It might take a lot of green to be 'green'

Renewable energy costs still double that of fossil fuels

KINGMAN - The Arizona Corporation Commission has a mandate in place requiring that at least 15 percent of the state's energy come from renewable sources by the year 2025.

But despite its intention to wean the state off fossil fuels, the move has drawn vocal criticism from free-market advocates such as the Goldwater Institute, which claims the mandate will cost utility customers billions over the next 15 years.

But just how much does renewable energy currently cost the average electricity user, and how much will it cost as massive solar and wind plants start coming online over the next several years? According to Joe Salkowski, a spokesman for UniSource Energy Services, the answer to each of those questions is, "It depends."

Currently, Salkowski said, UniSource customers are paying .6 cents per kilowatt-hour for renewable energy as part of what's called the "renewable energy standard tariff," or REST. That amount changes each year and was put into place by the ACC to help UniSource and other utilities pay for their ongoing efforts to meet the renewable energy standard, though consumers can be only be charged up to a maximum amount each month. That amount is currently capped at $4 a month for residential customers, $60 a month for commercial customers, and $1,000 a month for industrial customers. "The commission recognizes that renewable energy is more expensive than traditional fossil-fueled resources, so it has added the surcharge to our bill to help fund our efforts to comply with the standard," Salkowski said.

In general, the REST is used to pay for three things: The first is to provide rebates to those homeowners who purchase and install photovoltaic systems onto their homes, thus producing their own electricity. The second is to purchase "renewable energy credits," which are essentially proof that the electricity purchased was generated through renewable means.

In other words, while purchased electricity is the same regardless of whether it was created by a natural gas power plant or a wind turbine farm, only the wind farm would also generate renewable energy credits - one for each kilowatt-hour of power it produces.

Currently, most of the power UniSource provides its customers is created by fossil fuels, typically in the form of natural gas, and costs about 6 cents per kWh to purchase. By contrast, Salkowski said, power created through renewable means can cost as much as twice that.

"It's essentially double the cost of fossil fuel power," he said. "The cost of wind power is approximately currently 11 or 12 cents per kWh, whereas the cost of solar energy is a bit higher - the low teens is an appropriate figure."

Which leads to the REST's third purpose - to provide renewable energy developers with the capital they need to actually get their projects underway, so that someday they can compete with the much cheaper and more readily available fossil fuels. "There are plenty of available fossil fuel resources that can be purchased over the short, medium or long term - we can buy energy on the spot market through purchase contracts that may extend for only a couple of hours of power," Salkowski said. "Purchasing renewable energy is an entirely different process - the resources are typically not developed and available. Utilities such as ours are being asked to commit to longer purchase contracts that would then be used for resources that do not yet exist."

This year, UniSource and other utilities are only required to supply 2 percent of their power from renewable resources, so the REST impact remains low. If the cost of renewable energy stays at current levels, however, the impact to customers' bills could be much more significant by the time the 15-percent standard takes effect in 2025. To mitigate this, renewable energy developers are asking companies like UniSource to sign up for extended contracts, which can last for upwards of 15 years. In turn, Salkowski said, the developers use those long-term commitments to secure financing for their solar and wind power plants.

As more renewable energy plants come online over the coming decade, Salkowski said the collective hope is that the cost of the electricity they produce will fall to that of plants fired by fossil fuels. "We hope that it will become cost-effective and generate savings for customers in the future," he said. Salkowski did note, however, that there were ways of kick-starting a faster drop in the cost of renewable energy. The first, he said would be for the economy to recover from the current recession, which could then free up the credit markets and make it easier for renewable developers to secure financing.

"The tightening of financing we've all seen has affected renewable energy developers along with the rest of us," Salkowski said. "A rebound in the economy might free up some of the capital developers need to build new renewable energy systems, and hopefully, we'll see enough of them developed that they will compete against each other on the basis of price."

Federal climate change legislation might also help, particularly if Congress passes some form of "cap-and-trade" system designed to limit the amount of carbon dioxide fossil fuel plants can produce, and requiring them to buy emission credits from renewable energy plants if they go over their allowance. "A cap-and-trade marketplace would effectively increase the cost of fossil fuel power to the point that renewable energy would become more competitive," Salkowski said. He added that similar systems have been instituted in the past and were successful at significantly reducing the levels of sulfur dioxide and nitrogen oxide emissions responsible for acid rain.

In the short term, however, Salkowski admitted it was hard to tell exactly how much the REST entry on customers' bills will change year over year. UniSource has yet to propose a REST for 2010 fiscal year, and even once it does, it will remain up to the ACC to decide what the actual tariff will come to. "It's so early that it's very difficult to predict with any certainty how the market will develop," he said. "But the interest in renewables is only increasing, and there is a cost at this point that is going to continue for the near term."