Why 25% renewable target would cost Michigan consumers 50c/month

(Eds note: We published this because the situation is so similar to the current debate in Australia with the Renewable Energy Target.)

This year alone, Michigan’s two largest utilities have increased rates by more than 10 percent, adding between $9 and $11 to the average residential monthly utility bill.

So what would happen if Michigan voters approved Proposal 3, a ballot initiative that would increase the state’s renewable electricity targets to 25 per cent by 2025? According to a group supporting the measure, rates would only rise by 1 per cent — not in one year, but over the total life of the program.

That’s equivalent to about 50 cents on the average monthly bill.

That projection comes from a new report authored by two utility analysts and released by the Michigan Environmental Council.

The graph below illustrates what the rate impact may look like over the life of the program. In the first decade, the upfront cost of implementation may cause a minor rate increase of just over .5% (with a legal cap of 1%) — translating to roughly 50 cents per month extra for the average residential energy user. But after 2026, due to the projected cost decreases in renewable energy and projected cost increases in delivery of coal and natural gas, ratepayers start saving money:

If this is such a good thing for ratepayers, what’s the issue? Well, the state’s biggest utilities, Consumers Energy and DTE Energy, are heavily campaigning against it. That’s because Michigan gets about 59 percent of its electricity from coal — a resource that would likely see a substantial decline if renewable energy targets were increased.

That dependence on coal is a major part of the reason why Consumers Energy and DTE Energy continue to raise rates. According to this latest report, the cost of coal delivery to power plants in the state has jumped by 71 percent since 2006. Consumers Energy has projected fuel cost increases to total around $530 million over the next four years — resulting in a 3 percent rate increase each year.

This is also the reason why contracts for renewable energy are coming in less than the cost of new coal. In February, the Michigan Public Service Commission issued a progress report of the state’s current renewable electricity standard requiring 10 percent penetration by 2015, finding that the cost of wind, solar, and hydro “is cheaper than a new coal-fired generation” in the state.

In fact, on multiple occasions since 2008, Consumers Energy reported that the cost of meeting Michigan’s current renewable electricity targets has been far lower than expected. In May, the company reduced its renewable electricity surcharge by 13 cents. It also reduced the surcharge in May of 2011, citing the lower-than-expected cost of meeting targets.

It appears Michigan consumers — even if they don’t know the specifics of the costs of each technology — broadly support a shift to renewables. According to a poll conducted in September, 55 percent of registered Michigan voters said they would vote “yes” on proposal 3, the ballot initiative that would increase the state’s renewable electricity targets to 25 percent.

This article was originally published on Climate Progress. Published with permission.