September 26, 2011
Massachusetts

Studies weigh green energy investments payback

By Brandon Butler, Worcester Business Journal Staff Writer, www.wbjournal.com 25 September 2011

Two studies each released within the last year take contrarian points of view on the subject.

Officials at The Beacon Hill Institute at Suffolk University in Boston, a free-market-leaning public policy organization, found in a study published last year that programs that charge ratepayers additional money to encourage renewable energy systems simply don’t have a high return on investment.

For example, electricity from Cape Wind, which aims to construct the largest offshore wind farm on the eastern seacoast off Cape Cod – is expected to cost more than electricity at current rates. Proponents say that in the future, Cape Wind electricity will likely be cheaper, but the officials at Beacon Hill say that’s not a guarantee.

Other examples are cited in what they call botched investments in businesses such as Evergreen Solar in Marlborough and Solyndra, a solar company in California. Both received hefty loans from the federal government, only to significantly scale back or close manufacturing plants in the face of competition from overseas solar developers.

Paul Bachman, director of research for the Beacon Hill Institute, who co-authored the study “The High Cost of Green Energy Programs in Massachusetts,” said many programs that encourage energy efficiency upgrades start off with a big bang. They create efficiencies that yield large results. But after the initial investments, future efficiencies are more expensive and yield diminishing results. “It’s taking scarce resources and putting them into something that has a low return,” he said.

Plenty of other studies disagree. One, by the state’s Executive Office of Energy and Environmental Affairs, which partnered with the Executive Office of Housing and Economic Development, found that the programs have been worth it and have yielded more renewable energy and new jobs in the green industry.

The study, titled, “Recent Electricity Market Reforms in Massachusetts: A Report of Benefits and Costs,” released in July, finds that not only do the incentives create jobs, they help the environment.

The study takes a particularly praiseworthy view of programs that encourage energy efficiency, noting that each dollar invested in programs to reduce the amount of energy used yields as much as $3 in savings.

The Beacon Hill study notes that there are at least 25 programs, mandates and incentives for various green-energy programs in Massachusetts. Many of these cost ratepayers extra money.

For example, there is a renewable energy surcharge of $0.0005 per kilowatt hour of electricity used to fund the Massachusetts Clean Energy Center, which provides grants and programs for renewable power and efficiency programs.

There is another $0.0025 charge per kilowatt hour for utility companies to implement efficiency measures, which is run through the Mass Save program.

The study also notes mandates that utility companies are subject to, including rules calling for private utility companies to install smart grid technology, which is a multi-million expense in some cases. All of these mandates cost the utilities extra money, which they pass on to consumers. With electricity costs already high in Massachusetts compared to the rest of the country, the Institute argues that the mandates are simply not worth it and are an extra burden on ratepayers.

In all, the programs are expected to cost ratepayers $9.8 billion in extra charges between 2010 and 2020, the study found.

Bachman defends some of the investments; for instance, energy efficiency investments that reduce energy demand have been proven to be effective. But he’s not fond of other programs.

Programs encouraging wind turbines, he added, are ill advised, and wind power is intermittent and not as reliable as more traditional forms of energy production.

As for solar, he said, there are possibilities the technology will continue to improve in efficiency in the future, but as of now, the payoff is still too high for a large number of residents and businesses to take advantage of the technology.

“If the market is not doing it, that gives you an indication that the programs are not paying for themselves,” he said. “If it was worth it for people to do it, they would.”

State officials disagree and are quick to point out the increased adoption of solar installations in recent years.

In 2007, for example, there were 3.5 megawatts of solar capacity installed in Massachusetts. By the end of this year, that number is projected to be 95 megawatts, toward a goal of having 250 megawatts of solar installed by 2017 in the Bay State.

Wind is a similar story: In 2007 there were 3.1 megawatts of installed capacity, with 90 projected by the end of the year.

So renewable power generation is catching on in Massachusetts, the state study argues, and investments in green energy programs have other benefits as well, such as leading to the formation of new businesses. Plus, as more people buy renewable power systems, there will continue to be innovations in the technology, which will continue to reduce the price.

Mark Durrenberger of New England Breeze said that in the past few years, while incentives for solar installations have fallen slightly, the price of solar installations has dropped.

Overall, while the Beacon Hill study argues that energy programs will cost almost $10 billion over a decade, the state study finds that during a three-year span, $738 million was invested in efficiency programs by 2012 will yield $2.08 billion in savings.

Debates about the value of green programs are nothing new, said Matthew Johnson, a policy associate at the Environmental and Energy Study Institute, a nonprofit think tank in Washington, D.C.

He said whenever significant amounts of money are dedicated to programs, there is bound to be debate about their value and ROI.

“There are numerous examples of successful energy efficiency programs around the country that have taken minimal investments and created significant returns,” he said.

One of the best programs he’s seen has been a revolving loan fund, which some states have instituted. The program makes an initial loan to an organization, which pays back the loan based on energy savings that are implemented. The money collected from paying back the loan is then, in turn, loaned to another organization. After an initial investment, the program is self funding and self sustaining.

As for the Massachusetts programs, Johnson said the state, like many others around the country, have devoted significant resources to encourage efficiency and renewable power generation. Whether all of those programs pay off in the end is still up in the air.