by David E. S. Marvin
January 16, 2009
The gate drops down across the road, stopping traffic so the train can pass. You sit in your vehicle, as a seemingly endless string of rail cars passes by. Ever notice how many of those cars are filled with coal? Now, imagine those coal cars going in the opposite direction filled with money. Money leaving Michigan to pay for all that coal.
Envision a similar scenario for most of the oil and natural gas used in Michigan, and you may begin to understand the economic reality of Michigan’s energy situation. Approximately 90 percent of our energy is imported from out-of-state sources. That’s fuel coming in, and money going out, at a rate of over $18 billion per year. Even in the best of times, this trade imbalance has always been a drag on Michigan’s economy. Factor in higher energy prices and a decline in our state’s economy, and people are beginning to realize that it is time for a change.
While energy usage takes many forms, this article focuses on the generation of electricity in Michigan. Beginning with a brief overview of the current situation, it examines our state’s new “Renewable Portfolio Standard” (a/k/a “RPS”) and then explores the potential promise of a totally different approach to Michigan’s energy future. An approach with amazing promise for the future.
Figure 1: Michigan’s Electric Generation Mix, 2006
The current mix of fuels used to generate electricity in Michigan (Figure 1) is heavily dependent on coal, which is used to generate nearly 65 percent of the state’s electric power. Adding oil and gas to the mix, fossil fuels account for approximately 83 percent of our electricity. Considering the fact that we also use fossil fuels to power our vehicles and heat our buildings, we are, in essence, a bunch of modern-day Neanderthals who are still living in what could be called “The Age of Fire.” It is time we moved past the practice of simply burning various combustibles to power our lives.
Like the rest of the country, Michigan needs renewable energy. Unlike many other states, however, Michigan’s need is greater in many respects. Not only do we lack any significant in-state sources of fossil fuels, but our current consumption of electricity already exceeds our in-state generation capacity. Moreover, despite our current recessionary economy, Michigan’s total electric use and peak load are expected to continue to increase in future years.
This increasing demand will exacerbate our need for new power supplies, either from in-state generation or out-of-state transmission. Even if energy conservation efforts succeed in offsetting some of the projected load growth, many of our utilities’ generating plants are nearing the end of their useful lives and will need to be replaced by new sources that are virtually certain to cost far more than current sources.
Yet another consideration is Michigan’s geography. As a pair of peninsulas largely surrounded by water, Michigan faces substantial obstacles to the transmission of electric energy from out-of-state sources. While not insurmountable from an engineering perspective, these obstacles translate into higher costs for Michigan when compared to most other states.
These rising costs, either for new generation or new transmission, raise the important issue of Michigan’s economic competitiveness. Our state faces intense competition from other states and countries, many of which offer power at prices substantially below those available in Michigan. As numerous studies have confirmed, manufacturers deciding where to locate or expand their operations are often heavily influenced by the availability, price and reliability of electrical energy.
If we aspire to climb out of our current economic hole, we need to act on this information and take bold steps to attract job-providers, rather than repel them. While the solution to our current economic situation must be multi-faceted, the availability of affordable and reliable power must be an essential part of any economic recovery plan.
Case against coal
For many years, the cheapest available source of electric power has been coal-fired generation. To a large extent, that is still the case. In all probability, however, coal’s economic advantage is about to become a thing of the past. The public has become increasingly aware that coal-fired generation is a major source of harmful air pollutants, including mercury, nitrogen oxides, sulfur dioxide and fine particulates.In the Great Lakes region, especially, the public has become sensitized to the fact that coal-fired power plants are one of the leading sources of toxic mercury contamination in fish1. This awareness has generated strong public opposition to the construction of new coal-fired plants. Public opposition to coal, in fact, is one of the reasons why most of Michigan’s newest power plants burn natural gas instead of coal.
In recent years, however, an important new factor has entered the debate over coal-fired generation: climate change (a/k/a global warming). While there continues to be debate among scientists over several key aspects of this complex issue2, there can be little doubt regarding the prevailing political sentiment, especially at the federal level. The government seems convinced that it needs to act promptly in order to save the planet from potentially catastrophic warming caused by “greenhouse gases,” most notably carbon dioxide. Any serious effort to reduce carbon emissions will necessarily impact coal-fired electric generating facilities. In all likelihood, the impact will be felt on both new plants and existing facilities.
