Amid Rising Challenges to State Clean-Energy Mandates, Delaware Lawmakers Reject Effort to Freeze RPS

Last week, Delaware became the latest state to consider legislation challenging its clean-energy mandate, but a House panel overwhelmingly voted to let the bill die after hearing testimony on March 29.

Delaware’s Renewable Portfolio Standard (RPS) requires that electricity suppliers obtain 25 percent of their power from renewable sources by 2025, but the legislation, HB 247, would have frozen that mandate at its current level of 8.5 percent.

“For the record, I’m for the environment,” Rep. Greg Lavelle, the bill’s chief sponsor, told a packed hearing of the House Energy Committee. But he said that the RPS, which was enacted in 2005 and expanded in 2007, should be reviewed in light of rising energy prices.

Delaware’s retail electricity rates are the thirteenth-highest nationwide, averaging 13.8 cents per kilowatt-hour (kWh). That compares with the national average of 11.5 cents/kWh.

One of the bill’s supporters warned the committee that if left unchanged, the RPS could cause electricity rates to rise by 18 percent by 2025.

But Rep. John Kowalko, who chairs the House Energy Committee, pointed out that the RPS was intended to create economies of scale that would instead lower prices over time. Costs of solar power have dropped significantly in recent years, due to a range of domestic and international forces.

Kowalko said the state’s clean-energy mandate adds less than one percent to ratepayers’ monthly electricity bills, and that those costs are far outweighed by the job growth and other economic benefits that the state’s growing clean-energy sector has produced.

“You are proposing a repeal of a goal that will cause a shutdown” of those industries, he told Rep. Lavelle. “We’re not going to have huge savings by stopping this, but quite to the contrary, new costs imposed on ratepayers and industry.”

Those sentiments were echoed by Dr. Tom Earnest, global venture manager at DuPont, which employs 9,500 individuals in the state and has made support of renewables a top company priority.

Earnest said that more than $100 million has been invested in clean-energy industries in Delaware, and that around 1,000 individuals work in the solar sector alone. Earnest called the state’s RPS a “transitional policy” that drives down the cost of renewables, with the ultimate goal of lowering them to the point where they provide electricity at prices equal to power generated from coal, nuclear or natural gas, a concept known as “grid parity.” The cost of solar modules today is 40 percent lower than a year ago, he said.

“Having an inconsistent policy undermines that drive and deepens our reliance on fossil fuels,” he said.

Natural Gas vs. Renewables?

While the effort to halt Delaware’s clean-energy program gained little traction last week, in many ways, the discussion there echoed efforts that have been playing out in state capitols across the country this year to reign in public support for renewable sources like solar and wind.

The push has unfolded amid a changing domestic energy landscape. Many critics of clean-energy mandates point to the availability of abundant, cheap supplies of domestic natural gas tapped in the last few years from once-unreachable shale reserves in Pennsylvania, Ohio, Texas, Colorado and other states via a controversial drilling technology known as hydraulic fracturing.

As few as five years ago, gas prices were skyrocketing, local supplies were dwindling, and policymakers were debating the merits of importing liquefied natural gas to satisfy growing energy demand. Meanwhile, lawmakers in more than half of all U.S. states approved policies to promote higher-priced renewable generation like solar, wind and biomass to address several key public-policy objectives – including energy security, job creation and environmental protection. Now, many are rethinking that support in light of rock-bottom natural gas prices.

Estimates of technically recoverable reserves of natural gas have varied among industry and the federal government. Officials within the U.S. Energy Information Administration (EIA) have raised questions about how much natural gas companies can affordably extract, according to an article last year in The New York Times. In its 2012 Annual Energy Outlook, EIA lowered its estimates for technically recoverable shale gas by 42 percent from a year earlier, to 482 trillion cubic feet.

During last week’s hearing, Rich Collins of the Positive Growth Alliance, a local nonprofit, told lawmakers that the oil and gas industry can now access enough supplies to satisfy U.S. energy demand for the next 200 years. The organization works to defend private property rights and free enterprise, according to its Web site.

“There is nothing that anyone in this room can do to prevent natural gas from bankrupting every solar company that exists,” he said.

Adding to the pressure on Delaware’s solar industry is a dramatic slide in Solar Renewable Energy Credits (SRECs) in the last year, which have plummeted from around $300 to $25 on the spot market.

Like solar markets in neighboring states Pennsylvania and New Jersey, Delaware’s falling SREC prices have been blamed on oversupply. There are currently more than 1,200 solar installations in the state with a total installed capacity of 26 megawatts (MW), well above the 12 MW required by the RPS for this year, said Finn McCabe of solar company Flexera, testifying on behalf of the Delaware Solar Energy Coalition.

“So if you froze the RPS today, approximately one half of solar owners would have no place to sell their SRECs,” McCabe told the committee.

SRECs serve as a critical financing incentive for solar development, with one SREC equal to one megawatt-hour of generation. Owners of solar installations count on receiving yearly SREC payments to help finance their investments. Electricity suppliers must purchase the credits to fulfill their renewable energy mandate under the RPS, or pay a penalty.

The lower the price fetched by their SRECs, the longer the payback period for the owner of an installation whose upfront cost can easily exceed $10,000 for an individual home, even after a federal 30 percent tax credit and other state incentives are factored in.

Because the cost of SRECs is eventually passed down to ratepayers, critics claim they are a form of protectionism that is distorting markets that would be better off if left to contend with the forces of supply and demand.

A Nationwide Trend

That view has gained increasing traction in multiple states during the current legislative session.

Last month, the Florida Legislature voted to repeal its RPS enacted in 2008 and replace it with a set of tax incentives to promote efficiency and renewables. In Arizona, a state Senate committee voted to freeze the state’s renewable portfolio standard at 15 percent by 2025. In North Carolina, an effort to repeal its 2007 RPS failed. There, proponents of the state’s clean-energy goals included power companies, including Duke Energy and Progress Energy, who told the News and Observer on March 24 that they supported the law.

Efforts to repeal clean-energy mandates have also been launched in Colorado, Maine, New Mexico and Washington State.

Clean-energy advocates argue that free energy markets are nonexistent, and point to the billions in tax breaks and other incentives enjoyed by the coal, oil and natural-gas industries.

“The RPS provides a level playing field for all of the public subsidies that fossil fuels receive,” said Dale Davis, president of the Delaware Solar Energy Coalition.

One issue regularly raised by environmental groups but that often figures less prominently in the current debate over clean-energy mandates is the public health costs associated with the burning of fossil fuels, which studies have shown to be a leading cause of smog, acid rain and other toxins that lead to respiratory illnesses and other health-related problems.

Several of those who testified in Dover last week said that Delaware has repeatedly received a grade of “F” from the American Lung Association’s ranking of high-ozone days. The bulk of electricity generated in Delaware – nearly 70 percent — comes from coal-burning plants, followed by natural gas.

Natural gas burns cleaner than coal, though recent studies have questioned whether its overall life-cycle is in fact less polluting, when factors including fugitive emissions of methane are taken into account.

Two goals of Delaware’s RPS were to improve regional and local air quality and public health, said a representative of the Delaware chapter of Interfaith Power and Light, a national nonprofit promoting energy efficiency and renewable energy. “We believe that polluting of our air by burning fossil fuels is morally wrong. We need to reduce this source of pollution, and killing the RPS will not do that,” he said.

–By Rona Cohen

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