This is a=20 Center for Data Analysis Report On Energy = and=20 Environment

A Renewable Electricity Standard: What It Will Really Cost=20 Americans

Published on May 5, 2010 by David = Kreutzer,=20 Ph.D. , Karen = Campbell,=20 Ph.D. , William = Beach=20 , Ben = Lieberman=20 and Nicolas = Loris=20

Abstract: Renewable energy=E2=80=94harnessing the power of = the wind and the=20 sun=E2=80=94sounds wonderful until confronted with the facts. While wind = and sun are=20 indeed free, turning their energy into consumer-accessible electricity = is not.=20 Nor is it easy. Wind power must be used at the moment the wind is = blowing=E2=80=94 which=20 it generally does not do during blazing-hot summer days, the peak of = electricity=20 use. Both solar and wind power require costly installations and = transmission=20 mechanisms. Instead of saving money for Americans, renewable energy = sources are=20 much more likely to spike their utility bills. Nevertheless, Congress is = considering a mandate for a nationwide renewable electricity standard = (RES).=20 Heritage Foundation energy policy experts explain why an imposed = national RES=20 would be bad for families, bad for business, and bad for the = economy.

Congress is once again considering major energy legislation, focused = largely=20 on promotion of energy sources that produce few or no greenhouse gases. = This=20 current concentration on promoting so-called renewable energy sources = assumes=20 that congressional action now will lead to such significant growth in = renewable=20 energy sources that the use of carbon-based energy will subside, thus = reducing=20 the expansion of atmospheric carbon dioxide and other global warming = gases.

Congress=E2=80=99s effort to expand renewable energy sources starts = from a relatively=20 meager production base. Nearly half of America=E2=80=99s electricity is = generated from=20 coal, with natural gas and nuclear energy adding about 20 percent = each.[1] Most of the rest is provided by renewable = sources,=20 primarily hydroelectric energy at 6 percent. Non-hydro renewables like = wind and=20 solar energy and biomass total only 3 percent.

For many years, federal energy and environmental policy has nudged = production=20 of some electricity sources over others, either through = =E2=80=9Csticks,=E2=80=9D such as costly=20 air quality regulations targeting coal, or through = =E2=80=9Ccarrots=E2=80=9D like tax credits=20 and subsidies for wind. Proposed global warming legislation would alter = the=20 electricity mix to an unprecedented degree by putting a price on = emissions of=20 greenhouse gases, chiefly carbon dioxide from fossil fuel combustion. = Coal is=20 the most carbon-intensive energy source, and any stringent cap-and-trade = provisions would significantly curtail its use in favor of other sources = in the=20 decades ahead. Such legislative measures, however, are very costly,[2] and the prospects for passage in 2010 are = uncertain.

Congress is also considering achieving similar but less ambitious = goals via a=20 renewable electricity standard (RES). Twenty-nine states have versions = of an=20 RES, but Washington is considering a nationwide standard. Under this = mandate, a=20 growing percentage of electricity would have to be produced by approved=20 renewable energy sources. Much of the RES would be met with increased = energy=20 generation from wind turbines.

It stands to reason that an RES would raise electricity prices. After = all, if=20 electricity created by wind and other renewables were cost competitive,=20 consumers would use more of it without a federal law to force = consumption.=20 Recent experience with the mandate for renewable fuels like corn ethanol = also=20 suggests significant cost increases as well as technical shortcomings.[3]

While proponents argue that wind is free, harnessing it into useful=20 electricity certainly is not. However, the question of how much an RES = will=20 affect electric bills does not have a straightforward answer.

