Retail electricity prices under the Inflation Reduction Act 2022 – Rising sharply with that?

Roger Caiazza

Resources for the future (RFF) published a Summary of the problem titled Retail Electricity Rates Under the Inflation Reduction Act of 2022. According to the report, the Inflation Reduction Act (IRA) law will “save the typical American household up to $220 per year” over the next decade and significantly reduce volatility in electricity prices.” This nullifies my BS detector, so I’m getting some data from Texas to see if the state with the most total renewable energy production has reduced costs from wind energy development and their sun or not.

I will not deal with the terms of an IRA directly. The Institute for Energy Research described huge renewable tax incentives and subsidies earlier this week. Anthony Watts applauds the Wall Street Journal and Bjorn Lomborg for performing How useless IRAs are in addressing climate. The RFF report is one of those analyzes that alleges that IRAs will benefit consumers, and I will focus on that alone.

RFF analyzed the impacts on the critical electricity industry by using electricity in their homes Model of Haiku electric market to “project retail electricity prices for a range of potential scenarios taking into account changes in fuel prices, future capital and technology costs, and the application of specific regulations by law. The analysis shows that if the law is passed:

• Retail electricity costs are expected to decrease by 5.2-6.7% over the next decade, saving

electricity consumers $209-278 billion, with natural gas prices expected.

• The average household will save about $170-$220 annually from smaller electricity bills and reduce the cost of goods and services over the next decade.

• Bidders are protected from fluctuations in natural gas prices, with projected electricity prices

decrease even under the high natural gas price scenario.

• Power sector emissions in 2030 are projected to fall 69.8 percent to 74.9 percent below 2005 levels, compared with 48.5 percent below 2005 levels without the policy.

The Model Haiku RFF regional electricity market analysis and interregional electricity trade in the continental United States. It is highly desirable for consulting firms to develop a suitable in-house model to forecast future power system resources. The RFF states that:

“This model takes into account planning for capacity, investment, and retirement over a period of many years in a framework of perfect foresight and for operating the system according to the seasons of the year and times of the day. . The market structure is represented by cost-of-service pricing (average cost) and market-based pricing (marginal cost) in different regions. The included model details state-level policies covering state and regional environmental markets for renewable energy and carbon emissions and is frequently used to advise state planning. state and region. “

I’ve had to deal with these power generation and cost models for over 40 years. I cannot stress that even the most complex of these models have difficulty dealing with the generating capacity required for peak loads and the complexity of the transmission grid. The Model of Haiku electric market the documentation shows that the model is so simplified that I don’t think it can give reasonable projections that are correct. For example, the model simulates the US contiguous to 21 regions and calculates the transmission between those regions to estimate capacity requirements. New York alone has 11 control zones, and transmission constraints for those regions and surrounding areas are needed to accurately estimate the resource needs incurred. All the small constraints averaged in the RFF model hide a major portion of the power requirements and energy requirements for which the estimated cost is lower. This is a particular problem as more and more wind and solar energy sources are added to systems. The RFF and similar models have consistently underestimated the emissions reductions from converting fuels from coal and oil to power generation with natural gas, and I think they are underestimating the difficulty of replacing produce natural gas by wind and solar energy. Furthermore, someone, somewhere has to explain the discontinuity and lack of ancillary services from wind and solar power. I don’t think a simple model can capture those costs.

On the other hand, if the addition of renewable resources in certain jurisdictions has resulted in lower costs, then my reservation is wrong. According to a recent US News and World Report The article Texas produces generates the most total renewable energy (millions of megawatt-hours), according to the US Energy Information Administration. That article noted that: “In the first quarter of 2022, Texas led all states in overall renewable energy production, accounting for more than 14% of the nation’s total, largely due to its energy program. prolific winds of the state”.

US Energy Information Administration (EIA) Power Data Browser allows users to access electricity production and consumption data as well as electricity sales information. Data can be filtered as needed. I filtered the data to consider only Texas data. I have downloaded gross monthly net production (GWh) and net output from renewable resources only so that I can calculate the percentage of renewable energy. Then I download the residential average monthly electricity price. The following chart shows the results. The price of residential electricity has increased steadily since 2001. The share of renewable energy has increased from almost none in 2001 to more than 30% in recent months. I don’t see that deploying renewable resources reduces costs.

In conclusion, the Texas data do not show that deploying renewables reduces costs. RFF predicts IRA will reduce costs as renewable development is highly unlikely as the oversimplified model cannot reproduce power system features resulting in higher prices from solar and wind energy sources. not continuous.

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Roger Caiazza blogs about environmental and energy issues in New York at New York’s Pragmatic Environmentalist. More details on the Climate Leadership & Community Protection Act here. This represents his opinion and not the opinion of any of his previous employers or any other company to which he is affiliated.