Government Job Creation

We often hear that government can't pick winners and losers. History tells us that the government has been picking winners ever since the early days of the Republic.

In 1791, Alexander Hamilton proposed fostering our 'infant industries' in his Report on Manufactures. Over the years, a variety of methods has been used but the policy of support has remained. Hamilton recommended that our manufacturers be encouraged by a combination of subsidies and tariffs. In the nineteenth century, the new railroads were given large land grants. Early in the twentieth century the new airlines received lucrative air-mail contracts and the oil companies were given generous tax reductions.

A more recent example is the story of the Mitchell Energy Company. According to their former Vice President, Dan Steward, they developed the method for extracting gas and oil from shale with the aid of government research and government subsidies*. Without this government help we would not be anticipating a gas and oil boom in Appalachian Ohio.

The last two examples show some problems with subsidies. The oil industry still enjoys their tax break long after they have became mature and shale drilling is believed to cause threats to public health and safety.

* http://thebreakthrough.org/blog/2011/12/interview_with_dan_steward_for.shtml

Where Most Energy is Wasted

The United States is very wasteful of energy. Overall, we are 42% efficient, meaning that 58% of the energy that we generate is wasted. The major sources are electric power plants, which are 32% efficient and transportation (cars, planes, trains, etc.), which are 25% efficient. Together these two sectors account for 85% of all wasted energy and 70% of all CO₂ emissions. Here is where we should focus our efforts.

Data from Lawrence Livermore Lab 'Estimated U.S. Energy Use' and 'Estimated U.S. Carbon Dioxide Emissions'.

Wind Energy Now Competitive with Fossil Fuels

There have been alarming forecasts that renewable energy will cause skyrocketing electric rates. This Spring one opponent of wind farms stated that the cost of generation by wind was about half again as high as that by coal or by natural gas [1]. But generation is only a fraction of your electric bill, and renewables (mostly wind) are only a small fraction of that fraction. As a result, even this large cost difference in the generation phase of electricity production would lead to only a small single-digit increase in your electric bill (Table 1). but, in fact, while gas and coal were cheaper this Spring, wind was cheaper last fall [2]. Since today's natural gas prices are about as low as they ever get [3], today's cost difference can't be expected to last.

It is difficult to make predictions of utility prices because prices of natural gas vary wildly and unpredictably over time [3]. For this reason, the Presidents of both AEP [4] and Duke Energy [5] have expressed concern about the rushing too fast into natural gas.

In contrast, the price of wind is almost entirely fixed by the cost of construction of the wind farm. So, the owner of the wind farm can, and does, offer long-term contracts at a fixed price. Since the cost of turbines has continually decreased [6], today's new wind farms can offer electricity considerably cheaper than even a few years ago. Since Ohio has gotten a late start into renewalbes, we are fortunate, since we will have the newer, more economical wind farms.

Because of these different characteristics of wind and gas costs, a utility executive planning for the next twenty years has a dilemma:

If he chooses gas (or coal) he knows how much electricity he will generate, but doesn't know how much the fuel will cost.

If he chooses wind he knows how much electricity generation will cost, but not how much he will get.

It is these two imponderables, that make predictions of electricity costs problematic.

Some guidance for the future is available from actual experience in other states on the effect of renewables on electric rates. Indirect evidence comes from six of our sister states (Illinois, Indiana, Iowa, Minnesota, Missouri, and West Virginia), who have more renewable energy than Ohio, but whose utility rates are lower (Table 2). The Public Service Commission of Wisconsin [7] reports that renewables in that state add one percent to electricity bills. But most of their wind turbines are older and produce electricity more expensively. While electricity providers in Michigan are allowed to charge a premium of up to a three percent premium to allow for the extra cost due to renewables, very few do so, and most even charge nothing [6].

In conclusion, wind energy has become a viable economic alternative to fossil fuels and is a great improvement environmentally.

References

[1] Sen. William Seitz quoted in “Senate Energy & Public Utilities”, Hannah Capitol Connection, 24 April, 2012

[2] “NW Ohio, SE Michigan wind power is churning up cash”, toledoBlade.com, 17 Oct, 2011

[3] http://www.tradingeconomics.com/commodity/natural-gas

[4] “AEP chief: U.S. Needs flexible energy plan” Columbus Dispatch, 27 April 2012

[5] “At forum, energy experts say natural gas plays mixed role in America's energy future” San Jose Mercury News, 13 June 2012

[6] “Report on the Implementation of the P.A. 285 Renewable Energy Standard and the Cost-Effectiveness of the Energy Standards” Michigan Public Service Commission, 15 Feb. 2012

[7] “Report on the Rate and Revenue Impacts of the Wisconsin Renewable Portfolio Standard, Docket 5-GF-220” Public Service Commission of Wisconsin, 15 June 2012

TABLE 1. Worst Case Scenario of Increased Electric Rates due to Renewables

Price Component	Actual Bill (1)	Full Renewables Bill (2)
Generation	11.46	12.18 (3)
Transmission	1.89	1.89
Distribution	9.20	9.20
Tax	4.52	4.65
Total	27.07	27.92 (+ 3 %)

1. Our residential electric bill for May, 2012

2. Assuming that the maximum target for renewables in Ohio by 2024 had been achieved and that renewables cost fifty percent more than fossil fuels (ratio used by Ohio State Senator William Seitz during Committee meeting, 24 April 2012)
3. Assuming 1/8 of electricity comes from renewables (Ohio goal for 2024)

Table 2. Most States in our Region Have More Renewable Energy and Lower Electric Rates

A. Total Renewables as of Dec. 2010

(latest comparable data available)

State	Industrial Rate, Cents/kWh	Renewable Electricity, %	Unemployment, %
Illinois	6.2	2.6	9.8
Indiana	6.4	3.0	9.0
Iowa	4.9	17.9	5.6
Kentucky	5.3	3.1	9.1
Michigan	7.2	3.7	9.3
Minnesota	6.3	13.9	5.7
Missouri	5.3	2.7	8.0
Ohio	6.2	0.8	8.1
West Virginia	6.2	2.9	7.9
Wisconsin	7.1	7.1	7.1

Sources

Bureau of Labor Statistics: Local Area Unemployment Statistics, December, 2011; US Energy Information Administration: Average Retail Price of Electricity to Ultimate Customers by End-Use Sector by State, January 2012 and 2011; US Energy Information Administration: State Renewable Electricity Profiles 2010

B. Wind Capacity as of March 2012

State	Wind Power, MW	Electric Rates, Cents/kWh
Illinois	2852	9.01
Indiana	1342	8.04
Iowa	4419	7.59
Kentucky	0	7.11
Michigan	377	10.37
Minnesota	2718	8.68
Missouri	459	8.35
Ohio	115	9.05
West Virginia	583	7.88
Wisconsin	631	10.23

Sources: American Wind Energy Association, U.S. Wind Power Capacity Installations by State, March 2012; U.S. Energy Information Administration, Electricity Data Browser (2011 data)