Perhaps easiest to calculate is the direct cost of purchasing, = installing,=20 and operating the increasing number of wind turbines needed to meet the = RES. A=20 bit murkier are questions about the costs of the necessary additional=20 transmission lines to deliver the electricity from where it is = generated=E2=80=94 the=20 most desirable sites for wind are often remote mountain ridges or = sparsely=20 populated plains=E2=80=94to the cities where it is needed.[4] The economics of an RES is further complicated = by the=20 legal and administrative objections to establishing appropriate sites = for wind=20 farms and transmission lines, which already are quite common and would = only grow=20 with an RES.[5]

It is particularly difficult to take into account the substantial = costs=20 created by the intermittent and unreliable nature of wind. Simply put, = the wind=20 does not always blow, and it is difficult to predict and impossible to = control.=20 Given the need for electricity 24 hours a day seven days a week and the = reality=20 that times of peak demand=E2=80=94hot summer days=E2=80=94are precisely = when the wind is usually=20 still, a mandate for increased wind-generated energy is also a mandate = for=20 increased non-wind backup systems for balancing wind fluctuations.[6] In effect, increased wind power cannot simply be = added to=20 the existing grid without transforming the grid in ways that introduce = both=20 significant costs and operational inefficiencies.

These shortcomings will not be overcome through increases in scale.=20 Connecting a large number of widely dispersed wind farms to the grid = will not=20 smooth the overall supply enough to make balancing unnecessary. Though=20 variability can be reduced, a recent analysis states, =E2=80=9CThese = results do not=20 indicate that wind power can provide substantial baseload power simply = through=20 interconnecting wind plants.=E2=80=9D[7]

There are federal studies of the costs of an RES that conclude that = it would=20 add no more than a few percent to electric rates,[8] but these studies do not take the full cost of = wind and=20 other renewables into account. This Center for Data Analysis (CDA) = Report=20 provides such a comprehensive economic analysis.

CDA analysis projects that an RES as outlined below would:

Raise electricity prices by 36 percent for households and 60 = percent for=20 industry;=20
Cut national income (GDP) by $5.2 trillion between 2012 and 2035;=20
Cut national income by $2,400 per year for a family of four;=20
Reduce employment by more than 1,000,000 jobs; and=20
Add more than $10,000 to a family of four=E2=80=99s share of the = national debt by=20 2035.

3D"High

Comparing the Costs of Wind and Coal

The flow of wind is erratic and uncertain, which means that so is the = power=20 generated from wind. This unreliable nature is especially problematic = when wind=20 is used to generate utility-scale electricity for the power = grid.

Keeping line quality, primarily voltage and frequency, within the = necessarily=20 close tolerances requires constant monitoring of demand and the constant = monitoring and adjustment of supply.[9] Even under the best of circumstances, these = adjustments=20 require a certain fraction of power to be delivered from generators that = can be=20 ramped up and down rapidly. For the most part, this easily ramped = electricity=20 comes from natural-gas fired turbines that are relatively expensive to = operate=20 compared to a baseload source such as coal, nuclear, or natural-gas=20 combined-cycle power plants.

Though coal, nuclear, and gas combined-cycle power plants are much = more=20 sluggish in response to changing demand, their dependability is very = high.=20 Indeed, their output can be matched to sizeable, expected changes in = demand when=20 given sufficient lead time. Wind energy plants do not have this ability = by=20 themselves, so direct comparisons of wind costs per kilowatt hour to = coal or gas=20 costs are misleading.

Further, location choices for fossil and nuclear-fueled power plants = have=20 much greater latitude than those for wind turbines, which, like = hydropower=20 plants, must be located where the natural resource is best = suited=E2=80=94not=20 necessarily close to where the power is used. This feature adds = additional=20 transmission costs to wind energy.

With nuclear power not considered to be renewable, the least-cost = renewable=20 source for electricity is onshore wind. In an early-release version of = its=20 =E2=80=9CAnnual Energy Outlook 2010,=E2=80=9D the Energy Information = Administration (EIA) lists=20 the levelized costs of various sources of electricity projected for 2016 = (in=20 2008 dollars).[10]

The EIA levelized costs per megawatt hour are $78.10 for conventional = coal=20 power,[11] $149.30 for onshore wind power, $191.10 for = offshore=20 wind power, $396.10 for photo-voltaic solar power, $256.60 for thermal = solar=20 power, and $139.50 for power generated by natural-gas conventional = turbines.

Even though the $149.30 for the cheapest renewable power is already = well=20 above the cost of conventional power sources, it does not include any = adjustment=20 for reliability or additional transmission costs.

