ohio consumers than acting now. For example, just a two-year delay in lifting the AEPS freeze and reforming the setback policy would cost Ohio consumers $2.7 billion.

OHIO CONSUMERS SEE THE GREATEST BENEFITS IF POLICY FIXES ARE MADE IN 2016

CHART 2: NET CONSUMER SAVINGS FROM ACTING IN 2016 VERSUS ACTING IN 2018

Net

sav

ings

from

act

ing

now

ver

sus

in 2

018

($)

Savi

ngs

per

Resi

dent

ial C

usto

mer

($)

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Ohio’s wind turbine setback policy also harms rural economic development opportunities. Across the country, wind plants are providing a critical new income stream to farmers and ranchers, jobs for wind energy technicians, and tax payments for essential services such as roads, police, fire departments, and schools. Nationwide, wind projects pay $222 million to private landowners through land lease payments each year.

Wind farms in Van Wert and Paulding Counties have already paid approximately $16 million in tax payments to date, directly benefitting local schools. By impeding the development of the 11 wind projects already permitted and approved by the Ohio Power Siting Board, the wind setback rule is causing the state to lose out on an estimated $11.7 million in new annual tax revenue for its rural communities.13

The setback policy and AEPS freeze are also making Ohio less attractive to businesses interested in creating jobs in the state. In July 2015, Facebook decided to build its new $1 billion data center in Fort Worth, Texas over a potential location in Columbus, citing access to wind power as one of the reasons for its final decision.14 The company subsequently signed an agreement to power the facility with a nearby wind project.15

CURRENT WIND SETBACK RULE DEPRIVES OHIO OF RURAL ECONOMIC DEVELOPMENT OPPORTUNITIES

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WALL STREET MARKET DATA SHOW WIND IS THE AMONG THE LOWEST-COST SOURCES OF ENERGY EVEN WITHOUT TAX CREDITS16

As mentioned earlier, the cost of wind energy has declined dramatically in recent years. Providing further validation of the national laboratory cost dataset used as the basis of this analysis, the following charts taken directly from third-party data sources confirm that wind energy is now among the lowest-cost source of new generation.

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WITH TAX CREDITS, WIND IS BY FAR THE LOWEST-COST SOURCE OF ENERGY17

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MARKET DATA COLLECTED BY LAWRENCE BERKELEY NATIONAL LAB CONFIRMS WIND IS OFTEN THE LOWEST-PRICED RESOURCE18

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The National Renewable Energy Laboratory’s (NREL’s) Annual Technology Baseline19 provides detailed bottom-up data on the cost of all energy

sources, including regional information on wind cost and performance. Tiered Resource Group 4 best represents the wind resources available

for development in Ohio.20 A report by Lawrence Berkeley National Laboratory21 quantifies the value provided by the PTC as it declines in value,

taking into account the tax liability status of different types of wind project owners. The table below shows the price of wind after accounting for

different values of the PTC.

The results in the table conservatively assume the wind project owner is using third-party tax equity markets to realize the value of the PTC. This

ownership structure accounts for the majority of wind project development in the U.S., which is done by private developers who in many cases

currently lack sufficient tax liability to fully use the PTC directly. Some wind project owners, such as utilities, may have greater in-house access to

tax liability and therefore can use the PTC directly, which would result in an even lower price for wind.

Wind generation is assumed to be deployed as soon as possible to maximize the value of the federal tax

credits. To the extent wind energy is deployed in advance of the renewable requirement under an AEPS,

it is assumed that the renewable credits for that generation would be sold out of state in the interim,

with the in-state purchases ramping up in tandem with the renewable standard. To be conservative,

revenue from the out-of-state sale of those credits is not factored into the cost calculation. Rather,

Ohio utilities are simply assumed to have access to wind resources at the levelized cost as shown in the

Annual Technology Baseline dataset.

The wind costs in NREL’s dataset are consistent with market results seen for wind purchase agreements

signed in Ohio. For example, the largest wind project in Ohio, Blue Creek, signed PPA agreements with

different purchasers at rates of $34/MWh, $46.50/MWh, and $54.49/MWh, prices that incorporate the

benefit of the Section 1603 30% cash grant in lieu of the PTC. That wind project was placed in service in

2012, so if anything it is likely to be a conservative estimate of current pricing available from new Ohio

wind projects, given continued wind technology improvements.

