CLOSUP Student Working Paper Series Number 14 November 2016
Renewable Energy Reform in Michigan Tanner Savitsky, University of Michigan
This paper is available online at http://closup.umich.edu Papers in the CLOSUP Student Working Paper Series are written by students at the University of Michigan. This paper was submitted as part of the Fall 2016 course Public Policy 475: Michigan Politics and Policy, made possible through funding provided by the University of Michigan Third Century Initiative. Any opinions, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the view of the Center for Local, State, and Urban Policy or any sponsoring agency
Center for Local, State, and Urban Policy Gerald R. Ford School of Public Policy University of Michigan
Tanner Savitsky 11/30/2016 PUBPOL 475 Dr. Debra Horner I.
Renewable Energy Reform in Michigan
Executive Summary
As the industrial revolution and capitalism firmly took hold several hundred
years ago, the production of excess carbon dioxide and other fossil fuels has
negatively influenced the environment. Many fossil fuels, like coal, were cheap,
effective, and widespread as companies looked to increase productive output while minimizing costs. However, only over the past 50 years have humans finally begun to understand the effects that carbon emissions and fossil fuels have on the
environment. According to some estimates, if humans stay on their current path,
global temperatures could rise roughly 4° Celsius over the next 100 years. To put
this in context, the Earth’s temperatures have risen only 4° over the entire span of human history1. Obviously this cannot be coincidental and the dire nature of the
problem has spurred investment and research into renewable energy resources like wind, natural gas, and solar power. However, proponents of renewable energy have been met with staunch opposition from energy companies who have incentives to
continue producing energy as they always have and from legislators who argue that renewable gas is far too expensive and would be unaffordable to most individuals. While both of these groups may be justified to a certain extent, over the past five
years, there has been incredible progress in bringing down the prices of renewable energy. If renewable energy prices continue on its current trajectory, it will
eventually become a rational replacement for fossil fuels altogether. As such, the
state of Michigan should follow the example of other progressive states by
mandating much higher levels of renewables by 2050. By understanding the
importance and effectiveness of solar, natural gas, and specifically wind power, the state of Michigan can build the necessary infrastructure to support its widespread production in the future. In doing this, Michigan will not only do its part in
countering global warming, but will also position itself to benefit economically from increased renewable energy demand in the future. II.
Context Prior to 2008, Michigan had no governmental regulation on carbon emissions
or fossil fuels. However, in 2008, Gov. Jennifer Granholm and the Michigan Congress worked together to pass the Clean, Renewable, and Efficient energy Act. This piece of legislation is a mandate that required all electric utilities companies, alternative suppliers, and electric cooperatives to make at least 10% of their gross sales
through the production of renewable energy by 20152. The fact that it is a mandate
rather than a goal is very important. It established that there will be penalties to pay if a company does not comply and as such, provides a much more effective and enforceable means of reaching 10% by 2015.
However, climate change is a partisan issue and as such, the act was not
received with overwhelming legislative support. In order to get it to pass,
lawmakers insisted on including provisions to spur job growth to appease
conservative representatives who have long opposed energy reform. For example, the new law assigned bonuses to companies that produce solar power (3x). In
essence, this makes producing solar energy more attractive to energy companies
because for every one megawatt produced, they are allowed to count it was three
megawatts towards their mandate. This incentivizes energy companies to produce
more solar power because it will help them reach the 10% quota much easier.
Furthermore, companies receive bonus credit (0.1x) for generating renewable
energy with equipment manufactured in the state of Michigan and even more bonus credit for generating that energy with Michigan workers (0.1x)3. This focus on job
creation by using Michigan workers and Michigan resources was enough to gather
enough congressional support to pass the initiative. The combination of these three incentives would, lawmakers hoped, would force companies to produce more clean
energy by using labor and machinery from the state of Michigan.
In 2008, Michigan took a huge step forward by mandating 10% renewables
by 2015. However, in comparison to some other states in the Renewable Portfolio Standard, which compares each state’s renewable energy policy, Michigan ranks
near the middle of the pack in terms of their renewable mandates. In comparison to other states in the rust belt, which have similar economies, Michigan trails states like Minnesota and Illinois that are working towards reaching 26.5% and 25%
renewable production by 2025, respectively.4 Now, both of these aforementioned
states have announced these percentages as goals rather than mandates, meaning
first that it has not happened yet, and second that it is not an enforceable minimum. As such, they may not currently be much further ahead of Michigan than the
numbers demonstrate, but they are taking the right steps to make renewable energy use more widespread in their states.