In Michigan, for example, coal-fired generating units emit approximately 70 million tons of carbon dioxide per year. That amounts to an estimated 40 percent of the total carbon emissions in the entire state. Merely increasing the emissions standards for future plants would do nothing to address the massive impact of the existing plants. Thus, concerns over global warming will likely result in new carbon taxes or other costly restrictions such as a “cap-and-trade” system3 for limiting carbon emissions from both existing and new facilities. Either approach would undoubtedly have a substantial impact on the cost of coal-fired electric generation.
The economic implications for Michigan of new restrictions on carbon emissions will be substantial. During the recent presidential campaign, Barack Obama reportedly stated, “…if somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.”4
Whether carbon regulations would literally bankrupt the utilities may be debatable, but the salient point is that such regulations would cause the costs of coal-generated power to skyrocket. Even if the utilities survive, the impact on their customers could be devastating.
This is especially true in a state such as Michigan that is so heavily dependent on coal and already has to deal with coal costs that are higher than they are in many other states. Unlike utilities in both the eastern and western regions of the nation that enjoy the cost advantages of in-state coal mines, Michigan utilities must pay extraordinarily high transportation costs to bring in every lump of coal that is burned in our state. According to the Michigan Public Service Commission (MPSC):
“The annual cost of coal used to produce electricity for Michigan is presently estimated to be $1.36 billion per year, of which 100 percent is imported. About 82 percent of the coal burned in Michigan power plants is supplied from the Powder River Basin in Wyoming and Montana. A large portion of that coal is transported by rail to the western end of Lake Superior, where it is loaded onto freighter ships for delivery to power plants largely located along Great Lakes shorelines. Michigan also obtains coal by rail, from both western sources and also eastern sources, including West Virginia, Kentucky and Pennsylvania.”5
All that transportation comes at a steep cost. It has been reported that as much as 75 percent of the overall delivered cost of coal can be attributable to transportation expenses. Whatever the precise percentage may be at any given power plant, it is undeniable that transportation costs are an important consideration and Michigan is at a relative disadvantage in this regard when compared to many other states.
In a nutshell, Michigan has no in-state coal, a shortage of existing generating capacity, increasing demand for new generation, a peninsular shape that limits our transmission options, energy prices that discourage new business development, coal-fired plants that generate tons of dangerous pollutants, and a competitive disadvantage in the cost of transporting coal. Now, add to the mix an overall economy that is in virtual freefall and the threat of carbon regulations that, regardless of their environmental merits, will most certainly result in much higher power costs. In assessing this dire situation, even the most optimistic observer should detect the need for action. Immediate action. Bold action. Action designed to reduce our dependence on coal as soon as possible and place Michigan on a course towards energy independence and economic security.
Surprising response
How has Michigan responded to this critical challenge? The answer may surprise you. In October 2008, the legislature passed and the governor signed new legislation that cleared the way for more coal-fired and nuclear power plants, along with higher energy prices. This interpretation of the new legislation is not only apparent from the terms of the laws themselves6, but has been publicly confirmed by both industry leaders and key government officials.Detroit Edison, for example, has made no secret of the fact that it is actively pursuing a permit for a huge new nuclear plant near Monroe, with an estimated cost of at least $10 billion. Consumers Energy has announced its plans for a large new coal-fired generating plant near Bay City at an estimated cost of over $2 billion. Top regulators at the MPSC have also been very forthcoming in publicly acknowledging that the new legislation is not expected to avoid the need for Michigan’s utilities to construct new nuclear or coal-fired “baseload” power plants.
Based on recent media reports, however, these facts may surprise a reader who is not directly involved in the energy industry. Doesn’t the new legislation mandate the use of renewable energy and position Michigan as the leader in alternative energy manufacturing? Here are the facts.