The primary cost comparison in this study is between wind generation and new fossil generation. In

Ohio and nationwide, natural gas combined cycle generation has accounted for the vast majority of new

fossil generation added to the grid in recent years and planned for future additions, so the cost profile of

new gas combined cycle generation is used to represent new fossil generation in this study. The levelized

cost of natural gas combined cycle generation over time is also taken from NREL’s Annual Technology

Baseline mid cost case, as shown below. Because levelized cost is not a perfect representation of the

value provided by a resource, $7/MWh22 is subtracted from the cost of gas generation to account for the

greater capacity value and dispatchability provided by gas generation relative to wind generation. After

this adjustment, the levelized cost of wind and gas generation can be compared on an equal footing.

APPENDIX A: ASSUMPTIONS

Wind Price Case $/MWhWind mid cost case, TRG 4, 2018, no PTC $65.94

Wind start construction 2018 with 60% value PTC $61.44

Wind start construction 2017 with 80% value PTC $56.44

Wind start construction 2016 with full value PTC $43.44

Year Gas CC $/MWh

2017 $60.40

2018 $62.58

2019 $63.20

2020 $62.24

2021 $63.19

2022 $63.37

2023 $64.02

2024 $65.16

2025 $65.86

2026 $66.07

2027 $66.59

2028 $67.32

2029 $68.64

2030 $70.20

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TABLE 1: Savings to Consumers from Various AEPS and Setback Policy Scenarios

TABLE 2: Additional Net Consumer Savings from Acting in 2016 Versus Acting in 2018

APPENDIX B: DATA FROM SCENARIOS

Policy savings, relative to cost of new fossil generation

Cumulative net savings

through 2030

Cumulative savings per

residential customerLift AEPS freeze, return to 12.5% by 2027

RPS and fix setback policy in 2016$3.379 billion $236

Move to 10% by 2027 RPS and fix setback policy in 2016

$2.300 billion $160

Policy Scenario

Additional cumulative net savings through 2030 from acting

now versus in 2018

Additional cumulative net savings through

2030 from acting now versus in 2018

Lift AEPS freeze, return to 12.5% by 2027 RPS and fix setback policy

$2.691 billion $188

Move to 10% by 2027 RPS and fix setback policy

$1.809 billion $126

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While the main point of comparison in this study is the cost of wind relative to the cost of new fossil generation, one could also compare the cost

of purchasing wind energy relative to the cost of recently approved out-of-market contracts with First Energy for existing coal-fired power and

nuclear energy. These recent coal and nuclear Power Purchase Agreements (PPAs) were estimated to have an average price of $68/MWh with a

3% annual escalation through 2024.23 The table below shows the net consumer savings of various wind purchases relative to the price paid for

the First Energy PPA with existing coal and nuclear generators, illustrating that wind energy is not only competitive against new fossil generation,

but also existing generation alternatives.24

For both comparisons, the prices of wind and competing generation were compared on a per-MWh basis. To capture the total consumer impact,

the per-MWh price difference was then multiplied by the Department of Energy’s projection for future Ohio electricity demand and the proposed

renewable standard in each year, subtracting the current 2.5% renewable requirement to only capture incremental renewable deployment.25

The renewable standard was assumed to scale up on a linear basis to achieve the final year target. The bill impact per residential customer was

calculated from the total savings result based on DOE data showing Ohio residential customers consumed 10.5 MWh per year on average in the

most recent year for which data is available.

APPENDIX C: COMPARISON OF WIND POWER RELATIVE TO FIRST ENERGY POWER PURCHASE AGREEMENT

Policy savings, relative to First Energy PPA price

Cumulative net savings by 2030

Cumulative savings per residential customer

Lift AEPS freeze and fix setback policy in 2016

$4.324 billion $302

Move to 10% by 2027 RPS and fix setback policy in 2016

$2.872 billion $200

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ENDNOTES

1 Levelized Cost of Energy Analysis 9.0, Lazard (Nov. 17, 2015), https://www.lazard.com/perspective/levelized-cost-of-energy-analysis-90/.