Despite the fact that the Clean, Renewable, and Efficient Energy Act was passed in 2008, it was not until 2012 that the state began to experience sizable shifts in the
production of renewable energy. The figure below shows a breakdown of the total
production of renewables (in MW) by method. As you can see, renewables were barely a blip on the radar up until 2011. However, in 2012, there was a huge
increase in wind-energy generation, growing from almost no production in 2011 to roughly 900 MW of production in 2012.4 There are two main reasons that wind
energy has grown faster than other source of renewable energy in the state of
Michigan. First, the implementation of wind turbines requires vast open space and is most effective in rural areas. Michigan is lucky to have vast amounts of farmland where wind turbine construction is attractive and relatively non-invasive.
Additionally, Michigan experiences much more consistent wind activity than it
experiences sunny days. On average, less than half of Michigan’s days are considered
“highly sunny” which would hinder solar energy’s ability to be commercially viable.6 As such, wind energy skyrocketed, while other forms grew more slowly.
Local officials have finally begun to understand the benefits of wind energy
too. According to MPPS data, 79% of Michigan’s local officials support the use and expansion of wind power in the state5. Additionally, In order to capitalize on this
newfound support, alternative utilities companies have started working with local governments and townships across Michigan in hopes of leasing land from local
residents to build wind turbines on their property.7 This strategy works because
much of this wind energy expansion has occurred in rural parts of the state where
agriculture dominates the economic landscape. This idea has certainly helped foster
the growth of wind energy in Michigan, as citizens in rural areas are able to diversify their streams of income by allowing wind turbines to be built on their properties.
Now, these citizens are no longer solely reliant on their volatile agricultural output and subsequently are able to consume that same, renewable energy at very affordable prices.
In 2012, a new ballot initiative was proposed to increase the renewables
mandate to 25% by 2025. This new initiative would have put us in line with
Minnesota and Illinois, but was overwhelmingly shot down by Michigan residents.
There are several reasons why this new, more aggressive initiative was shot down. The first is that enacting this initiative would have established this mandate as a
constitutional amendment, which is far too permanent and powerful for a law that will hopefully be revised until Michigan is 100% reliant on renewable energy.8
Second, Governor Snyder and the Clean Affordable Renewable Energy for Michigan
Coalition (CAREMC) strongly opposed the ballot initiative citing increased utilities
costs as the reason. CAREMC reported that the initiative would immediately result in a collective $10B increase in utilities spending throughout the state9. However,
the CAREMC did acknowledge that renewable energy costs are going down and they could prove to be a much cheaper source of energy in the future, but with the current infrastructure in place, it would initially make utilities costs rise for consumers and businesses alike.
In 2015, Governor Snyder proposed his Energy Plan that made some slight
alterations to the 2008 Clean, Renewable, and Efficient Energy Act. Snyder wanted to address the reliability of energy distribution across the state as well as ensure that it would be affordable to its citizens. To do this, he wanted to eliminate the
previous mandate and opt for a new renewable energy goal of 30%-40% by 2025 to allow market forces to eventually drive the price of renewables downwards10. Additionally, he wanted to require options assessments for all new sources of
renewable energy to determine its long-term viability for consumers. Finally, the
plan established the Michigan Office for Energy, an independent agency tasked with analyzing the long-term plans of power plants to assess long-term costs associated
with reform. Governor Snyder’s plans demonstrate his inclination to make Michigan a leader in renewable energy reform, however, only in the last few weeks has a more concrete solution come to the forefront.
Two weeks ago, the Senate passed a new bill mandating 15% renewables by
2022. In addition to this higher energy mandate, the bill effectively ends net-
metering, a practice which allows people who use solar panels to sell back excess
energy to the grid, which compromised the profitability of energy providers. Finally, it establishes a 10% level of electricity choice, which allows 10% of the population to use renewables from independent energy providers rather than large utilities companies like DTE.11
Interestingly, there was no discussion in Lansing in regards to climate change.