Wind cannot be turned on and off to match changes in demand. There = are no=20 feasible energy storage options for most wind farms. So, unlike power = from=20 conventional sources, wind power must be used when the wind is actually=20 blowing.

Geography puts wind at another disadvantage. To keep the cost of wind = power=20 as low as possible, it is necessary to locate the wind farms in areas = with the=20 strongest and steadiest winds. As is the case with solar power, many of = the best=20 areas for wind power are located far from the major population centers. = This=20 requires construction of new, high-capacity transmission lines. A review = of=20 transmission costs suggests a median cost of $15 per megawatt hour.[12]

The dependability problem is more complicated. Power-grid management = requires=20 constant and instantaneous balancing of supply and demand. Sophisticated = analysis and long experience guide grid operators as they schedule the = various=20 sources of generation. Nevertheless, there will still be unanticipated = changes=20 in both supply and demand; further, there can be variations in demand = that=20 cannot easily be matched by the most efficient conventional sources = (coal,=20 nuclear power, and integrated combined-cycle gas) even if they are = anticipated.=20 The most common energy source for balancing these very short-run changes = is=20 natural gas turbines, which are less efficient than coal, nuclear power, = or=20 natural gas combined cycle.

Wind, like solar energy, is not a dispatchable power source; that is, = it=20 cannot be turned on at will. As a result, increasing dependence on wind = adds=20 variability and uncertainty to the power grid that must be offset by=20 quick-ramping power sources like natural gas turbines to maintain a = relatively=20 constant flow of electricity.

This increased reliance on natural gas turbines comes from two sides = of the=20 balancing equation. When there is an unanticipated decline in wind = generation,=20 or when the decline is anticipated but is for too short a period to = balance with=20 coal, natural gas turbines fill the gap. On the other hand, when wind = generation=20 is low compared to capacity, there is need for power sources that can be = quickly=20 ramped down. In this case, there would be additional need for natural = gas=20 generation so that unanticipated increases in wind power can be = accommodated by=20 rapidly cutting power from the natural gas turbines.

Gas turbines are not a renewable energy source, so swapping a = megawatt hour=20 of wind power for a megawatt hour of coal power also requires swapping = power=20 from natural gas turbines for additional coal. Since coal power is = cheaper than=20 power generated by natural gas turbines, the difference must be added to = the=20 cost differential between wind and coal.

There is little research directly addressing the question of how much = additional gas-turbine power will be needed. The theoretical limits are = zero=20 (all fluctuations are perfectly anticipated and balanced with the = cheapest coal=20 power) and the inverse of the capacity factor, which would imply three = megawatt=20 hours of additional gas-turbine power for every megawatt hour of wind = power.[13] In theory, this could add as much as $179 per = megawatt=20 hour to the cost of wind power.

A study done for the National Renewable Energy Laboratory indicates = that the=20 spinning reserves must be increased about 0.2 megawatt capacity for each = megawatt of wind power.[14] =E2=80=9CSpinning reserves=E2=80=9D describes = the power plants that must=20 be warmed up and synchronized with the grid so that they can be brought = online=20 more quickly. They use fuel, but not as much as when they are called = upon to=20 supply power to the grid.

This measure is somewhat different from the necessary increase in = actual=20 gas-turbine electricity production, but it is very much related to the=20 uncertainty and variability problem. Though 0.2 megawatt per hour may be = a=20 significant underestimate for the amount of additional gas-turbine = power, it is=20 the factor employed for this analysis. That is, for every megawatt hour = of wind=20 that is substituted for coal power, an additional 0.2 megawatt hour of=20 gas-turbine power must be substituted for coal as well. Using this ratio = adds=20 $12 per megawatt hour instead of the theoretical maximum of $179 per = megawatt=20 hour to the cost of wind power.

After making these adjustments for transmission costs and additional=20 gas-turbine generation, the cost of an additional megawatt of onshore = wind power=20 is $177 per hour. This is 126 percent above the cost of a megawatt of = coal power=20 per hour.