By enacting Public Act 295 of 2008, Michigan did, in fact, adopt a so-called “renewable portfolio standard,” also known as an “RPS.” Generally speaking, an RPS is a legislative mandate that a certain percentage of energy must be generated from renewable energy sources such as wind, solar, biomass, tidal, hydroelectric, geothermal, landfill gas, municipal solid waste. With the enactment of PA 295, Michigan became the 27th state in the nation to adopt an RPS and the 33rd state to adopt a renewable energy goal. While this was an important step in the right direction, it hardly placed our state in the forefront of alternative energy development. In fact, even the 26 states that adopted an RPS ahead of Michigan were already lagging Europe in the field of alternative energy use and manufacturing.
Setting aside the gaping loopholes and other fine points, Michigan’s RPS may be roughly summarized as follows: utilities must use renewable energy to generate 2 percent of their electricity by the year 2012, 3.3 percent by 2013, 5 percent by 2014 and 10 percent by 2015. At the end of that time, Michigan’s use of coal is projected to be notably higher than it is today. In fact, according to the “21st Century Energy Plan” published by former MPSC Chairman Peter Lark in 2007, the percentage of coal in Michigan’s generation fuel mix would rise even if the RPS standard had been set at a level higher than it is under the new law. While the new RPS will likely result in a modicum of new renewable energy in Michigan, it most certainly is not a solution to our state’s overdependence on coal.
Similarly, the RPS alone is not likely to have an appreciable impact on Michigan’s economy. An RPS-friendly study published by NextEnergy in April 2007 has been often cited as supporting the conclusion that an RPS would lead to hundreds of new jobs in Michigan. In fact, that study concluded that, with an RPS, the personal income of Michigan’s citizens “is projected to decrease minimally…due to the impact of higher energy prices.”7 The study also concluded that “Michigan’s economy will improve slightly under current market conditions with the implementation of [a] renewable portfolio standard as high as 15 percent.”8
Even more importantly, however, the NextEnergy Study states that its projection of slight economic improvement was “modeled to assume that all required wind system components are produced in Michigan.”9 Later, the study frankly admits that this key underlying assumption was simply not realistic:
“Strictly as an illustration, the results demonstrate, as expected, that the attraction of additional manufacturing of wind components in Michigan would improve the State’s economy. In reality, not all components could be expected to be manufactured in Michigan.”10
Thus, the key conclusion of the NextEnergy study is that, if one merely assumes that new wind energy equipment will be manufactured in Michigan, then one can reach the conclusion that the economy will improve slightly as a result of the hypothetical new jobs created by the hypothetical wind energy equipment manufacturers.
In reality, the world is not waiting for Michigan to manufacture wind energy equipment. In addition to the fact that European manufacturers have a huge lead over the United States, consider the following statement from the American Wind Energy Association regarding the progress in other states:
“In 2007, nearly 35 percent of all new electric generating capacity (amounting to more than $9 billion in investment) installed across America was wind generation. Wind energy trailed only natural gas as the leading source of new generating capacity nationwide, and placed first among all energy sources in new capital investment. Wind manufacturers also announced new facilities creating about 6,000 new jobs.”11
Obviously, other states are already in the game. While there may be huge potential for economic growth in the field of alternative energy component manufacturing, it does not logically follow that the mere enactment of the nation’s 27th RPS will act as a magnet to attract these highly coveted jobs to Michigan. An RPS may be a necessary precondition to attracting such business, but it is far from sufficient to accomplish that goal. Much more than a simple RPS will be needed to attract significant manufacturing jobs to Michigan. The good news is that Michigan has more than just an RPS. As noted by Governor Granholm in Executive Order 2008-20:
“Michigan is uniquely positioned to advance the development and deployment of renewable energy technologies because of its many assets including, but not limited to, its skilled and available workforce; automotive research and development capabilities; tool and die, metal fabrication, and supply chain superiority; research universities and community colleges with advanced energy academic and technical curricula; and available natural resources in wind, water, and biomass.”12
While it may be debatable whether the attributes listed by the governor are truly unique to Michigan, it is undeniable that Michigan has the potential to successfully attract component manufacturers. One notable advantage may be found in the fact that Michigan already “has more than 2,000 businesses with the capacity to produce renewable energy components.”13 Some of these manufacturers already have leading positions in the field of solar energy.14 These existing businesses obviously deserve the full support of their local and state governments. New businesses also need support, as well.