Instead, the bill focused on creating value for both consumers and providers of
energy. As such, consumers and large utilities companies, like DTE, strongly support this new bill. Additionally, the CAREMC, which opposed the 2012 ballot initiative,
supports the new bill because it gives consumers freedom of choice and also will not drive up the price of renewables in the short term as they would if a 40% or 50% mandate were to be imposed. However, the bill was met with some opposition.
Notably, the Michigan Manufacturers Association is against the strengthening of
energy choice because of the industry’s reliance on prototypical sources of energy.
Environmental groups are not supportive because they feel that this 5% increase in the renewable mandate is not lofty enough to enact immediate change. While
Michigan’s governor and legislature have worked hard to introduce policy changes
to combat excess waste and promote renewable energy generation, the current goal is not nearly high enough. Instead, Michigan should work to emulate other
progressive states like New York or California that are working to reach renewable goals close to 50% by 2050. III.
Policy Recommendation
My policy proposals for the Michigan legislature and Governor Snyder are:
• • •
Increase renewable energy mandate to 50% by 2050.
Change incentives to favor wind energy generation over solar production. Increase subsidies to develop infrastructure for energy transportation.
The first big obstacle that faces renewable energy reform in Michigan is cost. In
2012, the CAREMC voted against the new ballot initiative to increase the renewables mandate because, they said, such a sudden increase would lead to a $10B jump in utilities costs across the state of Michigan. It is common knowledge that over the
past few years, these prices have continued downwards, but to compare the costs of energy production between different technologies, it is important to analyze the
levelized energy costs (LEC) associated with each method. Levelized energy costs
measure the total lifetime costs of building and operating a new power plant. These
costs reflect the initial capital invested, return on investment, continuous operation,
fuel, and maintenance. So, what are the levelized energy costs associated with one of the most famous fossil fuels, coal?
The most prevalent form of renewable energy in Michigan is wind energy, so
it is important to compare the total costs of wind energy production with coal
power production. The initial start-up costs associated with coal-based power
plants are cheaper than building wind turbines due to the cost of machinery. Wind turbine technology is much newer and less established than coal generating
technology, and as such is much less widespread. Because of the disparities in startup costs, energy companies are reluctant to fully embrace wind energy. However, according to Charles Frank of the Brookings Institution, while the initial costs for
wind power may be greater than it is for coal power, the net operating costs based
on productive output are much less for wind than they are for coal. Frank asserts
that commercially available wind turbines, under the right circumstances, may be $31,200 per MW per year cheaper than coal.12 While much of this prediction is
based on assumptions like a steady presence of wind in the region, efficiency of
distribution, and an continuous runtime of the plant, the data shows that sources of renewable energy like wind can be a lot cheaper to produce, contributing hundreds of thousands, maybe even millions of dollars of savings to consumers and
businesses over the course of a plants’ lifetime. As it currently stands, the total
average levelized costs of electricity produced on wind power plants is between
$0.15-$0.19 per Kw-hour, which is still about 50% more expensive than fossil fuel
based electricity. However, as machinery costs decrease and infrastructure develops to support the technology more effectively, the levelized costs will surely decrease
as well. Additionally, the geographic location and climate in Michigan make the state well positioned to harness consistent wind energy because of the consistent flow of wind. However, costs are not the only barrier that renewables face in Michigan.
Equally as important are the challenges associated with distributing it across the state.
In order to capitalize on these conditions that favor wind energy, the state
should shift their focus from solar power to wind power. In 2008, a stipulation was introduced to the Clean, Renewable, and Efficient Energy act that rewarded solar
production more than any other form of renewable energy. The 0.3x multiplier that is applied to solar power caused a small increase in solar power generation;
however, the state’s characteristics lend itself much better to the production of wind
energy. As such, even without any incentive from the state, energy companies massively increased their production of wind energy. By applying that same
multiplier to wind energy generation, companies will have a much easier time
reaching increased energy mandates while minimizing their cost and risk exposure to the markets.
The benefit of wind energy is that it is constantly available and infinite.
