Would Utility Ownership Of Large-Scale Renewable Energy Projects Reverse Ratepayer Savings?

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Would a switchover to utility ownership of large-scale renewable energy projects (rather than independent ownership) undo the ratepayer savings seen in New York over the last decade?

That’s exactly what Gavin Donohue (CEO of the Independent Power Producers of New York) posits in his recent rebuttal to the position taken by ConEdison in a recent editorial at Greentech Media — stating that utility ownership will result in area ratepayers having their bills hiked upwards, putting them “on the hook” for decisions (possibly bad ones) made by the utilities.

New-York-saves-millions-RGGI

The current setup in the region entails that independent electricity producers sell to utility companies via a competitive auction process (competitive wholesale electricity markets, essentially) — thereby forcing participants to keep costs in-line and improve working efficiency, rather than simply being in the position to recoup cost overruns via rate-increases.

Recent data from the New York Independent System Operator seems to support this idea, showing that New York’s competitive market has resulted in a cut to costs of $6.4 billion, roughly 3 times the national average over the same period. When adjusted for inflation, electricity costs were even apparently around 35% lower in 2013 than in 2000.

Here’s an excerpt from the recent rebuttal:

When it comes to large-scale renewables, private investors bear the risk of loss — not consumers. And because they must rely on a limited, predetermined income stream to cover their costs and produce revenue, cost overruns are avoided and efficiency is paramount. This approach has been successful. In fact, independent power producers have been developing large-scale renewables successfully for quite some time now, installing 1,730 megawatts of wind power between 2003 and 2014.

If utilities are allowed to own large-scale renewables and recover costs via cost-of-service rates, it will not only harm competitive electric markets in the state, but will also chill future private investment. As private investment dwindles, utilities, which have been unresponsive to price efficiencies in the past, will dominate development without being subject to discipline provided by the market.

We know this is the case because we have been down this road before. Under the old utility ownership model, utilities owned generation, transmission and distribution assets, and they were entitled to cost-of-service rates — a structure where utilities are guaranteed a return on investment, paid for by ratepayers, regardless of the outcome of a project.

That vertical monopoly structure resulted in little innovation and massive, routine cost overruns. For example, consider the ill-fated Shoreham Nuclear facility, which Long Islanders are still paying for to this day, or Con Edison’s East River Repowering Project, which had an initial estimated cost of $406 million. The final cost ballooned to $788.3 million.

Good points. And ones that I’m inclined to agree with. The current setup allows for some degree of corrective (negative) feedback as far as project development goes — under the old setup mistakes could simply be papered over, and left to be resolved by ratepayer’s checkbooks. And for that matter, the current setup limits the power of utilities to manipulate market prices, by keeping generation and provision separate.


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James Ayre

James Ayre's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy.

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