Investing in our Future How Renewable Energy Will Help to Stabilize

Electricity Rates and Stimulate Ohio‟s Economy

Environment Ohio Research & Policy Center

Written by:

Brandon Cavanagh, Environment Ohio Research & Policy Center

April 2008

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Acknowledgements The authors wish to thank Larry Flowers of the National Renewable Energy Laboratory for granting permission to use slides from the U.S. Department of Energy‟s “Wind Powering America Update.” Environment Ohio Research & Policy Center bears responsibility for any factual errors. The recommendations are those of Environment Ohio Research & Policy Center. The views expressed in this report are those of the authors and do not necessarily reflect the views of those who provided editorial review or the funders of Environment Ohio Research & Policy Center. Copyright 2008 Environment Ohio Research & Policy Center Environment Ohio Research & Policy Center is a 501(c)(3) organization. It is dedicated to protecting Ohio‟s air, water, and open spaces. It investigates problems; crafts solutions; educates the public and decision-makers; and helps Ohioans make their voices heard in local, state, and national debates over the quality of the environment and people‟s lives. For more information about Environment Ohio Research & Policy Center or for additional copies of this report, please visit www.environmentohio.org.

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Table of Contents

Executive Summary 5

Introduction 9

The Real Costs of Renewable Energy 10 Relative Costs of Electricity Generation Technologies 10 The Effects of a Federal Carbon Policy on Electricity Rates 12 The Hidden Costs 13

Renewable Energy is the Answer 15 Texas: Case Study 15

Determining the Effects of an Ohio RES: Pennsylvania as a Model 17 Effects of an AEPS on Electricity Prices 17 Effects of an AEPS on Employment and Generation from Fossil Fuels 18

The Effects of an RES in Ohio 19 Renewable Energy Credits and the Effects of an RES on Electricity Rates 19 Economic Benefits of an Ohio RES 20 The Multiplier Effect 20

Conclusion and Recommendations 21 References 22 Notes 22

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Executive Summary The Public Utilities Commission of Ohio projects that the state‟s demand for energy will increase by about one percent per year through 2020. According to the Energy Information Administration, world energy consumption could increase up to 57 percent from 2004 to 2030.1 Increased demand for energy has already begun to affect the demand for coal, and thus the prices of coal. Ohio generates 87 percent of its electricity from coal, the majority of which is imported. That leaves the state highly vulnerable in the presence of rising coal and oil prices. A federal cap on carbon is increasingly likely and would lead to a dramatic increase in the cost of electricity generated from coal. Because Ohio is the 4th largest emitter of carbon dioxide in the U.S., any energy policy under consideration for the state of Ohio should compare and contrast the future costs of energy resources in order to promote the least cost option and thereby protect residential, commercial, and industrial electricity users.2 Although Ohio is currently vulnerable to rampant increases in electricity rates due to the state‟s heavy dependence on imported coal and looming carbon legislation, it‟s not too late to change the state‟s energy future. By diversifying its electricity mix with renewable energy, Ohio can shield itself from upward-spiraling electricity costs and simultaneously improve public health and spur economic growth; a renewable energy standard (RES) would not only reduce pollution, but it would also create thousands of new jobs, increase the incomes of rural landowners by $ millions, generate tax revenue for school districts, and add $ billions to the Gross State Product (GSP). Coal prices are going up. • According to a recent article by the Washington Post, “world consumption of coal has grown

30 percent in the past six years,” driving “international spot prices of coal up by 50 percent or more in the past five months, surpassing the escalation in oil prices…if high prices last, that would raise the cost of U.S. electricity, half of which is generated by coal-fired powered plants.”3 • According to a recent article by the New York Times, “spot prices for two benchmark American

grades of coal, from central Appalachia and the Powder River Basin of Wyoming…(are) up 93 percent and 64 percent, respectively, in the last year…„Watch out, consumer,‟ said David M. Khani, a coal analyst at Friedman, Billings, Ramsey Group. „You‟re probably going to see accelerating electricity prices in 2009, 2010, and 2011‟…Already, there are some signs of rising prices. Appalachian Power and Wheeling Power, both American Electric Power subsidiaries, on Feb. 29 filed papers seeking approval in West Virginia for a 17 percent increase in revenues, mainly to pay for costlier coal. If the request is approved, a residential customer using 1,000 kilowatt hours a month would see his bill increase from $64.55 to $73.94, starting in July.”4

Investing in renewable energy will reduce Ohio’s exposure to increasing and volatile fuel prices. • The cost of generation from renewable sources is not tied to fossil fuel prices. Thus, renewable

energy can protect against volatility in the fossil fuel markets. • The “fuel” for electricity generation from wind is wind. Thus, because wind does not need to be

mined or transported, as does the fuel for other sources of electricity generation, wind power

6

removes a significant cost component and provides a hedge against increasing and volatile fossil fuel and oil prices – the price of oil recently reached $112 a barrel.