Additionally, the process by which electricity is generated from wind creates no
carbon emissions or excess waste. However, one of the biggest problems associated with wind energy is storing it for later use. Unlike electricity generated from
burning fossil fuels, wind energy is much more volatile as one day there can be an
influx in wind power and then over the next three days, there is none. Thus, in order to make wind energy viable on a commercial level in the state of Michigan, there must be effective systems in place to store, manage, and distribute electricity to
users across the state at their convenience. Additionally, much of the best sources of wind come from rural, undeveloped areas and according to figure 2 below, over
77% of local officials who live in areas of low population density support increasing the use of wind power in Michigan.13 Thus, it is clear that local officials understand
Figure 2
how the benefits of expanded wind energy production could far outweigh the risks.
However, providing wind energy only to small, rural populations will not be enough
to help Michigan achieve a 50% goal by 2050. This renewable energy will need to be delivered to bigger populations across the state. So, the challenge is building the
necessary infrastructure to cheaply produce and transport this energy over long distances to more urbanized areas in a cost effective way.
The current additional start up costs of wind turbines coupled with the
difficulties associated with transporting it from rural areas make undergoing these projects very difficult for energy companies. In order to change this, the state
government should work to subsidize wind energy infrastructure projects so that utilities companies will be incentivized to produce more clean energy, and
specifically in the state of Michigan, more wind energy. By financing these projects, the government will drastically cut costs for utilities providers, and subsequently
consumers. Additionally, the early investment into renewable energy infrastructure will position Michigan for immense economic growth over the next 50 years.
Michigan’s economic output has tailed behind the average US state since the decline
of the automotive manufacturing industry. However, as is outlined in the Renewable Portfolio Standard, over half the states in the US are trying to drastically increase
their renewable energy output. Thus, it is more than feasible to assume that in the
next 50 years, renewable energy will be as in demand, if not more in demand, than
electricity generated from fossil fuels. By developing this infrastructure faster than other states, Michigan will become a battle-tested renewable energy state and will
have created enough jobs in this sector to influence sizeable population migrations
back into the state, much like the manufacturing industry did almost 100 years ago. Finally, the new mandate of 50% renewables by 2050 may seem drastic, but
it is necessary to make these changes now before it is too late. Climate change has
become a partisan issue, which makes it a difficult topic to broach in a congressional setting. However, without aggressive national goals and deadlines, the damage to
the environment will soon pass the point of no return. By introducing wind energy incentives and allocating state funds to make the production, transport, and
consumption of renewable energy more affordable, utilities companies will be much more likely to invest in the relatively expensive start-up costs associated with wind turbine technology right now. Furthermore, as wind energy becomes cheaper and cheaper over time, the state’s early investment in energy infrastructure will be
rewarded in a two main ways. First, Michigan will be able to place itself as a national leader in renewable energy production and consumption, leading to fewer carbon
emissions and a more sustainable economy. Second, it will incentivize immigration into the state as the infrastructure for increased renewable energy demand will
already be in place, providing new jobs for middle-class Americans. Ultimately, this new renewable mandate and the subsidies and incentives necessary to make it
possible will help Michigan provide clean, cheap energy to its residents, which will certainly have a huge impact on our own generation and the many generations to come.
Sources Cited:
1. http://www.ecowatch.com/xkcd-climate-change-2003991855.html
2. Mills, Sarah. “Environmental Policy in Michigan.” Gerald Ford School of Public Policy, Ann Arbor. November 17. Lecture
3. Ibid
4. Mills, Sarah. “Environmental Policy in Michigan.” Gerald Ford School of Public Policy, Ann Arbor. November 17. Lecture
5. http://closup.umich.edu/michigan-public-policy-survey/fall-2013data/q10c.php
6. https://www.currentresults.com/Weather/Michigan/annual-days-ofsunshine.php
7. http://www.freep.com/story/news/local/michigan/2016/08/20/michiganwind-turbines-money-and-myths/89041958/
8. Mills, Sarah. “Environmental Policy in Michigan.” Gerald Ford School of Public Policy, Ann Arbor. November 17. Lecture
9. Ibid 10. Ibid 11. Ibid
12. http://www.economist.com/blogs/freeexchange/2014/08/cost-renewableenergy
13. http://closup.umich.edu/michigan-public-policy-survey/fall-2013data/q25h.php