Economic Reports: De-Constructed

Green or Hybrid: The Confusing Options

Once again, I return to the three reports on the economic effects of closing Vermont Yankee.

• The legislature's consensus report
• The IBEW report
• The VPIRG report

An earlier post considered the relatively simply case of shutting or relicensing Vermont Yankee. Both the legislative report and the IBEW report had similar findings of a loss of $60 to $90 million dollars per year for economic impact on Vermont, and around $10 million dollars per year fiscal impact (taxes) on Vermont government. Both reports show the loss of 1,000 jobs per year in the state.

I pointed out, however, that the legislative report made the odd assumption that by 2040, there will be 1500 GWh per year saved through efficiency. Since Vermont only uses about 6,000 to 7,000 GWh per year, that seemed high to me.

Green and Hybrid

The earlier post considered the first two options in the report: Shut Down Vermont Yankee or Relicense Vermont Yankee. This post considers the Green and Hybrid options, options 3 and 4 of the consensus report. This is the hard part to understand.

3) Shut down VY and start an aggressive Green Energy building program (Green Scenario)

4) Relicense Vermont VY and start an aggressive Green Energy building program (Hybrid Scenario)

Background

According to the Brattleboro Reformer, the model used in the consensus report took 16 months to create, and then two economists did two separate forecasts. Then the two economists put together this report (consensus).

I believe that the analysis of the first two options (relicense and shut down) were not particularly difficult, and used standard models. I also believe that the second two options (Green and Hybrid) were contentious and political.

With teams of economists working for over a year, this blogger is aware that she can't do a particularly complete critique. So I am putting together some ideas to think about, rather than a complete analysis.

With options three and four, we have moved away from the IBEW report. The IBEW report doesn't assess a Green option, though the VPIRG report sort-of covers it (without many dollars attached.) This post is my attempt to understand the Green and Hybrid options in the legislature's report, and I will occasionally compare these options to the options in the VPIRG report.

Various aspects of the Green and Hybrid Options are discussed separately below.

Load Reduction

All options in the legislative report include load reduction through efficiency: 1658 GWh/year for the simple relicensing or shut-down scenarios, and 2591 GWh/year for the Green and Hybrid scenarios. (page 5 of the legislative report, both numbers by 2040) For comparison, according to the Vermont Department of Public Service, in 2003, Vermont Yankee supplied 2131 GWh to the state of Vermont. out of a total of 6,009 GWh.

These assumptions on reduction-through-efficiency are actually more stringent than those of the VPIRG report, which assumes that Vermont will use either 6300 or 8400 GWh per year in 2032(pages 18 and 19, Moderate and Strong Scenarios). I believe 2,000 GWh of load reduction is unrealistic. However, since the legislative report executive summary does not give a number for total load in 2040,the 2541 GWh/year reduction could be compared to a unreduced theoretical load of 12,000 GWh by 2040, for all I know.

Renewable Build-out

The legislative report lists a significant amount of renewables that the Green and Hybrid scenarios will build. Some of these include:

• 100 GWh provided by community scale wind
• 510 GWh provided by utility scale wind
• 29 GWh provided by utility scale solar PV
• 125 GWh provided by biomass (I assume this is wood, since methane is called out seperately).

This is far less aggressive a build-out than VPIRG used in Repowering Vermont. The VPIRG report calls for:

• 1463 GWh of wind from "large" wind farms (I assume utility plus community scale).
• 430 GWh from solar PV
• 1,379 GWh of wood biomass

I am quoting the lower "moderate case" VPIRG numbers, not the higher "strong case" numbers. The "strong case" assumes a major electrification of the transportation sector, and I don't think those numbers are comparable.

I think the legislative report numbers for building renewables are far more realistic than the VPIRG numbers, though think the legislature's load reduction numbers are less realistic.

Costs of Power

The legislative report and VPIRG report both waffle on this one.

VPIRG claims the renewable power mix will be around 7.3 cents per KWh, (page 15) despite the fact that the feed-in tariffs for renewables are set for twenty years at 12 to 30 cents per KWh. It appears that the VPIRG report takes credit for the avoided costs of the power that is not produced due to efficiency (page 32), but the method of factoring this into the mix is not made clear.