Fuel Savings From WindFuel Savings From Wind

0.0E+00

5.0E+09

1.0E+10

1.5E+10

2.0E+10

2.5E+10

3.0E+10

3.5E+10

4.0E+10

4.5E+10

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

MM

Btu

Gas Fuel Savings

Coal Fuel Savings

Gas Fuel Usage(20%wind)

Coal Fuel Usage(20%wind)

Reduction in National Gas

Consumption in 2030 (%)

Natural Gas Price Reduction

in 2030 (2006$/MMBtu)

Present Value

Benefits

(bil lion 2006$)

Levelized Benefit of

Wind ($/MWh)

11% 0.6 - 1.1- 1.5 86 - 150 - 214 16.6 - 29 - 41.6

Electricity Sector

Fuel Usage

A federal cap on carbon emissions is imminent. By investing in renewable energy, now, Ohio can hedge its exposure to the increase in electricity prices resulting from such a cap. • To prevent the most harmful effects of climate change, the world‟s leading scientists have said

that we need to reduce greenhouse gas (GHG) emissions to 80 percent below today‟s levels by 2050. • The Warner-Lieberman Bill, which is currently being considered in the Senate, would result in a cap on 80 percent of total U.S. emissions. Echoing this sentiment, President Bush recently signed into law an increase in Corporate Average Fuel Economy (CAFÉ) standards. • Ohio ranks 4th in total carbon dioxide emissions in the United States. Because renewables

would be immune to such legislation, they could help to hedge against the increase in electricity rates resulting from a cap on carbon dioxide emissions. • According to a 2006 analysis by Synapse Energy Economics, one ton of carbon dioxide

pollution will likely cost between $10 and $40 in 2010, and between $20 and $50 in 2030.5 At these prices, given Ohio‟s electricity-related carbon dioxide emissions were 145 million tons in 2005, the state‟s carbon exposure would be over $1 billion per year.6 • U.S. Department of Energy studies have shown that an RES can help lower the cost to

consumers of implementing a carbon cap and trade program.

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Various options have been proposed to reduce carbon emissions associated with electricity generation, such as renewable energy, advanced coal, and advanced nuclear. Among these options, renewable energy is the most cost-effective choice. • New generation of electricity from wind is CHEAPER than new generation from advanced coal and nuclear power. • Twenty-five states and Washington D.C. have renewable energy standards. According to a recent report by the Lawrence Berkeley National Laboratory, “The electricity rate increases associated with existing state RPS (renewable portfolio standard) policies, for those states in which such impacts are readily calculable, generally equal one percent or less so far; in several states, the renewable electricity required by these policies appears to be priced competitively with fossil generation.”7 • According to the EPA, capturing – not including transporting or storing – 90 percent of carbon

dioxide emissions from Integrated Gasification Combined Cycle (IGCC) advanced coal plants would increase the total cost of electricity by 38 percent.8 • Indiana recently approved an IGCC advanced coal plant that will result in an average electric

rate increase of about 16 percent. This rate will be phased in between 2008 and 2012.9 • According to a report by the Renewable Energy Policy Project, from 1970 to 1995, levelized costs per kWh of nuclear power increased from 4 cents/kWh to over 9 cents/kWh (in 1999 dollars). That is an increase of 125 percent. On the other hand, between 1980 and 1995, wind costs decreased from 86 cents/kWh to 6 cents/kWh. That is a decrease of about 93 percent.10

• According to the U.S. Department of Energy, since 1980, while capacity has increased, the cost of wind power has decreased nearly twenty-fold.11 • According to the U.S. Department of Energy, the best wind sites can compete in the electricity

market with traditional fossil-fuel power plants, even in terms of direct costs – when adding in the indirect costs of electricity generation, such as air and water pollution, nuclear waste removal, etc., wind is in fact the favorable option.12

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Nationally, Wind Has Been CompetitiveNationally, Wind Has Been Competitive

with Wholesale Power Prices in Recent Yearswith Wholesale Power Prices in Recent Years

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Introduction Ohio needs a new vehicle for economic growth. Economic slowdown and increasing coal and oil prices leave consumers with less to spend on other goods and services and businesses with less to re-invest, causing the economy to suffer further. Fortunately, Ohio has an opportunity to invigorate its economy by capitalizing on the increasing demand for energy by investing in renewable energy development. Because the state has a comparative advantage in this industry due to its significant supply of renewable energy resources, extensive manufacturing base, and necessary transmission and transportation infrastructure, the state will be able to capture a disproportionate share of the market.

Investing in renewable energy will stimulate Ohio‟s economy by creating new jobs, supplementing rural landowner income through lease and royalty payments, funneling additional tax revenues to school districts, and stabilizing electricity rates. This, in turn, will give residents and businesses more money to plow back into the economy, thereby creating a virtuous circle This report examines the costs of electricity generation, the impact of a carbon cap on electricity prices, the role of subsidies, and the economic benefits of renewable energy. The report also uses Texas as a case study to examine the impacts of an existing renewable energy policy. Finally, the report considers the projected effects of an Ohio RES.