The potential for future growth in the field of alternative energy is immense. “The International Energy Agency estimates that more than $20 trillion will be spent on energy production to meet demand worldwide over the next 25 years. Another study has found that the renewable energy and energy efficiency industries have the potential to generate more than $4.5 trillion in revenues and create 40 million jobs in the United States by 2030.”15 If the right actions are taken, Michigan could and should secure its fair share of this vast international market.
Even if Michigan’s government takes the types of actions that all of the other competing governments are taking, however, is it realistic to assume that Michigan will actually corner the market on alternative energy manufacturing? To be blunt, we seem to be experiencing some pronounced difficulty in simply maintaining our place among industries such as automotive and furniture manufacturing, where we formerly led the nation.
Tax reform, labor reform, and other improvements in the state’s overall business climate would certainly help all manufacturers in Michigan. In addition, targeted business development efforts, such as those being undertaken by the Michigan Economic Development Corporation and NextEnergy, will no doubt facilitate some growth in our state’s alternative energy industries. In the final analysis, though, Michigan is a late entrant in a highly competitive global market filled with state and national governments that are all seeking a bigger piece of the alternative energy pie. Our state certainly has the ability to be competitive, but what we really need is an edge. We need something that makes Michigan stand out from the crowd.
Critical edge
Fortunately, that critical edge is available to us in the wind above our other great resource, the Great Lakes. Michigan’s edge is offshore wind.
Figure 2: Wind Resource Map of the U.S.Figure 2 is a map published by the U.S. Department of Energy, showing the estimated annual average wind power at 50 meters above the surface of the United States. Notice that the best wind power over land is found in the central plains states. In contrast, notice that none of the land surface of Michigan is rated as having wind that is even “good,” let alone “excellent.”
In fact, the vast majority of Michigan’s land area is not rated as having any significant wind energy potential at all, while the few spots that have any measurable potential are rated no better than “fair.” Now, look at the entire map to find the wind power that is rated “Outstanding.” Virtually all of it is located offshore, along coastlines. Finally, look at the map and ask yourself, “Which state in the nation’s industrial heartland has the greatest potential for offshore wind development?” The answer is obvious: Michigan is nearly surrounded by outstanding wind power.
Figure 3: Michigan Wind Power at 50 Meters
Figure 3 is a closer look at Michigan’s wind energy potential. Again, notice the amazing potential of offshore wind, contrasted with the relatively poor potential of onshore wind.16 While the quality of wind energy typically increases at greater heights above the Earth’s surface, Figure 4 which shows that even measured at a height of 70 meters, Michigan’s best wind energy potential is still found offshore and not over land.
Offshore wind gives Michigan a clear edge over all of its land-locked competitors. Based on this key advantage, Michigan has a genuine opportunity to lead instead of merely follow. Just a few months ago, the Land Policy Institute at Michigan State University issued an important report on Michigan’s Offshore Wind Potential. That report confirmed that Michigan enjoys “significant electric power generation potential from offshore application of wind energy technology.”17
Figure 4: Michigan Wind Speed at 70 Meters
In fact, the report demonstrated that offshore wind turbines located in water no more than 60 meters deep, and at least 10 kilometers away from the shoreline, could produce more megawatts of electricity than all of Michigan’s current peak generating capacity.18 The report concluded that, “Given the unique resource of offshore wind power, it is possible for Michigan to uniquely define itself as a premier wind energy state.”19
Offshore wind energy projects enjoy several advantages over land-based wind energy projects. Primarily, most offshore winds are stronger and steadier than onshore winds. In addition, there are often substantial costs and delays involved in acquiring the vast amounts of property needed for land-based wind farms. Offshore projects generally do not face those obstacles.
Offshore wind energy development is not a new concept, at least in saltwater. Denmark, the United Kingdom, the Netherlands, Sweden and Ireland all have operating offshore wind farms and are planning to construct more. Coastal states in the United States, including Massachusetts, Texas, Delaware, Rhode Island and New Jersey, are all proceeding rapidly with offshore wind development. Some of them are already well along in the bidding process for offshore projects in the Atlantic Ocean.
