The John Locke Foundation Reaches an “Energy Crossroads” and Takes a Wrong Turn

by | Jun 25, 2021 | Uncategorized | 0 comments

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The John Locke Foundation (JLF), which claims to be a ‘free market think tank,’ in fact supports the aims of government regulated monopolies that seek to avoid private sector competition at all costs. Yesterday, the JLF distributed a paper to North Carolina legislators that relies on outdated numbers, incorrect assumptions, and blatantly false assertions to undermine work by stakeholders from across the political spectrum to bring North Carolina cheaper and safer energy.

Rather than join those stakeholders, the JLF and its funders have issued a paper titled “Energy Crossroads,” in which they argue that North Carolina should turn back from that crossroads and drive back into an energy past that is dirtier, more expensive, and more dangerous to North Carolina’s ratepayers and public. (While JLF claims ownership of the report, the author is Jordan McGillis, Deputy Director of Policy at the Institute for Energy Research, a think tank which has been repeatedly criticized by neutral observers for skewing the conclusions of its reports to favor its funders, most of which are in the fossil-fuel industry).

  1. Renewable Energy Sources are the Choice of the Market

The JLF Report attacks renewable energy as a creature of government intervention and public policy that favors more expensive technologies over the “cheaper” options of nuclear and natural gas generation. In the age of VC Summer and Vogtle nuclear plants, this accusation couldn’t be more ironic. This contention is also completely contradicted by the nationwide move to expand solar and wind generation — without comprehensive national policy. The move to renewables is, fundamentally, a market-driven move because the cost of renewable energy is lower than the fossil fuel alternatives. Coal and gas are commodities that bounce up and down with global trends. Like information tech, solar, wind, and energy storage are technologies that become more efficient and cheaper every year

According to a 2020 study of worldwide energy trends

“Over the past 10 years, clean energy has not only started seriously competing with fossil fuels but has significantly undercut them when new electricity generation is required…. Concentrating solar power (CSP), offshore wind and utility-scale solar photovoltaics all joined onshore wind in the range of costs for new capacity fired by fossil fuels, when calculated without the benefit of financial support.”

The JLF Report ignores this reality and pretends that the move to renewables is only in response to government regulation and policies like the NC Clean Energy Plan. This statement is fundamentally untrue.

Even Duke Energy has stated that moving to clean energy generation is both economically and environmentally necessary to meet the demands of the twenty-first century.  As stated in the “Duke Energy 2020 Climate Report”:

“An increasing number of our customers are calling for electricity from non-carbon-emitting sources. For example, Apple, BMW, Facebook, and Google are all members of the “RE100,” a coalition of companies committed to sourcing 100 percent of their electricity from renewable sources.”

North Carolina’s continued economic development is in part contingent on a move to lower-cost sources of energy. Employers with intensive energy needs cannot locate or expand here if monopoly utility costs climb year over year. Renewable energy and storage offers substantial savings over other technologies, and this gap will only increase. The National Renewable Energy Laboratory’s 2020 Annual Technology Baseline, even under conservative projections of a slow pace of technological improvements, “projects dramatically lower costs for utility-scale PV.” The JLF’s Report ignores reality and fatally undermines its own conclusions.

JLF, which inaccurately bills itself as a champion of the free market, is in this case arguing for the market to be restrained and for the N.C. General Assembly to pick a winner – natural gas and nuclear – based on false data about renewable energy.

  1. JLF Relies on Discredited Duke Energy Assumptions

JLF bases its conclusions on the argument that the NC Clean Energy Plan, as developed by Governor Cooper, Duke Energy, and a broad spectrum of other stakeholders, is effectively the same as Portfolio D in Duke Energy’s Integrated Resource Plan. That statement alone undermines the credibility of the entire report.

When JLF claims “together wind, solar, and storage account for 53 percent of costs in 2051” under Portfolio D, that statement is based on pricing forecasts that are baked into the IRP that have been roundly discredited.

Just last week, the South Carolina Public Service Commission (Commission) evaluated Duke Energy’s IRPs and rejected them, sending them back to Duke for substantial modifications. After hearing eight days of testimony and thousands of pages of evidence, the Commission concluded that Duke had modeled all its plans – including Portfolio D – on inaccurate measures of the price of natural gas and solar generation. In short, Duke Energy assumed a price of natural gas that was too low and would not rise substantially over a 30-year period and a solar price that was far too high. All the costs forecast in Duke’s IRPs are based on those flawed assumptions.