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The Real Costs of Renewable Energy Relative Costs of Electricity Generation Technologies In recent years there has been an increased push to diversify the sources of electricity generation, particularly arising from an effort to curb GHG pollution and hedge exposure to GHG regulation. In addition to renewable energy resources such as wind and solar, advanced coal and nuclear options have been pursued. When considering the merits of these options, it is important to evaluate their absolute and relative costs and benefits, now and in the future. IGCC advanced coal plants turn coal into gas and then use that gas to produce electricity. Because they operate more efficiently than conventional coal plants, IGCC advanced coal plants that do not include carbon capture and storage technology can have minimal impacts on reducing carbon dioxide emissions. However, in recent years the costs of such projects has dramatically increased, making IGCC advanced coal plants less cost-effective than wind power. The rampant increases in capital costs of IGCC advanced coal projects have hurt consumers. For example, Indiana recently approved an IGCC advanced coal plant that will result in an average electric rate increase of about 16 percent. This rate will be phased in between 2008 and 2012.13 Another IGCC advanced coal project, in West Virginia, if approved, would result in an average electric rate increase of 12 percent by 2012.14 An additional problem with advanced coal is that carbon capture and storage technologies are quite immature and expensive. According to the National Coal Council, it will take another 15-25 years before said technologies can actually be utilized.15 Ohio doesn‟t have 15-25 years to wait before dealing with carbon dioxide emissions and mitigating escalating electricity prices. This technology is also very expensive. According to the EPA, capturing – not including transporting or storing – 90 percent of carbon dioxide emissions from IGCC advanced coal plants would increase the total cost of electricity by 38 percent.16 Nuclear power has also been suggested as a means to deal with greenhouse gas pollution. However, as with advanced coal, the cost of nuclear power has faced upward pressure in recent years, due in part to an increase in uranium prices, an increase in the real costs of materials, and supply chain challenges.17 According to a report by the Renewable Energy Policy Project, from 1970 to 1995, levelized costs per kWh of nuclear power increased from 4 cents/kWh to over 9 cents/kWh (in 1999 dollars). That is an increase of 125 percent. On the other hand, between 1980 and 1995, wind costs decreased from 86 cents/kWh to 6 cents/kWh. That is a decrease of about 93 percent. As this confirms, in recent years wind has in fact been competitive with wholesale power prices.18 According to the U.S. Department of Energy, since the early 1980s the cost of wind generation has decreased nearly twenty-fold, due in part to the existence of economies of scale created by larger wind projects, increases in manufacturing efficiency, and technology advances enabling greater capacity per turbine and the ability to capture wind more efficiently.19 These factors have contributed to making new generation from wind cheaper than that from new advanced coal and nuclear.

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Capacity & Cost TrendsCapacity & Cost Trends

Increased Turbine Size - R&D Advances - Manufacturing Improvements

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1980 1985 1990 1995 2000 2005

0

10

20

30

40

50

60

70

80

90

100

Ca

pa

city (

MW

)

Co

st o

f E

ne

rgy (

ce

nts

/kW

h*)

Cost of Energy and Cumulative Domestic Capacity

*Year 2000 dollars

Increased Turbine Size - R&D Advances - Manufacturing Improvements

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

1980 1985 1990 1995 2000 2005

0

10

20

30

40

50

60

70

80

90

100

Ca

pa

city (

MW

)

Co

st o

f E

ne

rgy (

ce

nts

/kW

h*)

Cost of Energy and Cumulative Domestic Capacity

*Year 2000 dollars

12

Total Overnight Cost in 2006 of New Central Station

Electricity Generating Technologies

2134 2081

1491

1206

0

500

1000

1500

2000

2500

IGCC with Carbon

Sequestration

Advanced Nuclear IGCC** Wind

20

05

$/

kW

(Source: EIA/Assumptions to the Annual Energy Outlook 2007) * “Overnight capital costs including contingency factors, excluding regional multipliers and learning effects. Interest charges are also excluded. These represent costs of new projects initiated in 2006.”

i

** “Capital costs are shown before investment tax credits are applied.”ii

Twenty-five states and Washington D.C. have renewable energy standards. According to a recent report by the Lawrence Berkeley National Laboratory, “The electricity rate increases associated with existing state RPS (renewable portfolio standard) policies, for those states in which such impacts are readily calculable, generally equal 1 percent or less so far; in several states, the renewable electricity required by these policies appears to be priced competitively with fossil generation.”20