2 Id.; see also, 2014 Wind Technologies Market Report, U.S. Department of Energy (Aug. 2015), https://emp.lbl.gov/sites/all/files/lbnl-188167.pdf.

3 Unofficial Votes for Senate Bill 221, Ohio General Assembly Archives, http://archives.legislature.state.oh.us/votes.cfm?ID=127_SB_221, (last visited May 4, 2016); see also, Senate Bill 221, Ohio General Assembly Archives, http://archives.legislature.state.oh.us/bills.cfm?ID=127_SB_221, (last visited May 4, 2016).

4 Id.

5 Id.

6 Alternative Energy Portfolio Standard, Database of State Incentives for Renewables & Efficiency, (July 24, 2014), http://programs.dsireusa.org/system/program/detail/2934.

7 Id.

8 Id.

9 Id.

10 Matt Sanctis, Wind power backers, opponents gear up for long fight over energy laws, Dayton Daily News, (July 12, 2014), http://www.daytondailynews.com/news/news/local-govt-politics/wind-power-backers-opponents-gear-up-for-long-figh/ngdhD/.

11 49 Ohio Rev. Code. § 4906.20 (2014), available at http://codes.ohio.gov/orc/4906.20.

12 Energy Analysis: Annual Technology Baseline and Standard Scenarios, National Renewable Energy Laboratory, http://www.nrel.gov/analysis/data_tech_baseline.html (last visited Apr. 25, 2016).

13 Wind Power Cases, OHIO POWER SITING BOARD, http://www.opsb.ohio.gov/opsb/?LinkServID=895FE98C-C363-FCF9-6BFDC7DF3A3F7AA2 (last visited May 10, 2016).

14 Candice Carlisle, Massive wind farm to power Facebook’s $1B data center campus in Fort Worth, Dallas Business Journal (Jul. 7, 2015), http://www.bizjournals.com/dallas/news/2015/07/07/massive-wind-farm-to-power-facebooks-1b-data.html.

15 Id.16 Id.

17 U.S. Department of Energy, supra note 2.

18 National Renewable Energy Laboratory, supra note 3.

19 Appendices: Wind Vision a New Era for Wind Power, U.S. Department of Energy, at 84, http://www.energy.gov/sites/prod/files/wv_appendix_final.pdf.

20 Mark Bolinger, An Analysis of the Costs, Benefits, and Implications of Different Approaches to Capturing the Value of Renewable Energy Tax Incentives, Ernest Orlando Lawrence Berkley National Laboratory (May 2014), at 26, http://eetd.lbl.gov/sites/all/files/lbnl-6610e_0.pdf.

21 Annual Energy Outlook 2015: Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2015, U.S. Energy Information Administration (June 3, 2015) (The $7/MWh difference between the value provided by gas generation versus wind generation), https://www.eia.gov/forecasts/aeo/electricity_generation.cfm; see also Assessing the Economic Value of New Utility-Scale Electricity Generation Projects, U.S. Energy Information Administration (July 2013) (earlier work also calculating $7/MWh as the difference in value for the Great Lakes region, including Ohio), http://www.eia.gov/renewable/workshop/gencosts/pdf/lace-lcoe_070213.pdf.

22 FirstEnergy Corp.: At the Goal Line In Columbus, UBS, (December 2, 2015), https://neo.ubs.com/shared/d1BeleBHwm/.

23 FirstEnergy Corp.: At the Goal Line In Columbus, UBS, (December 2, 2015), https://neo.ubs.com/shared/d1BeleBHwm/.

24 Because the First Energy PPAs only run through 2024, it is assumed that gas generation is used for 2025-2030, as it was in the main analysis presented earlier in this report.

25 Ohio 2015 electricity demand was projected forward using DOE electricity demand growth projections for the region that includes Ohio, available at http://www.eia.gov/forecasts/aeo/data/browser/#/?id=62-AEO2015&region=3-11&cases=ref2015&start=2012&end=2040&f=A&linechart=ref2015-d021915a.14-62-AEO2015.3-11~ref2015-d021915a.67-62-AEO2015.3-11&map=ref2015-d021915a.14-62-AEO2015.3-11&ctype=linechart&sourcekey=0