The JLF Report carries forward these inaccurate assumptions in its alternative gas-based portfolio. This portfolio cannot be given any credibility until, as ordered by the State of South Carolina, a better model of natural gas price forecasting is used by Duke Energy and JLF.

The JLF Report further proposes scenarios that focus on expanding the role of nuclear energy. While it is true that Duke Energy’s current nuclear fleet produces a substantial portion of all energy produced in North and South Carolina and meets an equally large portion of the baseload demand, the JLF models undercount the substantial cost of developing new nuclear resources – a lesson currently being painfully learned by the ratepayers of South Carolina and Georgia, who have sunk billions of ratepayer dollars into nuclear plants that have never come on-line. With the failed V.C. Summer project, South Carolina learned to look critically at plans for new nuclear deployment, as nine billion ratepayer dollars sank into a hole in the ground in Fairfield County. As a result, the Commission takes its energy obligations seriously and reviews the assumptions in forecast reports very carefully.

JLF’s assumption of technological advances in new nuclear reactor models may come to fruition eventually, but renewables and storage are present-day technologies that can meet the demand now while greatly decreasing costs and carbon emissions, all without assuming a quantum leap in cost and technology that may not actually occur.

  1.  JLF Fundamentally Misunderstands Risk

Because the JLF Report accepts the refuted cost assumptions about Portfolio D in the Duke Energy IRPs, it fundamentally misrepresents the risks of a system built on renewables + storage and compares them to equally incorrect understanding of the risk of a massive increase in natural gas.

In addition to the cost assumptions mentioned above, the Commission also rejected Duke’s analysis of the inability of renewables and storage to meet demand, particularly on peak demand days in the summer and winter. The Commission ordered Duke to remodel its use of natural gas by considering the very real risk over the next 30 years that gas supply will decrease or be limited in the Carolinas. 

The Commission also acknowledged, and required Duke to address, the risk that investment in a gas intensive system would result in billions of dollars of stranded assets – natural gas plants that have not reached the end of their useful life but have been rendered economically unviable – much like the current subcritical coal-fired power plants in North and South Carolina.

Duke Energy’s Portfolio A in its IRPs, a “base case without carbon costs,” is a natural-gas-intensive portfolio that pales in comparison to the natural gas proposals in the JLF Report. But even at that lower level, a recent report by the Energy Transition Institute expects the Duke base case to result in North and South Carolina ratepayers being stuck with a $4.8 Billion bill for stranded assets as natural gas becomes uncompetitive. That risk was too great for the Commission, which sent the plan back to Duke Energy with an order to reevaluate its assumptions. 

  1. Renewables are Good for North Carolina’s Economy

JLF attacks renewable energy on economic grounds as well, alleging that a plan that focuses on renewables plus storage will result in slower economic growth and fewer jobs. In this argument, JLF is opposed by the economic record. Interestingly, in the cover email sent to legislators, JLF claimed that “Solar produces one-sixth of the electricity provided by nuclear and natural gas but requires double the workers to do so.” While unsourced and likely based on the same kind of blinkered understanding of data and statistics that infect the rest of the JLF Report, the claim that more jobs are somehow a bad thing is telling.

Fortunately, North Carolina has not listened to these arguments in the past. In 2017, the NC General Assembly passed the bipartisan Competitive Energy Solutions Act (HB 589) over JLF’s objections. The centerpiece of that bill was a new program to leverage the benefits of private sector competition in clean energy for ratepayer benefit – called the Competitive Procurement of Renewable Energy (CPRE). 

As a result, North Carolina has reaped enormous economic benefits. According to a 2021 study by RTI International, “from 2007-2020, the total economic impact from clean energy and energy efficiency project development in the state was $40.3 billion, with 17 percent of the cumulative clean energy investment over the last 14 years occurring in 2019 and 2020…In fact, some of the most rural and economically-challenged counties in North Carolina were the ones that saw the greatest amount of clean energy investment from 2007-2020. Duplin, Robeson, Halifax, Edgecombe, Cumberland, Northampton, and Bladen counties experienced the greatest amount of investment—more than $500 million each between 2007 and 2020. Overall, there are 42 North Carolina counties with over $100 million in investment.” According to the new report, clean energy development supported 291,183 annual full-time equivalents (FTEs) from 2007-2020.