Put another way, the electric bill for a typical family of four would = be $189=20 per month if it was powered entirely by coal, but it would rise to $340 = per=20 month if it was supplied entirely by onshore wind power.[15]

Since onshore wind is the least expensive of the renewable = electricity=20 sources (ruling out conventional hydro and nuclear power), any plan that = uses=20 the more expensive renewable sources=E2=80=94such as offshore wind ($218 = per megawatt=20 hour); thermal solar power ($284 per megawatt hour); or photovoltaic = solar power=20 ($423 per megawatt hour)=E2=80=94 would have even greater costs. As the = mandated=20 renewable-fraction of electric power rises, so does the average cost of=20 electricity.

Chart 1 shows the hypothetical family-of-four electric bill for = different=20 sources of electric power. Though former Vice President Al Gore has = suggested=20 moving the country entirely to renewable electricity generation in 10 = years, few=20 if any legislative proposals seek complete dependence on renewables.=20 Nevertheless, Chart 1 illustrates the large cost differences between the = cheaper=20 conventional energy sources and various renewable energy sources.

With a standard that requires only a fraction of electricity to be = generated=20 by renewable sources, the adverse impact on electric bills will be = diluted as=20 the higher cost of renewable electricity is averaged with the lower-cost = conventional power. However, as the relative amount of wind power grows, = the=20 impact on electricity prices grows as well.

A Renewable Standard

Renewable energy standards typically stipulate a timeline of minimum = levels=20 of electricity that must be met by approved renewable sources. Usually, = these=20 minimum levels are expressed as a fraction of total electricity = generation for=20 each year.

For the purposes of this study, the RES starts at 3 percent for 2012 = and=20 rises by 1.5 percent per year. This profile mandates a minimum of 15 = percent=20 renewable electricity by 2020, a minimum of 22.5 percent by 2025, and a = minimum=20 of 37.5 percent by 2035, which is the end year for this = analysis.

CDA analysts assume that the higher costs of the renewable power are = averaged=20 in with the lower costs of conventionally generated power so that within = each of=20 the sectors (industrial, commercial, and residential), all customers pay = the=20 same price per kilowatt hour. Further, for the purposes of this = analysis, prices=20 do not vary from one part of the country to another. In reality, an RES = will=20 have differential impacts from one market to another. In general, = smoothing=20 adverse impacts in economic analysis reduces overall costs. So although = the=20 analysis may blur the pattern of economic distress, it is unlikely to = have=20 overestimated it.

Economic Responses

When the cost of any commodity rises, actors in the economy respond = in=20 uncounted ways to offset the impact. Though specific responses cannot be = predicted, general patterns and magnitudes can be estimated from past = responses=20 to price changes.

Electricity prices have risen and fallen over the decades, and = businesses and=20 households have adjusted. The adjustments can be as routine as parents = reminding=20 their children to turn off the lights or as entrepreneurial as an = engineer=20 setting up a firm to develop new technology. When electricity prices = rise,=20 heat-pump salespeople are more likely to emphasize the advantages of = their more=20 efficient (and more expensive) models; producers of electronic controls = will see=20 a greater market for programmable thermostats; people will turn down the = thermostat and be more inclined to buy Energy Star-rated appliances.[16] These impacts and more are reflected in the = complex=20 system of equations that have been estimated for the macroeconomic model = and are=20 reflected in the coefficients of the smaller energy model employed to = estimate=20 initial electricity price effects.[17]

Even when averaging the cost of the mandated renewable electricity = with the=20 cheaper conventionally sourced electricity, the price rises are = noticeable. For=20 residential consumers, the price increases start small (because the = renewable=20 mandate starts at only 3 percent), but by 2035, the price rises 36 = percent above=20 the baseline price. Forced to pay higher prices, households cut = electricity use=20 by 19 percent. Even after these consumption cutbacks, a family of four = will see=20 its annual electric bill rise by over $300.