The Effects of a Federal Carbon Policy on Electricity Rates According to a 2006 analysis by Synapse Energy Economics, one ton of carbon dioxide pollution will likely cost between $10 and $40 in 2010, and between $20 and $50 in 2030.21 At these prices, given Ohio‟s electricity-related carbon dioxide emissions were 145 million tons in 2005, the state‟s carbon exposure would be over $1 billion per year.22 Ohio must pursue ways of generating electricity that require less fuel and emit less carbon dioxide. Fortunately, there is a tested, reliable, clean, inexpensive solution to this potential problem: renewable energy. Not only does renewable energy reduce the level of carbon emissions (because renewable energy doesn‟t produce carbon emissions), but in the presence of a carbon policy, renewable energy is significantly cheaper than other sources of electricity. According to the National Renewable Energy Laboratory, if the price of carbon dioxide were $50/ton, by 2010 class 4 wind

i EIA/Assumptions to the Annual Energy Outlook 2007, pg. 77 ii Ibid.

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would be about 40 percent cheaper than IGCC advanced coal. Class 6 wind would be about 50 percent cheaper than IGCC advanced coal.23

COCO22 prices significantly prices significantly

increase the cost of coalincrease the cost of coal

Levelized Cost of Electricity (2010) vs. CO2 Price

50

60

70

80

90

100

110

120

130

140

0 10 20 30 40 50

Carbon Price ($/ton CO2)

20

06

$/M

Wh

Coal PC

Coal IGCC

Coal IGCC w/CCS

Gas CC

Nuclear

Wind Class 6

Wind Class 4

Wind Offshore Class 6

Source: UCS/Black & Veatch

X-axis: “Carbon Price ($/ton CO2)” Y-axis: “2006$/MWh” The Hidden Costs In addition to comparing the apparent costs of generating electricity from different sources, it is important to compare the hidden costs, like pollution and subsidies, which are paid for by taxpayers. The cost of the damage done to public health from the pollution generated by coal plants, for example, is not reflected in the cost of electricity generated by coal. The cost of electricity generated by renewable energy, on the other hand, would be lower if it reflected the indirect benefit of reducing pollution as well as exposure to increasing and volatile coal and oil prices as well as the effects of a carbon cap. Like pollution, subsidies are also not apparent in the literal price of electricity but still contribute to the overall cost of electricity and therefore warrant consideration. Between 1943 and 1999, the nuclear industry received $145.4 billion in cumulative federal government subsidies. During that same period of time, photovoltaic and solar thermal power received a combined total of $4.4 billion, and wind received $1.3 billion.24

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According to a report by the Government Accountability Office, from fiscal year 2002 to fiscal year 2007, Department of Energy electricity-related research and development funding amounted to the following: $6.2 billion for nuclear, $3.1 billion for fossil fuels, and $1.4 billion for renewable energy. During that same time period, electricity-related tax expenditures amounted to $13.7 billion for fossil fuels and $2.8 billion for renewables.25

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Renewable Energy is the Answer When Illinois faced sharp electricity rate increases as it became apparent that deregulation couldn‟t work without available competition, the state needed to find a way to stabilize rates, quickly. Part of the solution was to implement one of the most aggressive RESs in the country: 25 percent by 2025. This is significant because it indicates that Illinois determined renewable energy to be an effective means to stabilize rates. As demonstrated by Illinois, states are finding that renewable energy is greatly beneficial to a state‟s economy. In fact, it is so beneficial that 15 of the 25 states (plus Washington, D.C.) with existing standards have already gone back and increased or accelerated their targets. These states include: AZ, CA, CO, CT, DE, HI, MD, ME, MN, NJ, NM, NV, PA, TX, WI. Texas: Case Study In 1999, the Texas Legislature passed SB 7. This bill instituted a renewable portfolio standard (RPS) that called for 2,000 MW of new renewable energy capacity to be installed by 2009.26 Renewable energy development has been so successful in Texas that the state has already exceeded the goal set forth in SB 7 and therefore strengthened its RPS to require at least 5,580 MW of renewable energy by 2015.27 The economic benefits Texas has achieved through its renewable energy strategy are clear. The installation of 1,100 MW of wind power in the state added 2,500 direct jobs in sectors including manufacturing, construction, and services, with a payroll value of $75 million. Wind power has also benefitted schools. In 2002, for example, Texas wind projects paid Texas school districts $11,614,460 in taxes.28 In 2005, the Union of Concerned Scientists published a report that examined the possible economic benefits of attaining a goal of 10,000 MW by 2025. The report also considered the impact of adopting an even more aggressive RPS, one requiring 20 percent of electricity to come from renewable energy by 2020.29 Economic Benefits of a Stronger Texas RPS:

20% by 2020 RPS 10,000 MW by 2025 RPS

New Jobs Created 38,290 19,950

New Capital Investment $9.4 billion $4.7 billion

Biomass Energy Revenues $542 million $197 million

School Tax Revenues $1.1 billion $628 million

Wind Power Land Lease Royalties

$154 million $111 million

(Source: Union of Concerned Scientists)

The benefits of renewable energy are not only absolute; they are superior relative to fossil fuels:

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Renewable Energy vs. Fossil Fuel Jobs, 2025

38,290

19,950

5,350

13,640

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

20% by 2020

RPS

10,000 MW by

2025 RPS

Job

s Renewable

Energy

Fossil

Fuels

(Source: Union of Concerned Scientists)

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Determining the Effects of an Ohio RES: Pennsylvania as Model In a report prepared for the Cleveland Foundation in May of 2007, ICF International used Pennsylvania's Alternative Energy Portfolio Standard (AEPS) as a model to project the impacts of an RES in Ohio. In 2004, Pennsylvania enacted an AEPS that requires 8 percent of the state's electricity to come mostly from renewable energy sources by 2020. There is also a timetable for implementation: 1.5 percent must be reached by 2007, and an additional 0.5 percent must be met each successive year until the 8 percent requirement is met by 2020.30 ICF created a model that included a similar requirement: it assumed an AEPS to begin in 2010, requiring 1 percent of Ohio's electricity to come from advanced energy the first year and 0.5 percent each successive year until 2024, at which point 8 percent of Ohio's electricity would come from advanced energy. The AEPS that ICF assumed for Ohio, however, was more stringent than that of Pennsylvania, in that energy to meet the requirement could come only from truly renewable sources, including wind, biomass, low-impact hydro, landfill gas, and solar. ICF also assumed the renewable energy could be acquired both within the state and from areas within which generators that service Ohio operate.31 Effects of an AEPS on Electricity Prices The ICF report focused on determining the effects of an AEPS in the presence and absence of a national carbon policy. Below is a table outlining the assumed carbon policy: Starting Year 2015

Affected Units Electric Power Sector Units > or = 25 MW

Policy Carbon Dioxide Emissions Limit With Trading (National Cap-and-Trade); Use of Offsets From Other Sectors Not Allowed

National Carbon Dioxide Emissions Limits for Electric Power Sector

2006 Levels By 2015-2019 2000 Levels By 2020-2024 1997 Levels By 2025-2029 1990 Levels By 2030-2035

(Source: ICF International)

As illustrated below, the ICF report found that in the absence of a national carbon policy, an AEPS of 8 percent by 2024 would result in an increase in wholesale electricity prices of only $0.003/kWh by 2025. In the presence of a national carbon policy, the increase is even less: $0.001/kWh by 2025.

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Summary of Wholesale Electricity Price Impacts of Ohio AEPS:

AEPS with NO Carbon Policy AEPS with Carbon Policy

Year 2013 2020 2025 2013 2020 2025

Average REC Costs (cents/kWh of electricity sold in Ohio)

+ε 0.12 0.24 0.01 0.04 0.13

Firm Wholesale Market Price Impacts (cents/kWh sold in Ohio)

- ε 0.11 0.06 0.01 -0.01 -0.03

Combined Wholesale Electricity Price Impact (Firm Wholesale Price + Average REC Costs) (cents/kWh)

- ε 0.22 0.30 0.03 0.02 0.10

ε is a small positive quantity less than the displayed significant digits. (Source: ICF International)

In the presence and absence of a carbon policy, the increases in wholesale electricity prices are negligible. That means it is possible for the increase in rates passed onto consumers to be negligible, as well. Effects of an AEPS on Employment and Generation from Fossil Fuels If an AEPS were instituted in Ohio, advanced energy would displace some fossil fuel capacity that would have been constructed in the absence of an AEPS. However, because advanced energy tends to operate at lower capacity factors than fossil fuels, the amount of new resource construction for advanced energy generation would exceed the loss of new construction for fossil fuel generation. Consequently, there would be a net increase in jobs. This would help to offset the loss of Ohio manufacturing jobs in recent years. In addition to creating a net increase in jobs in Ohio, an AEPS would not affect Ohio coal production significantly, with or without a carbon policy. Because the state imports almost two-thirds of its coal, renewable energy could simply replace electricity generation from imported coal, thereby not affecting Ohio coal production and coal workers and keeping more dollars in state.32 Changes in Ohio Coal Production Due to an Ohio AEPS:

AEPS with NO Carbon Policy AEPS with Carbon Policy

Year 2013 2020 2025 2013 2020 2025

Changes in Ohio Coal Production due to an Ohio AEPS (million short tons)

0 0 0 0 -0.12 0.23

Percentage Change in Coal Production Relative to BAU Condition (million short tons)

0% 0% 0% 0% -0.2% 0.3%

Note: Positive numbers indicate an increase in coal production; negative numbers indicate a decrease in coal production. (Source: ICF International)

