KHARBANDA: The case for a diverse energy policy

April 16, 2011

KharbandaIndiana’s electricity sector is at a crossroads. On average, power plants are more than three decades old, with their economics needing reassessment in light of new—and long-delayed—federal environmental rules.

What path will we pursue to power Indiana in the coming decades? Key utility executives and state legislators argue that Indiana’s power should come predominantly from coal and nuclear power. Those legislators made good on that conviction by passing, in recent years, taxpayer- and ratepayer-funded coal incentives considered “the most aggressive” in the United States, and have pushed to advance ratepayer-funded incentives to expand nuclear power, as proposed in the intensely debated Senate Bill 251.

The question is whether this monolithic approach is really in the best long-term economic interest of our state. While coal power will continue to dominate Indiana’s electricity mix, a decidedly more diverse generation mix would maintain reliability and be more affordable and better for economic development.

Natural gas is a logical part of this more diverse vision: According to the Energy Information Administration, the levelized cost of new gas is 40-percent lower than new coal and new nuclear, and its project time line is much shorter. Gas becomes more economically compelling in a world of carbon controls and, in the wake of the Japan tragedy, more robust—and expensive—nuclear reactors and operations.

But the broader opportunity for a more diverse electric-generation vision is in the commercial and small-scale renewable energy sector. Renewables get characterized by skeptics as limited, costly and unreliable. But this description is largely outdated.

Renewable resource potential, driven by technology, has exploded: Indiana’s commercially viable proposed wind projects alone could provide more than five times the power of what those currently installed generate, enough to make up 10 percent of our electricity. And the price of commercial wind has gone down to such a degree that it is 40 percent of the cost of new coal/nuclear on a per-megawatt-hour basis—and cheaper even without federal support.

Commercial wind’s economics have proven to reduce wholesale power prices in parts of the Midwest. And renewable energy resources do not impede reliability, safely contributing to more than 10 percent of the electricity of Iowa, Minnesota and the Dakotas, while being backed by existing generation.

Accelerated renewable-energy development creates an additional dividend: By concentrating construction, robust renewable-energy development will draw in component manufacturers who historically co-locate near such construction, as seen in Iowa and Minnesota. This co-location effect is forecasted to be larger in Indiana than other states due to our impressive automobile-component-manufacturing base, which has strong crossover with renewable-energy-component manufacturing.

Some will pose that, if renewable energy is so attractive, compared to new coal and nuclear, our state should naturally continue to see ample growth of the former. But Indiana’s five main utilities, monopolies by law, have no incentive to invite in renewable-savvy independent power producers, as these utilities reap a rate of return only on their own generation. Indiana, as a result, largely forgoes having a flood of IPPs continually competing to fulfill supply needs and driving down electricity rates.

SB 251 adds another layer of challenge to future competition, as it would expedite—and perhaps streamline—the approval process for recouping retrofitting expenditures for our existing power fleet. While offering a substantial new carrot to existing, coal-dominated generation, SB 251 offers no meaningful incentives to renewable energy. The bill’s voluntary clean-energy portfolio program could likely be met entirely, as of this writing, by energy-efficiency investments already prescribed by the Indiana Utility Regulatory Commission.

We look forward to working with those who would seriously consider the added value of a more diverse energy policy than what current legislation would likely lead to. At stake are Indiana’s long-term cost competitiveness and economic growth.•

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Kharbanda is executive director of the Hoosier Environmental Council.

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