Because the cost of generation is a bigger fraction of the industrial = electricity price than of the residential electricity prices, the RES = causes a=20 bigger percentage increase in industrial electricity prices than in = residential=20 electricity prices. The price increase is 5 percent in 2012 and rises to = 60=20 percent in 2035. The higher prices force cutbacks in consumption that = reach 23=20 percent below baseline in 2035. The net impact in 2035 is that = industrial users=20 will pay out 21 percent more dollars for 23 percent less electricity = than if=20 there were no RES.

Electric power is one of the most critical inputs to a modern = economy. Thus,=20 it is no surprise that forcing the cost of electricity to rise dampens = economic=20 activity. The cost increase for electricity can be viewed as a = particularly=20 damaging energy tax, because a renewable mandate, unlike the case of a = normal=20 tax, provides no revenue to at least partially offset the higher cost. = By way of=20 comparison, the highway use tax on gasoline raises the price of = gasoline, but it=20 also generates revenues for building and maintaining roads and = bridges.[18] On the other hand, a renewable energy standard = raises=20 costs in the form of less efficient production, which provides no = economic=20 benefit.

As an analogy, suppose a farmer is able to produce 10,000 bushels of = wheat=20 per year with the aid of irrigation from a nearby river. If a regulation = prohibiting irrigation cuts production to 9,000 bushels, then, to the = farmer,=20 this is the same as a 10 percent tax. However, with an actual tax, the=20 government would have 1,000 bushels to distribute, while with the = prohibition on=20 irrigation, those bushels simply disappear=E2=80=94providing benefits to = no one.

The Macroeconomic Impacts

Analysis of cap-and-trade bills that impose economy-wide reductions = in CO2=20 emissions shows overall losses to the economy of $5 trillion to nearly = $10=20 trillion between 2012 and 2035.[19] Though renewable energy standards apply only = to the=20 power sector (electricity generation), they provide less flexibility in = meeting=20 the goals than does cap-and-trade and can lead to losses of the same = order of=20 magnitude as the more comprehensive cap-and-trade regulations.

3D"Renewable

The broadest measure of a country=E2=80=99s economic activity is = gross domestic=20 product (GDP). As the mandated level of renewable energy rises over = time, so=20 does the cost of electricity and so do the losses imposed on the = economy.=20 Compared to the no-RES baseline, GDP drops by $50 billion in 2012. The = annual=20 losses increase to $197 billion by 2020, $300 billion in 2030, and more = than=20 $325 billion in 2035. Summing up the impacts for 2012 to 2035 yields a = total=20 loss of $5.2 trillion. All of these impacts are adjusted for inflation = to 2010=20 dollars. On a family-of-four basis, this lost income averages over = $2,400 per=20 year.

When the economy is shocked by the higher electricity prices, = employment=20 declines. In the first year (2012), employment drops 330,000 jobs below = the=20 baseline level. The battle between market adjustments and ever-rising=20 electricity prices leads to periods of growing job losses interspersed = with=20 periods of relative stability. However, by 2017, employment falls = 1,000,000 jobs=20 below the baseline and at times is more than 1.2 million jobs below the=20 baseline. On average, there will be 1,000,000 fewer people working with = the RES=20 in effect than if there were no RES.

Falling incomes and rising unemployment squeeze government finances = from two=20 sides: Tax revenues fall, and expenditures on such things as = unemployment=20 insurance rise. These two responses cause federal deficits to grow even = faster=20 than they are already projected to grow. The RES will add over $10,000 = to a=20 family of four=E2=80=99s share of the national debt by 2035.

Conclusion

Mandating that an ever-increasing fraction of electrical power must = be=20 generated from renewable sources will raise the cost of electricity, = force=20 inconvenient and painful cuts in electricity use, and damage the = economy.=20 Households will see their electricity prices rise 36 percent by 2035, = while=20 industrial users will see their electricity prices rise 60 percent even = after=20 adjusting for inflation.

Since virtually every product and service depends on electricity to = some=20 extent, these price increases have pervasive impacts. Compared to = projected=20 levels without the RES, economic activity falls by $5.2 trillion, which = is an=20 inflation-adjusted average annual loss of $218 billion, or more than = $2,400 per=20 family of four each year.

Declining economic activity is bad for employment. Implementing the = RES cuts=20 jobs. Compared to baseline projections (that is, without the RES), = employment=20 averages 1,000,000 jobs below the baseline projection.