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The Effects of an RES in Ohio Ohio generates 87 percent of its electricity from coal, the majority of which is imported. Increasing coal and oil prices as well as looming carbon legislation therefore leaves the state vulnerable to increasing electricity rates; an Ohio RES would reduce the state‟s exposure to such an increase. An Ohio RES would also stimulate the state‟s lackluster economy. Renewable energy creates jobs. It creates high-paying jobs. Given its abundant supply of renewable energy resources, extensive manufacturing base, existing transmission and transportation infrastructure, and available skilled labor, Ohio is poised to have a comparative advantage in the renewable energy market. Over the last ten years, U.S. employment has increased 14 percent, whereas Ohio employment has gone up only 2.7 percent. During that same period, manufacturing jobs in Ohio dropped 23 percent, translating to a loss of 233,000 jobs. This means there is a profuse supply of workers who would be able to fill the job openings for wind turbine manufacturing, biofuel production, etc. The bottom line is that Ohio needs a new source of demand for labor, and renewable energy is that source.33 Renewable Energy Credits and the Effects of an RES on Electricity Rates Renewable energy credits (RECs) represent the right to "claim ownership" of renewable energy production. RECs enable electricity providers that don't have efficient access to renewable energy sources to fulfill a renewable energy requirement. RECs are bought and sold in a market. Consequently, the price of RECs in a given state will be affected by the supply of renewable energy in that state; the greater the abundance of renewable energy, the cheaper the RECs. The Lawrence Berkeley Laboratory and the Ohio Office of Energy Efficiency looked at 25 studies representing 25 different states and found the median REC price was $0.006/kWh. The study also determined that the maximum likely REC price in Ohio would be about $0.03/kWh, assuming adequate renewable energy resources would be available. Based on this assumption, the study estimated the impacts of an RES on rates in Ohio would be 1 to 2 cents/kWh. 34 Given that impact, the study examined how various RES policies would affect average retail electric rates and found the following: Effect of an Ohio RES on Average Residential Electric Rates in Ohio

5% RES by 2016

Cost Increase $0.40 to $1.19

(Source: LBL & OEE)

It is important to note that Substitute Senate Bill No. 221, currently being considered by the Ohio House of Representatives, only requires 4.5 percent renewable energy by 2016. In other words, the upper bound of $1.19 likely overestimates the rate impact Ohio would face in 2016, based on the RES set forth in Sub. S.B. No. 221.

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Economic Benefits of an Ohio RES An Ohio RES would lead to a net increase in employment, wages paid to Ohio workers, and GSP. It would also provide significant benefits to the rural community through land lease payments, royalties, and tax revenue. Wind energy creates more jobs than fossil fuels partly because it replaces expenditures for fuel with expenditures for labor and materials produced at home. Ohio imports 90 percent of its natural gas, 59 percent of its coal, and 97 percent of its petroleum.35 In 2005, for example, $1.3 billion of the money Ohio spent on coal for electricity generation left the state.36 Renewable energy also creates more jobs than fossil fuels because it requires inputs from industries that are more labor-intensive. For example, every $1 million spent on construction – which is a large part of renewable energy production – creates 16.3 jobs, whereas every $1 million invested in coal mining creates only 6.5 jobs.37 Below is a summary of the economic benefits of using wind power to generate 20 percent of Ohio's electricity by 2020: Cumulative Net Economic Impact of 20 Percent Wind Energy by 2020 vs. Business-As-Usual (BAU) (2007-2020)

Measure Cumulative Net Economic Impact

Jobs Created (Person-Years of Employment) 40,000

Wages Paid $3.7 billion

Increase in Gross State Product $8.2 billion

Measure Cumulative Net Economic Impact

Lease Payments for Land Housing Wind Turbines $200 million

Property Tax Generation From Wind $1.5 billion (Source: Environment Ohio Research and Policy Center)

38

The Multiplier Effect The benefits of an RES are enhanced by the "multiplier effect." The multiplier effect can be thought of as the indirect effects of an economic event. For example, if a company is located in Ohio, but outsources its labor to Pennsylvania, while the company's output would be counted in Ohio's GSP, the wages accrued by the laborers would likely be spent on goods in Pennsylvania, thereby contributing to that state's GSP. In this scenario, the multiplier effect of the company‟s production is to increase PA‟s GSP through employees‟ using their wages to purchase goods and services in PA. But if the company instead hires Ohio workers, not only would the company‟s production add to Ohio's GSP, but the wages it pays out would also be re-deposited into Ohio's economy, thereby increasing the effects of the company's activity on Ohio's economy. With regard to energy production, the multiplier effect exists because labor is employed directly in the construction and operation of energy production facilities, goods and services are purchased and used locally, and income generated from energy production is used to purchase goods and services in the local economy. Accordingly, the multiplier effect is increased by 1) larger input contributions from the local economy and 2) a larger percentage of spending within the local economy in successive rounds. Consequently, the multiplier effect of an RES would be greater than BAU conditions because renewable energy employs more workers and it is not imported.39

