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Austin Energy (leading green power program in US) struggles with costs of more renewables

Austin Energy is the municipal utility of Austin, Texas that sells the most renewable energy in the United States, and it has done so for the last several years. They sell the renewable power via their voluntary GreenChoice® program, and have done so since about 2000. However, as they strive to increase the percentage of renewable energy in their total mix, the latest batch of green power is not selling as it is almost 80% higher cost than the last.

To get residential and commercial customers to sign up for the renewable power that was more expensive than the normal rate, Austin Energy sold the GreenChoice® power using a fixed charge for ten years. This was the selling point that caused the program to sell out for the last 8 years. The customer gets 100% renewable power at a fixed price that can hedge against rising natural gas prices that dictate the marginal cost of electricity in Texas. And since 2000, the natural gas price at the wellhead have risen from approximately $2/MMBtu to the range of $6/MMBtu, even though as of this writing the price is below $4/MMBtu.

Austin Energy sells electricity based upon two different charges based on a $/kWh basis. One charge is applied to all customers, but different for residential, commercial, and industrial customers and covers many of the costs of distributing electricity. For residential customers during the Summer, this base charge is 3.55 cents/kWh for the first 500 kWh consumed in a month and 7.82 cents/kWh for each kWh over 500. The second charge is the fuel charge that fluctuates as necessary to cover the costs of fuel, and the GreenChoice® charge replaces this fuel charge for those who sign up. Listed here are the charges for the GreenChoice® “fuel charge” for all of the batches of renewable power sold by Austin Energy:

GreenChoice® “Fuel Charge”
Batch-1 Green Power Charge:       $ 0.0170 per kWh
Batch-2 Green Power Charge:       $ 0.0285 per kWh
Batch-3 Green Power Charge:       $ 0.0330 per kWh
Batch-4 Green Power Charge:       $ 0.0350 per kWh
Batch-5 Green Power Charge:       $ 0.0550 per kWh
Batch-6 Green Power Charge:       $ 0.0950 per kWh

and for comparative purposes, the fuel charge since 2000 that is replaced by the GreenChoice® charge:

Austin Energy “Fuel Charge”
Jan 1999 – Jul 2000        1.372 cents/kWh
Aug 2000 – Oct 2000        1.635 cents/kWh
Nov 2000 – Jan 2001        2.211 cents/kWh
Feb 2001 – Dec 2001        2.682 cents/kWh
Jan 2002 – Jun 2003        1.774 cents/kWh
Jul 2003 – Oct 2003        2.004 cents/kWh
Nov 1, 2003 – Dec 31, 2003        2.265 cents/kWh
Jan 1, 2004 – Dec 31, 2005        2.796 cents/kWh
Jan 1, 2006 – Dec 31, 2006        3.634 cents/kWh
Jan 1, 2007 – May 31, 2007        3.343 cents/kWh
Jun 1, 2007 – Dec 31, 2007        3.044 cents/kWh
For electric bills received beginning Jan 1, 2008 3.653 cents/kWh

Batch-5 of GreenChoice® power was sold out during 2008. Batch-6 is now open for voluntary subscription, but is not selling. Recall that this charge substitutes for the normal fuel charge that is currently 0.03653 $/kWh, so the GreenChoice® charge is 2.6 times larger than the comparable fuel charge. Therefore, considering the base charge plus the fuel charge, a residential customer signing up for the latest batch of GreenChoice® power will pay 13.05 cents/kWh for the first 500 kWh, and 17.32 cents/kWh for each additional kWh – all at a fixed price for 10 years. Comparatively, a non-GreenChoice® residential customer power will pay 7.2 cents/kWh for the first 500 kWh, and 11.5 cents/kWh for electricity after the first 500 kWh in the month.

This difficulty in selling the #1 renewable power program in America provides useful data on how people perceive the value of renewables. Before Batch-6 of GreenChoice®, the only renewable energy that Austin Energy was purchasing was wind power generated in West Texas. As of this year, Austin Energy has made power purchase agreements to buy power from 100 MW of biomass generation and 30 MW of photovoltaic solar power from land just to the east of Austin. Due to the increase in wind turbine prices leading up to the middle of 2008, most of the new wind farms constructed in 2008 were built at significantly higher cost than those just a few years ago – when usually everyone expects costs to decrease due to better technology. In fact, data from the Energy Efficiency and Renewable Energy office of the US Department of Energy clearly show that wind turbine prices bottomed out in 2001 at approximately $1,400/kW and were over $1,900/kW in 2008. However, the price of power ($/MWh) is still decreasing.

All of this means that renewable energy may be becoming more expensive and some of the easy options that people thought were expensive in the past were not. This also brings to the forefront the need for conservation of electricity as using half of the electricity at twice the price is still the same expenditure. The model of decoupling electricity sales from utility profits is a good start that many utilities and regulatory bodies have made. Let’s see what other good ideas we can come up with. “Cash and prizes” seem to work for gameshows, maybe it could work for “energy conservation games!”

About Carey King

Dr. Carey W King performs interdisciplinary research related to how energy systems interact within the economy and environment as well as how our policy and social systems can make decisions and tradeoffs among these often competing factors. The past performance of our energy systems is no guarantee of future returns, yet we must understand the development of past energy systems. Carey’s research goals center on rigorous interpretations of the past to determine the most probable future energy pathways. Carey is a Research Scientist and Assistant Director at the Energy Institute at The University of Texas at Austin, and appointed also at the the Center for International Energy and Environmental Policy within the Jackson School of Geosciences and Business, Government, and Society Department of the McCombs School of Business. Visit his website at: http://careyking.com and follow on Twitter @CareyWKing
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