Though the source of wind and solar energy is free, power delivered = from=20 these sources is very expensive. For now at least, onshore wind is the = cheapest=20 renewable energy source that can be scaled in significant fashion. But = scaling=20 up wind power simply lays bare the costly nature of harnessing wind and=20 magnifies the economic losses. A renewable electricity standard is not a = path to=20 the new economy, but an example of the stale old thinking that will = hobble the=20 already damaged economy with job-killing cost increases.

=E2=80=94David W. Kreutzer, Ph.D., is Research Fellow in Energy = Economics and=20 Climate Change in the Center for Data Analysis; Karen A. Campbell, = Ph.D., is=20 Policy Analyst in Macroeconomics in the Center for Data Analysis; = William W.=20 Beach is Director of the Center for Data Analysis; Ben Lieberman is = Senior=20 Policy Analyst in Energy and the Environment in the Thomas A. Roe = Institute for=20 Economic Policy Studies; and Nicolas D. Loris is a Research Assistant in = the Roe=20 Institute at The Heritage Foundation.

Appendix

Methodology

As described in the section =E2=80=9CComparing the Costs of Wind and = Coal,=E2=80=9D CDA=20 analysts calculated the increase in the cost of wind power per megawatt = hour.=20 This cost is then translated to that for 1 percent of base-year power=20 production. This 1 percent cost is multiplied by the RES percent for = each year,=20 and an average price increase is calculated from that. The price = increases are=20 then passed on to the macroeconomic model.

Macroeconomic Simulation Overview

Heritage analysts used the IHS Global Insight long-term macroeconomic = model=20 of the U.S. economy to estimate the effects of the Clean Energy Jobs and = American Power Act (S. 1733) on the overall economy.[20] The simulation was implemented by changing = variables in=20 the macroeconomic model according to the changes predicted by a = microeconomic=20 model of the energy sector maintained by the CDA (see above). In order = to=20 estimate the policy impact, two main pieces needed to be simulated: = price=20 effects and energy efficiency effects.

The energy model estimated the change in energy production prices and = retail=20 energy prices that would result from changing the production mix from = renewable=20 energy and traditional energy sources. These prices were matched with = their=20 corresponding variables in the macroeconomic model to estimate the = effect that=20 these price changes would have on the economy overall.

The energy model projects changes in fuel efficiency and changes in = total=20 highway fuel consumption. Corresponding macro-model variables were = changed. The=20 effect of these changes helps to mitigate some of the total increased = consumer=20 expenditure on fuel.

The macroeconomic model does not have specific variables = corresponding to=20 alternative renewable fuel sources as does the CDA energy model. The=20 macroeconomic simulation takes into account the increase in domestic = alternative=20 fuel source supply by adjusting the variable amount of residual energy = demand=20 that affects the amount of imported energy.

TABLE (PDF)

Show=20 references in this report

[1]U.S. Energy Information Administration, = =E2=80=9CFigure ES 1. U.S.=20 Electric Power Industry Net Generation,=E2=80=9D January 21, 2010, at = http://= www.eia.doe.gov/cneaf/electricity/epa/figes1.html=20 (April 29, 2010).