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Conclusion and Recommendations The nation is undergoing change, and energy and climate will continue to be the focus of national discussion. The discussion will consider the economic impacts of energy consumption. As coal and oil prices increase and thus energy becomes more expensive, the purchasing power of consumers erodes and businesses move their operations to different locations, whether they be different states or different countries. Diversifying Ohio‟s electricity mix with renewable energy, now, will enable Ohio to mitigate the upward pressure on electricity rates. Also, because of the human and physical capital that already exists in Ohio, the state can be a national leader in renewable energy development. Renewable energy can not only alleviate future problems like increasing electricity rates, but it can also solve existing ones. Ohio needs a new vehicle for economic growth. Over 200,000 manufacturing jobs have disappeared from the state in the past decade. Also, during that time national employment growth significantly outpaced that of Ohio. Renewable energy is an effective solution because it draws upon the state‟s existing strengths: an abundant supply of renewable resources, an extensive manufacturing base, and the necessary transmission and transportation infrastructure. It is also more efficient at creating jobs and spurring economic development than coal. The discussion will also be about habitability. Increased levels of pollution affect public health and make the planet a more dangerous place to inhabit; steps must therefore be taken to reduce pollution levels. This will likely entail a regulation on carbon emissions. Ohio must act now to minimize its economic exposure to a cap on carbon. By reducing its dependence on coal, for example, the state can simultaneously fight pollution and increasing electricity prices. Finally, the discussion will be about security; the greater our demand for energy, the greater the potential for an increasingly tenuous relationship with the Middle East. We must become more energy independent. If we don't have to rely on foreign sources as much, we can reduce our involvement in that region and therefore our security risk. The lessons from the 25 states (plus Washington, D.C.) that have already adopted RESs are clear: renewable energy produces electricity at little to no additional cost to consumers while creating economic benefits that not only outweigh the costs, but also exceed the net benefits under a business-as-usual condition.

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References Energy Information Administration / Assumptions to the Annual Energy Outlook 2007. Available at: http://www.eia.doe.gov/oiaf/aeo/assumption/ Energy Efficiency and Renewable Energy, U.S. Department of Energy. Wind Powering America Update. March 10, 2008. Available at: http://www.eere.energy.gov/windandhydro/windpoweringamerica/filter_detail.asp?itemid=746 Wiser, R., Bolinger, M., et al. 2007. Annual Report on U.S. Wind Power Installation, Cost, and Performance Trends: 2006. U.S. Department of Energy, Energy Efficiency and Renewable Energy. Available at www1.eere.energy.gov/windandhydro/pdfs/41435.pdf

Notes 1 Energy Information Administration / International Energy Outlook 2007. Available at:

http://www.eia.doe.gov/oiaf/ieo/pdf/highlights.pdf 2 Figdor, Emily “The Carbon Boom” Environment Ohio, April 2007, http://www.environmentohio.org/reports/global-warming/global-

warming/the-carbon-boom . 3 Mufson, S. and Harden, B. “Coal Can‟t Fill World‟s Burning Appetite.” The Washington Post. Published March 20, 2008; A01.

4 Krauss, C. “An Export in Solid Supply.” The New York Times. Published March 19, 2008.

5 Johnston, L. et al., Synapse Energy Economics, Inc., Climate Change and Power: Carbon Dioxide Emissions Costs and Electricity

Resource Planning, 18 May 2006. 6 Energy Information Administration, U.S. Department of Energy, Ohio Electricity Profile 2005 Edition, DOE/EIA-0348, March 2007.

7 Wiser, R. and Barbose G. (LBNL). 2008. Renewable Portfolio Standards in the United States. Berkeley, California: Lawrence

Berkeley National Laboratory. Available at: http://eetd.lbl.gov/ea/ems/reports/lbnl-154e.pdf 8 EPA Final Report, “Environmental Footprints and Costs of Coal-Based Integrated Gasification Combined Cycle and Pulverized

Coal Technologies,” July 2006, EPA-430/R-06/006, p. ES-6. 9 Available at http://www.duke-energy.com/news/releases/2007112001.asp

10 Goldberg, M. 2000. Federal Energy Subsidies: Not All Technologies are Created Equal. Prepared for the Renewable Energy

Policy Project. Available at: http://www.crest.org/repp_pubs/pdf/subsidies.pdf 11

This information is available at: http://www.eere.energy.gov/windandhydro/windpoweringamerica/pdfs/wpa/wpa_update.pdf 12

This information was accessed at: http://www.eere.energy.gov/windandhydro/windpoweringamerica/ne_economics_compare.asp 13

Available at http://www.duke-energy.com/news/releases/2007112001.asp 14

Available at http://www.examiner.com/p-645~IGCC_Plant_in_West_Virginia_Could_Be_Online_in_2012_if_Plan_Filed_by_AEP_s_Appalachian_Power_Gains_Approvals.html 15

National Coal Council, Technologies to Reduce or Capture and Store Carbon Dioxide Emissions. June 2007. 16

