Decouple: All about coal
Mark Nelson, managing director of the Radiant Energy Group, joins us for his second masterclass, this time all about coal. Much maligned by environmentalists and a significant source of air…
On Tuesday, April 7, 2020, the Star Tribune ran a story entitled “New Suburban Solar Projects Part of a Wave of New Projects in Minnesota.” The article discusses businesses that claim the solar panels installed at their facilities will offset significant amounts of their electricity use, and will have a three to five year payback periods.
Energy issues are complex, and the solar industry has a strong financial interest in only presenting the “sunny” side of their industry without discussing the negative consequences that stem from adding solar to the grid. Unfortunately, the article could have have been more balanced by explaining how electricity generated from solar is used and been more thorough in explaining how these quick payback periods are only possible because Minnesota families and businesses are being forced to pay more for their electricity, and being forced to pay higher taxes to boot.
The article begins:
“When Aveda energizes the flashy new solar field at its headquarters campus in Blaine this spring, nearly 3,000 solar panels are expected to generate half the electricity needed to run its on-site manufacturing facility.
“It’s a great opportunity to show our commitment to the environment,” said Dan Schibel, global sustainability manager for the hair, body and skin care company.
In Fridley, crews this week covered the rooftop of Brin Glass Co.’s manufacturing plant with nearly 2,000 solar panels. In the past year the company also has installed solar arrays at its north Minneapolis and St. Cloud locations.
After decades of hype, the solar energy trend is finally taking off in Minnesota and across the metro suburbs, fueled by a combination of state and federal incentives, low interest rates and zoning changes, industry leaders say.”
Later, the article states:
“For Aveda, its new 3.7-acre solar field at the busy intersection of Interstate 35W and Lexington Avenue is part of parent company Estée Lauder’s goal to generate all its electricity through renewable sources. The new system will be officially unveiled at a “cord-cutting” ceremony near the summer solstice in June.”
How the Grid Actually Works
Most people don’t realize that the grid is not a storage device for electricity. The grid isn’t a giant bathtub that can be filled up with solar electricity during the day that can be used at night or on cloudy days when the sun isn’t shining. In reality, the electricity must be generated the exact second it is consumed. To help visualize this idea, think of how fast a lamp goes dark after you unplug it from the wall. It is virtually instantaneous.
This physical reality is what makes the claims made by Aveda and Brin Glass Co. that solar is providing a given percentage of their electricity consumption an accounting fiction. In reality, these solar panels will offset some of the company’s electricity use when the sun is shining and the remainder will be sold to the grid at a handsome profit. When the sun is not shining, these companies will be dependent upon the exact same coal, natural gas, and nuclear plants we all rely upon to get their electricity.
While the final numbers at the end of the year may make it look like solar produced half of the electricity used by Aveda, the second-by-second reality will show that the company still relied heavily upon the grid. In fact, the company is more reliant upon the “cord” today, because they are also selling electricity produced by their solar panels back to the grid.
It is true that Aveda’s solar panels will have displaced some coal or natural gas used to generate electricity, but they will have done so at an enormous cost that will be paid by your family, and your neighbors.
Picking Your Pocket With Solar
To the article’s credit, it does explain that the solar buildout is fueled by state and federal subsidies, low interest rates, and zoning changes. However, there is another piece to the puzzle, which is the insanely high price that Xcel Energy is forced to pay for solar power by state law.
Under Minnesota state law, solar facilities at businesses and community solar installations are paid the retail price for electricity, rather than the wholesale price. This means solar installations are paid far more than the actual value of the electricity the produce.
The diagram below explains how this works. The retail price for commercial electricity customers in Minnesota was 10.38 cents per kilowatt hour in 2018. Of this cost, the fuel only constituted two cents of the retail price. The remainder, 8.38 cents, is used to pay for fixed costs like upkeeping power lines, paying employees, and paying to maintain the coal, natural gas, and nuclear plants that everyone relies upon when the sun isn’t shining.
Unlike the cost of fuel, these costs don’t go away if the company uses solar panels. In fact, these costs get transferred to everyone who doesn’t have solar panels, which probably means you and your neighbors.
This sweetheart deal, in addition to all of the federal subsidies solar owners soak up, is the only way that solar panels ever pay for themselves. In the end, everyday citizens of all incomes end up paying more for electricity while big companies like Aveda pay less.
Solar: Lots of Land, Little Electricity
Another issue that comes to mind when reading this article is the fact that solar panels use a lot of land, but produce a very little electricity. According to the article:
“There are now an estimated 7,500 solar arrays in Minnesota, with 1,000 of those going up in just the last year alone, said David Shaffer, executive director of the Minnesota Solar Energy Industries Association.
The arrays cover the equivalent of 10,000 acres and generate more than 1,000 megawatts of energy, he said.”
Wind and Solar Are Not the Lowest Cost Sources of Electricity
Lastly, the article perpetuated the pervasive, but inaccurate, myth that wind and solar are the lowest-cost sources of electricity on the grid.
The graph below shows the cost of generating electricity at several existing power plants in Minnesota, compared to the latest cost estimates for unsubsidized wind from Bloomberg New Energy Finance, and American Experiment’s latest unsubsidized solar cost estimates based on new information produced by the U.S. Energy Information Administration.
As you can see, wind is more expensive than Minnesota’s existing Sherco and Boswell coal plants, the High Bridge natural gas plant, and the Prairie Island nuclear plant. Solar is nearly twice as expensive as these sources of energy, and Community Solar is four times more than the electricity generated at Sherco.
Solar power is growing in popularity in Minnesota due to federal subsidies and sweetheart pricing schemes that force everyday Minnesotans to pay more for their electricity so large companies can pay less. This dynamic highlights the moral hazard of subsidizing businesses, because the two major problems with subsides are: 1) they incentivize rational people to do otherwise irrational things, and 2) subsidies force other people to pay the additional costs of the irrational action, while allocating the benefits to people who are participating in that action.
In the case of solar in Minnesota, it is often relatively wealthy companies like Aveda and Brinn that are scooping up subsidies and reaping the rewards
*Assumes Prairie Island operates at statewide capacity factor as reported by Table 15 of the EIA State Energy Profile for Minnesota.