The legislative report about the cost of green power is quite confusing (or rather, it is quite confused). The report has these straight-forward statements about shutting down Vermont Yankee (page 9, edited for length)

Even assuming replacement power at market prices, the retail power bill is likely to be higher in the event of plant closure, resulting in additional negative economic impacts. Power bill impacts associated with the plant shutdown will further reduce employment by about 120 jobs per year....Total VY Shutdown scenario impacts, relative to the Relicense scenario, result in about 1,100 fewer jobs per year and real disposable personal income levels more than $60 million per year (in 2012 dollars) below VY Relicense levels between 2013 and 2031.

On page 10, however, the report discusses the electricity cost rises of Green Scenario in quite a different manner:

Retail power bills in the Green scenario are generally higher than most other scenarios in the initial 5+ years, but are substantially lower in the out years as consumers buy less power and competitive power source fuel prices (driven by projected fossil fuel price increases and national greenhouse gas limits), increase substantially in real terms. Even with additional negative RSA impacts through 2023, beneficial power bill impacts will eventually result in more than 1,000 jobs per year by 2040.

Okay. Let's leave those green employment impacts alone for a moment and try to parse the earlier part of this sentence.

1. Power bills are higher in the green scenario. I believe this.
2. People therefore buy less power in the green scenario. I believe this.
3. Therefore power bills come down and jobs are created. I don't believe this

In this scenario, the price of power drops but people still don't buy more power. It simply doesn't make sense. People are being priced out of using power, power prices come down from lower demand...and people still don't buy power. Somehow, this creates jobs??

In contrast, here's the standard market story:

Oranges are only available in the south, or for high prices in the north. People in the south notice this, and begin shipping more oranges north, hoping to make lots of money from their high-priced product. Since so many oranges show up in the north, the price of oranges in the north comes down. Therefore, people in the north eat more oranges. Etc.

In contrast, in this legislative analysis, the price of power comes down but people still don't buy more power. This makes no sense except for the following fact:

The entire analysis is driven by the required load reduction.

The analysis assumes that people will use 2,500 less GWh in 2040 than they use now. This isn't an output of the model. It's an input to the modeling.

In general, the graph at the head of this post (lifted from the consensus report) is the graph everyone likes, because it shows that continuing Vermont Yankee while building renewables is the best path for Vermont. The blue line of the "hybrid" scenario is clearly the best for Vermont. I like that graph also.

However, considering how the modeling was done, this jobs-in-the-green-scenario graph is more telling.


You will note that Safstor (early-stage decommissioning) adds jobs, energy efficiency adds jobs, green buildout adds jobs. All of this happens despite the high price of power. The lower price of power in later years doesn't seem to have any effect. However, anti-Vermont Yankee legislators love this graph because it proves that we don't need Vermont Yankee for jobs. If you believe it.

Modeling

A friend of mine, an excellent scientist, said that if you gave her twelve parameters, she could curve-fit an elephant. With overly-complicated models, you can easily delude yourself that you have found the right answers. (She believes in simple models whenever possible.)

The econometric model of the legislative report has many parameters and some careful thought. Unfortunately, the results don't make sense. The results basically violate simple economic principles of supply and demand.

Complex models of physical phenomena should be checked by experiment, and complex economic projections should be checked by common sense.

Despite the problems of these models, I believe that Vermont Yankee plus renewables is the correct way forward for Vermont. IBEW and the legislative model agree on the negative economic effects of a simple shut-down of the plant. I am disappointed that I cannot find the legislative model convincing about the positive effects of a green build-out.

The legislative model contains too many assumptions about efficiency, too many parameters, and perhaps too much politics. I want Vermont Yankee plus green build-out for Vermont. I wish I could have more faith in the model presented to us by the legislature.

Graphs and quotes are from the Consensus Economic and Fiscal Impact Analysis Associated with the Future of the Vermont Yankee Power Plant, Executive Summary, March 2010, prepared by Economic & Policy Resources, Inc. and Kavet, Rockler & Associates, LLC

In collaboration with Synapse Energy Economics, Inc., the Vermont Department of Public Service, Green Mountain Power Corp. and Central Vermont Public Service Corp.