EPA Final Report, “Environmental Footprints and Costs of Coal-Based Integrated Gasification Combined Cycle and Pulverized Coal Technologies,” July 2006, EPA-430/R-06/006, p. ES-6. 17

Harding, J., Nonproliferation Policy Education Center. 2007. Economics of New Nuclear Power and Proliferation Risks in a Carbon-Constrained World. Available at www.npec-web.org/Essays/20070600-Harding-EconomicsNewNuclearPower.pdf 18

Goldberg, M. 2000. Federal Energy Subsidies: Not All Technologies are Created Equal. Prepared for the Renewable Energy Policy Project. Available at: http://www.crest.org/repp_pubs/pdf/subsidies.pdf 19

This information was accessed at: http://www.eere.energy.gov/windandhydro/windpoweringamerica/ne_economics.asp 20

Wiser, R. and Barbose G. (LBNL). 2008. Renewable Portfolio Standards in the United States. Berkeley, California: Lawrence Berkeley National Laboratory. Available at: http://eetd.lbl.gov/ea/ems/reports/lbnl-154e.pdf 21

L. Johnston, et al., Synapse Energy Economics, Inc., Climate Change and Power: Carbon Dioxide Emissions Costs and Electricity Resource Planning, 18 May 2006. 22

Energy Information Administration, U.S. Department of Energy, Ohio Electricity Profile 2005 Edition, DOE/EIA-0348, March 2007. 23

U.S. Department of Energy, Energy Efficiency and Renewable Energy. Wind Powering America Update. March 10, 2008. 24

Goldberg, M. 2000. Federal Energy Subsidies: Not All Technologies are Created Equal. Prepared for the Renewable Energy Policy Project. 25

“Federal Electricity Subsidies,” GAO, October 2007. Available at: http://www.gao.gov/new.items/d08102.pdf 26

Union of Concerned Scientists (UCS). Texas Renewable Portfolio Standard Summary. Cambridge, Massachusetts: Union of Concerned Scientists. Available at www.ucsusa.org 27

Jamie, S., Severn, A., and Raum, B. (AWEA). State-Level Renewable Energy Portfolio Standards (RPS). Available at: http://www.awea.org/pubs/factsheets/State_RPS_Fact_Sheet.pdf 28

Public Citizen Texas Office and Sustainable Energy and Economic Development Coalition. 2002. Renewable Resources: The New Texas Energy Powerhouse. Available at www.seedcoalition.org 29

Deyette, J. and S. Clemmer (UCS). 2005. Increasing the Texas Renewable Energy Standard: Economic and Employment Benefits. Cambridge, Massachusetts: Union of Concerned Scientists. Available at: http://www.ucsusa.org/assets/documents/clean_energy/Texas_RES_Report-02-05_Final.pdf

23

30

Union of Concerned Scientists (UCS). Pennsylvania Alternative Energy Portfolio Standard Summary. Cambridge, Massachusetts: Union of Concerned Scientists. Available at: http://www.ucsusa.org/assets/documents/clean_energy/Pennsylvania.pdf 31

ICF International. 2007. Analysis of the Potential Impacts of an Advanced Energy Portfolio Standard (AEPS) in Ohio. Prepared for The Cleveland Foundation. Available at: http://development.cuyahogacounty.us/pdf_development/en-US/Final_OH-AEPS_Analysis.pdf 32

Ibid. 33

Green Energy Ohio. Available at: http://www.ases.org/ASES-JobsReport-Final.pdf 34

Chen, C., Bolinger, M., Wiser, R., Lawrence Berkeley Lab, and OEE Staff. 2006. Ohio Renewable Portfolio Standard. Available at: http://www.odod.state.oh.us/cms/uploadedfiles/CDD/OEE/Memo_Ohio_RPS_011706%201-18.pdf 35

Greg Payne, Ohio Department of Development, Office of Energy Efficiency, personal correspondence, 28 March 2007. 36

Data for 2005, obtained from Greg Payne, Ohio Department of Development, Office of Energy Efficiency, personal correspondence, 28 March 2007. See Also: Energy Information Administration, U.S. Department of Energy, Form FERC-423 Database: Monthly Cost and Quality of Fuels for Electric Plants Data - 2005, downloaded from www.eia.doe.gov, 20 March 2007. According to the U.S. Energy Information Administration, including all costs (transportation, taxes, etc.), Ohio utilities spent $1.9 billion on imported coal in 2005 37

Multipliers derived from Minnesota IMPLAN Group, 2001 Data for the State of Ohio, Stillwater, Minnesota, 2005. 38

Bowser, E., Gomberg, A., and T. Madsen. 2007. Energizing Ohio’s Economy: Creating Jobs and Reducing Pollution with Wind Power. Columbus, Ohio: Environment Ohio Research & Policy Center. 39

Black & Veatch. 2004. Economic Impact of Renewable Energy in Pennsylvania. Prepared for The Heinz Endowments and the Community Foundation for the Alleghenies.