Continued renewables procurement will result in even greater benefits for North Carolinians.

A prior analysis by CCEBA showed that a six-year of extension of CPRE, as is proposed in a bill currently before the House, would secure the following additional benefits:

At least $440 million of additional ratepayer savings by 2030.A

$6.3 billion of private investment over the six-year period.

20,000 direct new jobs during construction.

$185 million in local tax revenues over project lifetimes.

$1.2 billion in landowner lease payments over project lifetimes.

     Additional Ratepayer Savings from Continued Renewables Procurement ($Millions Cumulative)

Economic and Community Benefits

Solar is today’s most affordable source of new electricity and generates significant cost savings. HB589’s CPRE procurement to date will save ratepayers at least $360 million, and a six-year extension is expected to save ratepayers at least $341 million by 2030.

Solar is a major driver of private investment and job creation in rural NC, attracting nearly $15 billion of investment to dateone of the largest sources of private investment in NC’s economically-disadvantaged (Tier 1 and 2) counties over the past decade.

Solar is a strong partner for NC’s communities, reliably powering 850,000 homes across the state and contributing to workforce development and community development initiatives.

Solar projects make large contributions to local tax revenue: in an analysis of fifty NC counties, properties with new solar projects paid nearly 2,000% more in property taxes annually in the first year, on average.

Increase in Annual Property Tax Revenue (%) from Parcels with Installed Solar

As with its analysis of cost and risk, JLF’s discussion of the economic benefits of renewable energy production is limited by poor analysis and misunderstanding. Following their advice would lead North Carolina to fall behind in an area where it has always led. Other states, including Florida, Tennessee, Georgia, and South Carolina are moving ahead with substantial renewable energy investments.  Increasing renewable energy production in North Carolina is a net good to the economy, the environment, and the tax coffers of North Carolina towns and counties. JLF’s “Energy Crossroads” Report calls for the state to ignore that progress and potential and lash itself to uncompetitive technology in a changing world.

  1. A Disregard for Private Property Rights 

When do you know a ‘free market think tank’ doesn’t actually support free markets? When it obsesses over how others use their own private property. In the paper, JLF complains that renewables ‘take up more land’ than the fuels government regulated monopolies favor. What renewables do not do is impose eminent domain domain, a hallmark of the natural gas pipelines faux ‘free marketeers’ advocate. Solar and wind developers lease unimproved land from private land owners. No one is required to enter into a contract with a renewables developer. solar and wind leases are long term sources of revenue for landowners who choose to diversify their incomes. In addition, renewables require a great deal less public investment from local governments than housing and commercial development. As a reference point, housing and commercial development not only absorb enormous swaths of farmland, they also require public tax outlay for new roads, sewers, sidewalks, safety forces, and schools. Finally, studies show that renewables occupy no more than one quarter of one percent of the land in any North Carolina county. 

  1. The Contents of the Report are Irrelevant to House Bill 951

In short, the more government regulated monopolies build, the more they get paid. JLF issued this report to members of the North Carolina General Assembly In a thinly veiled effort to push House Bill 951 toward state mandates for more expensive energy sources. Legislators and the public should not be fooled. Whatever its flaws, HB 951, in its current form, is not the same as “Portfolio D” in Duke Energy’s Integrated Resource Plans as presented in the JLF Report. The JLF Report, taking liberty with fact and reality, attacks Duke Energy’s Portfolio D and the NC Clean Energy Plan, in an obvious attempt to confuse analysis of a bill currently making its way through the House. They are not the same thing, and to argue that they are is dishonest and unhelpful to the work of legislators, staff, and the many stakeholders who are currently engaged in good faith negotiations. 

Around the country. government regulated monopolies are rent seekers that continually try to slow the market from eating into their guaranteed, publicly funded profits. Eventually, market forces will prevail when it comes to electricity in the Carolinas, but the longer monopolies and their false free marketers stall competition among energy generators, the more the public will pay unnecessarily