[2]For analysis of the Lieberman=E2=80=93Warner bill, = see William W.=20 Beach, David W. Kreutzer, Ben Lieberman, and Nicolas D. Loris, = =E2=80=9CThe Economic=20 Costs of the Lieberman=E2=80=93Warner Climate Change = Legislation,=E2=80=9D Heritage Foundation=20 Center for Data Analysis Report No. CDA08-02, May 12, 2008, at = http://www.heritag= e.org/Research/Reports/2008/05/The-Economic-Costs-of-the-Lieberman-Warner= -Climate-Change-Legislation.=20 For analysis of the Waxman=E2=80=93Markey bill, see David W. Kreutzer, = Karen A.=20 Campbell, William Beach, Ben Lieberman, and Nicolas Loris, =E2=80=9CThe = Economic=20 Consequences of Waxman=E2=80=93Markey: An Analysis of the American Clean = Energy and=20 Security Act of 2009,=E2=80=9D Heritage Foundation Center for Data = Analysis=20 Report No. CDA09-04, August 6, 2009, at http://www.heritage.org/Research/Reports/2009/08/The= -Economic-Consequences-of-Waxman-Markey-An-Analysis-of-the-American-Clean= -Energy-and-Security-Act-of-2009Markey-An-Analysis-of-the-America= n-Clean-Energy-and-Security-Act-of-2009.=20 For analysis of the Boxer=E2=80=93Kerry bill, see David W. Kreutzer, = Karen A. Campbell,=20 William W. Beach , Ben Lieberman, and Nicolas D. Loris, =E2=80=9CWhat = Boxer=E2=80=93Kerry Will=20 Cost the Economy,=E2=80=9D Heritage Foundation Backgrounder No. = 2365, January 26,=20 2010, at http://www.heritage.org/Research/Reports/2010/01/= What-Boxer-Kerry-Will-Cost-the-Economy.

[3]Ben Lieberman and Nicolas Loris, =E2=80=9CTime to = Repeal the Ethanol=20 Mandate,=E2=80=9D Heritage Foundation WebMemo No. 1925, May 15, = 2008, at http://www.heritage.org/Research/Reports/2008/05/Time= -to-Repeal-the-Ethanol-Mandate.

[4]Joint Coordinated System Plan, Report: Joint = Coordinated=20 System Plan =E2=80=9908, 2008, at http://www.jcspstudy.org/ = (April 30,=20 2010).

[5]U.S. Chamber of Commerce, =E2=80=9CProject No = Project: Energy=E2=80=94Back on=20 Track,=E2=80=9D at http://pnp.uschamber.com/ = (April 30,=20 2010).

[6]Robert J. Michaels, =E2=80=9CA Federal Renewable = Electricity=20 Requirement,=E2=80=9D Cato Institute Policy Analysis No. 627, = November 13, 2008,=20 athttp://www.cat= o.org/pub_display.php?pub_id=3D9768=20 (April 29, 2010).

[7]Warren Katzenstein, Emily Fertig, and Jay Apt, = =E2=80=9CThe=20 Variability of Interconnected Wind Plants,=E2=80=9D Energy = Policy, April 18,=20 2010, at ht= tp://www.citeulike.org/user/LondonAnalytics/article/7052831=20 (April 29, 2010).

[8]U.S. Energy Information Administration, = =E2=80=9CImpacts of a 25=20 Percent Renewable Electricity Standard as Proposed in the American Clean = Energy=20 and Security Act Discussion Draft,=E2=80=9D April 2009, at http://www.eia.doe.gov/oiaf/servicerpt/acesa/pdf/sroiaf(2009)04.pdf=20 (April 29, 2010).

[9]Electrical appliances operate on alternating = current, which=20 requires that all generators in the grid turn at the same frequency and = be=20 perfectly synchronized. Further, appliances are designed to operate at=20 particular voltages. Exceeding the tolerances for these voltages, either = too=20 high or too low, can cause serious damage to the equipment.

[10]U.S. Energy Information Administration, = =E2=80=9C2016 Levelized Cost=20 of New Generation Resources from the Annual Energy Outlook = 2010,=E2=80=9D at http= ://www.eia.doe.gov/oiaf/aeo/electricity_generation.html=20 (April 29, 2010).

[11]To adjust for regulatory uncertainty, the EIA = added a=20 premium to the capital cost for coal power plants. The EIA said that the = premium=20 has a cost impact similar to a $15 per ton tax on CO2 emissions. This = would=20 raise the cost of coal power by $22.30 per megawatt hour. Since CDA = analysts are=20 interested in comparing the cost of electricity generated with coal and = without=20 CO2 regulations to the cost under a renewable energy standard, the cost=20 associated with the capital premium has been deducted here.

