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Electricity is a crucial commodity that we all take for granted. It powers our lives, businesses, medical services and entertainment. Government action that will result in an increase in the cost of electricity should be extensively scrutinized. Marginal increases in the cost of electricity manifest themselves in a cumulative way as increases in electric rates results in increases in the cost of food, heating, taxes, and production.
A 2010 report by the Public Policy Institute (PPI), the research affiliate of The Business Council of New York State, entitled “Short-Circuiting New York’s Recovery-How Energy Taxes Contribute to High Electric Rates in New York,”1 demonstrates that State and local gross receipt taxes, sales taxes, assessments, income taxes, taxes on capital and, above all, property taxes help make New York’s electricity prices the third highest in the US.
These staggering energy taxes create a host of negative consequences. Energy is one of the major cost factors that make New York State one of the least favorable locations in which to start or locate a business. As a result, New York loses essential jobs, opportunities for entrepreneurship and the ability to attract major new investments.2 Some will argue that the modest increases projected in this legislation will amount to less than a “cup of coffee,” that most New Yorker’s will not even feel it. They could not be more wrong.
14.9 percent of New Yorker’s live below the official poverty line, and they are struggling to pay their rent, keep current with utility payments, cover the cost of health care, and put food on the table. A “cup a coffee” is often a luxury they would not indulge themselves.
Due to the mandate that this legislation will impose, those living below the poverty line may be paying more than a “cup of coffee.” When they pay the subway fair, they are going to pay again, because last year the MTA spent over $700M to keep the trains on time and the lights on. When they pay their rent, it is going to be a little more as property taxes will inch up ever so slightly to pay for the lights, heat, and hot water at the schools, libraries, and municipal buildings. Unfortunately, they are not done paying as the job that they once had could be in jeopardy because the cost of manufacturing will increase in New York State (it takes a lot of cups of coffee to make something (in 2010 $13.7B was spent by businesses on electricity)).
The New York State Energy and Research Development Authority (NYSERDA), in consultation with the Public Service Commission (PSC), recently completed a cost benefits study of installing 2,500 MW of PV by 2020, and/or 5,000 MW by 2025.
The NYSERDA study confirms that a significant solar mandate will cost the people of New York jobs and will increase rates. The NYSERDA study is not a surprise. The U.S. Energy Information Administration (EIA) uses a comprehensive system of levelized cost to determine the cost of electric generation. Levelized cost reflects the cost of capital, fuel, operations, maintenance and financing, as well as an assumed utilization rate.
Using levelized cost, the EIA has determined that the cost of solar is four times that of conventional means of generation, and twice the cost of other renewables. Solar power is expensive, in part, due to its utilization rate — it does not work at night, when demand is at its peak — and solar has a high capital cost.
Some have argued that New York needs to keep pace with the surrounding states. They say look to New Jersey or even Europe they have so much solar installed. New Jersey has paid a significant price to have the second most installed PV. The Center for Energy, Economic and Environmental Policy and the Rutgers Economic Advisory Service concluded that the State program will cost 3,637 jobs and $451M in State GDP. The majority of the new solar employment is projected to go away when the “goal” has been reached.
Germany, which once prided itself on being the “photovoltaic world champion,” has cut its solar subsidies. Germans using generous subsidies doubled projected solar installations, resulting in a $260 hike in the average consumer’s annual power bill. Additionally, at night and on some cloudy days, Germany must import considerable amounts of electricity from nuclear power plants in France and the Czech Republic.
The German experience is not unusual — France, Italy, Spain and the United Kingdom are also reducing their subsidies to control unsustainable costs.
As a national leader in renewable energy, New York has already made a significant commitment to the development of renewable energy. Current New York policies require that 30 percent of the state’s electricity come from renewable sources by 2015.
It may be easy for some to forget but New York State already has an aggressive goal of obtaining 30 percent of its electricity from renewable sources by 2015. New York ratepayers have committed to pay $2.998 billion to obtain this goal through the establishment of the Renewable Portfolio Standard (RPS). All forms of renewable generation — wind, solar, hydroelectric, biomass, tidal/ocean and fuel cell generation — currently compete fairly for the RPS funds.
The State should instead look to adopt and promote the adoption of solar in a manner that is both flexible and responsive. The current suite of PV incentive policies has created a stable and growing PV market in New York. By developing a comprehensive and steady PV incentive funding strategy, New York has avoided the boom and bust market cycles that have created uncertainty on other places.
As result of the incontrovertible data regarding the cost of solar, this legislation has been amended to reduce the size of the mandate. Regardless of the reduction of the size it will still have a negative effect on the economy as the legislation proposes to take a basic resource from the many and transfer it to the few. The supporters of this legislation want people to forget that, they asking for lawmakers to deprive taxpayers of their resources in the interest of meeting an arbitrary solar mandate.
The Business Council does not support statutory solar quantity obligation approaches adopted in neighboring states, as these approaches have resulted in broad and long-lasting obligation for the State’s to procure an increasing amount of solar renewable energy credits.
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1 http://www.ppinys.org/reports/2010/ShortCircuitingNewYorksRecovery.pdf
2 Recent enactment of Chapter 97 of the Laws of 2011 (Enacts major components of legislation relating to real property tax levies, rent regulation, exemption from local taxation and mandate relief) and other steps have been taken to curtail energy taxes.