California Gov. to Sign Bill Raising Renewable Energy Requirements

California Governor Jerry Brown will sign a bill today which will raise the required amount of costly renewable energy for electric generation in the Golden State to 33% while Texas Governor Rick Perry is likely grinning from ear to ear.

Texas and other business-friendly Western states such as Arizona and Utah, stand to benefit from California's latest payoff to the green lobby. The bill boosts the electric renewable energy standard from its current 20% to 33% by the year 2020, and California consumers and businesses will be stuck with the additional cost. Businesses will have one more reason to leave California or to avoid going there.

This legislation is part of a larger California program to reduce greenhouse gases (GHGs) to help keep the planet cool (the planet appears to be cooling off lately anyway). California will soon have a carbon cap and trade program proposed by the California Air Resources Board under existing legislation. (A judge has temporarily halted implementation due to a lawsuit by an environmental organization claiming that it does not go far enough.) Cap and trade is, of course, a tax on fossil fuel use. The Board has also proposed a low carbon standard for gasoline. All of these programs have the undesirable effect of killing jobs due to higher energy prices.

Electric rates in California are already among the highest in the country and are set to increase 28% in real dollar terms by 2020 compared to rates in 2008 according to a study by the California Public Utilities Commission. About 11% is attributed to additional renewable energy costs and the rest, about 17%, was going to happen anyway due in large part to a proposal by the State Water Resources Control Board to forcibly retire coastal power plants that use ocean water for cooling.

The actual electric rates could be higher for several reasons. The House Republicans have proposed to slash subsidies of all kinds, including renewable energy, which would increase the net cost of building and operating new plants.

The study projects that wind will provide about 30% of the renewable energy mix using results from wind power computer modeling performed by the Department of Energy. However, the real world experience of the United Kingdom with wind power offers a lesson. A report by the John Muir Trust, a UK organization dedicated to the protection of wilderness, states:

Stuart Young, author of the report, said, "Over the two-year period studied in this report, the metered windfarms in the U.K. consistently generated far less energy than wind proponents claim is typical. The intermittent nature of wind also gives rise to low wind coinciding with high energy demand. Sadly, wind power is not what it's cracked up to be and cannot contribute greatly to energy security in the UK.

California's regulatory climate hinders the construction of any facility including power plants and transmission lines. Environmental groups have fought solar plants and transmission lines using regulations that largely favor those opposed to projects. If renewable energy projects are blocked, then supply will be reduced and rates will go up.

The intermittent nature of renewable energy, especially wind, means that large amounts of spinning reserve (power plants online and ready to ramp up at short notice) will be needed to make up for shortfalls if the wind suddenly dies down for example. To help cut the amount of high cost of spinning reserve, government bureaucrats propose to require (voluntarily or otherwise) electricity users to install devices which shut down equipment (such as air conditioners or industrial equipment) on short notice. The signals could be transmitted over a smart grid directly to the equipment to reduce demand. This program, called "demand response," would impose additional difficulties for businesses if they suddenly had to shut down due to the vagaries of the weather. Residents would also object to the government telling them when to operate their appliances.

As mentioned above, the State Water Resources Control Board is on a parallel path to retire coastal power plants that use ocean water for cooling. The Board would prevent any future construction of coastal plants and phase out operation of those currently online. California's nuclear power plants appear to be in the cross hairs of the Board as well. Nuclear power provides about 11% of California's generation and if shut down, the power generated would likely be replaced by the latest combined cycle natural gas fired plants. Nuclear power plants do not count towards reducing GHGs, but if shut down, there will be a net increase in GHG emissions due to increased carbon emissions by the replacement power.

Renewable energy has become less attractive economically since the price of natural gas has fallen dramatically which makes natural gas fired plants very competitive. California could have chosen this option yet its program is driven by an allegiance to its powerful green lobby, not to economic reality.

The green lobby has some interesting bedfellows. Besides the usual environmental groups and unions, some wealthy Silicon Valley venture capitalists have lobbied for green energy. These venture capitalists have invested in renewable energy projects which are lucrative since they have generous government subsidies and the new 33% renewable standard means that they will have a guaranteed market. This raises the question of whether the term "capitalist" is still appropriate since they are now feeding at the public trough.

The California economy lags the rest of the country in recovering from the recession yet its political class continues to erect roadblocks to recovery. Without increased economic activity, the state will continue to struggle with its deficit which is currently about $25 Billion.

A perfect storm is brewing since the higher electric rates will kick in sometime over the next five years which is about the time when California will have to begin paying off its huge unfunded government pension liabilities. California businesses and residents will ultimately have to pay for both.

As Texas Governor Rick Perry enjoys his state's new economic advantage over California, perhaps he could at least celebrate with a bottle of California champagne.

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