[12]Andrew Mills, Ryan Wiser, and Kevin Porter, = =E2=80=9CThe Cost of=20 Transmission for Wind Energy: A Review of Transmission Planning = Studies,=E2=80=9D Ernest=20 Orlando Lawrence Berkeley National Laboratory, February 2009, at http://eetd.lb= l.gov/ea/emp/reports/lbnl-1471e.pdf=20 (April 29, 2010).

[13]The capacity factor is the ratio of a = generator=E2=80=99s actual=20 energy production for a year to its maximum potential production. The = projected=20 capacity factors are 34 percent for wind, 85 percent for coal, 87 = percent for=20 natural gas combined cycle, 90 percent for nuclear power, and 30 percent = for=20 natural gas turbines. These different capacity factors have already been = incorporated into the EIA=E2=80=99s levelized costs.

[14]EnerNex Corporation, =E2=80=9CEastern Wind = Integration and=20 Transmission Study: Executive Summary and Project Overview,=E2=80=9D = prepared for the=20 National Renewable Energy Laboratory, January 2010, at http://www.nrel.gov/wind/systemsintegration/pdfs/2010/e= wits_executive_summary.pdf=20 (April 29, 2010).

[15]These numbers are based on the cost of = substituting wind for=20 coal, which requires additional natural-gas turbine power for balancing. = It=20 would be virtually impossible, and therefore much more expensive, to = provide=20 power that is generated entirely by wind farms. The average markup from = cost to=20 retail is assumed to be $45 per megawatt hour. The average consumption = is=20 derived from U.S. Energy Information Administration, =E2=80=9CTable 5: = Average Monthly=20 Bill by Census Division, and State 2008,=E2=80=9D athttp://= www.eia.doe.gov/cneaf/electricity/esr/table5.html=20 (April 29, 2010).

[16]For evidence that consumers are sensitive to and = aware of=20 differences in appliance efficiencies, see the surveys done for the = EPA=E2=80=99s Energy=20 Star program. These surveys show that a large majority of households = consider=20 the Energy Star rating when purchasing an appliance. For the 2009 = survey, see=20 Energy Star, =E2=80=9CNational Awareness of Energy Star for = 2009,=E2=80=9D at http://www.energystar.gov= /ia/partners/publications/pubdocs/National%20Awareness%20of%20ENERGY%20ST= AR%202009.pdf=20 (April 29, 2010).

[17]See the Appendix to this report for a description = of the CDA=20 Energy Model and the IHS Global Insight U.S. Macroeconomic Model used to = estimate the economic effects of RES.

[18]In fact, however, these taxes are increasingly = diverted to=20 other uses. For a discussion of this diversion, see Wendell Cox and = Ronald D.=20 Utt, =E2=80=9CFederal Transportation Programs Shortchange Motorists: = Update of a USDOT=20 Study,=E2=80=9D Heritage Foundation Backgrounder No. 2283, June = 8, 2009, at http://www= .heritage.org/Research/Reports/2009/06/Federal-Transportation-Programs-Sh= ortchange-Motorists-Update-of-a-USDOT-StudyPrograms-Shortchange-M= otorists-Update-of-a-USDOT-Study.

[19]See, Beach et al., =E2=80=9CThe Economic = Costs of the=20 Lieberman=E2=80=93Warner Climate Change Legislation.=E2=80=9D

[20]The February 2010 long-term baseline is used for = this=20 analysis. Heritage analysts relied on models maintained by IHS Global = Insight,=20 Inc., in developing the economic estimates reported in this paper. The = IHS=20 Global Insight model is used by private-sector and government economists = to=20 estimate how changes in the economy and public policy are likely to = affect major=20 economic indicators. The methodologies, assumptions, conclusions, and = opinions=20 presented here are entirely the work of analysts at The Heritage = Foundation=E2=80=99s=20 Center for Data Analysis. They have not been endorsed by, and do not = necessarily=20 reflect the views of, the owners of the IHS Global Insight model. See=20 =E2=80=9CDescription of the Global Insight Short-Term U.S. Macroeconomic = Model,=E2=80=9D at=20 http://www.h= eritage.org/About/Staff/Departments/Center-for-Data-Analysis/~/media/CDA/= CDA_models_data/globalinsightmodel.ashx.

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