There are differences, of course, between the Great Lakes and the world’s oceans. The most obvious difference is that bodies of freshwater located in northern climates tend to freeze during the winter. Freezing presents an engineering challenge that is not present with saltwater, but the challenge is not insurmountable. Preliminary research indicates that there are many possible solutions to this obstacle.
Figure 5: Simulated Views of Wind Turbines From 2 to 20 Miles Offshore
While freezing is a disadvantage of freshwater wind energy development, most of the other differences between freshwater and saltwater actually favor the Great Lakes over the oceans as a site for wind energy development. For example, saltwater is much more corrosive than freshwater. Also, ocean floors tend to drop off precipitously, reaching great depths close to shore, whereas the lake beds underlying the Great Lakes offer greater opportunities to locate wind farms farther away from the shoreline, thus mitigating concerns with the “visual pollution” or “viewshed” issues that arise when wind turbines are located too close to shore. Figure 5 demonstrates the aesthetic (and therefore political) benefits of this particular advantage.
Another key advantage that Michigan has over the states located along the ocean coasts is the fact that state marine coastal zones extend only 18 miles from shore, whereas Michigan has jurisdiction over approximately 40 percent of the Great Lakes water surface and bottomland. According to the MSU Land Policy Institute, the “degree of difficulty in implementing wind projects offshore in the Great Lakes is significantly less than in ocean or saltwater applications.”20 Moreover, “project implementation costs for Great Lakes application will likely be lower that in marine applications.”21
The report issued by the MSU Land Policy Institute concludes with the following sentence:
“Given the unique management framework in the Great Lakes, the potential to mitigate some of the issues that typically arise with onshore application and the potential for Michigan to be a bigger player in the national wind generation space, we recommend that greater consideration be given to state policies to guide offshore wind development.”
The Institute’s recommendation is well-founded and, frankly, rather obvious to any informed observer. Wisconsin, for example, recently announced that it is initiating an in-depth study into the possibility of generating wind power on the Great Lakes. Yet, in Michigan’s recently enacted energy legislation, the entire topic of offshore wind development was essentially ignored in favor of provisions that encourage the construction of more nuclear and coal-fired plants. Our minimal RPS is merely window dressing for a continuation of the status quo.
Why isn’t Michigan taking the lead in offshore freshwater wind energy? Certainly, there are issues that need to be examined before full scale development can begin. We need to better assess the impact of offshore wind generation on aquatic habitats, commercial and recreational fishing, shipping lanes, avian migration, energy storage and electric transmission, among other topics. These issues, however, are not insurmountable obstacles, but rather challenges that need to be overcome.
Just as Michigan overcame the significant challenges inherent in constructing the Mackinac Bridge, we can and should rise to the occasion and take action on offshore wind energy. We have world class universities. Why aren’t they all studying these issues? We have world class engineers. Why aren’t they addressing the engineering challenges of offshore wind development in freshwater? We have world class manufacturing skills. Why aren’t we employing those skills to manufacture offshore wind components, many of which are currently made in Europe? We have the potential to lead the world in clean, renewable, freshwater wind energy. Why don’t we adopt aggressive policies to tap that potential?
It is time for us to envision a future where Michigan is energy independent, where our power plants run on fuel that is free and inexhaustible, where businesses are attracted to our state by the assurance of long-term, reliable and affordable power supplies, where pollution is dramatically reduced and where we export power instead of importing it.
Energized by that vision, we must act to make it a reality. The time to take that action is now. The citizens of Michigan should no longer be content to simply sit by the railroad tracks, watching the coal trains continue to roll in, while our money and jobs continue to roll out.
© David E. S. Marvin 2009
Leave a comment on the Reader Response page.
Footnotes
- A typical coal-fired plant emits around 50 tons of mercury pollution per year.
- For those interested in an alternative view of the global warming issue, go to www.climatedebatedaily.com or http://wnd.com/index.php?fa=PAGE.printable&pageId=83323.
- Also known as “emissions trading,” a cap and trade system involves a government setting a cap on the total amount of a particular pollutant that can be emitted by all sources. The regulator then issues credits to existing emitters allowing them to emit a specified amount of the regulated substance. If an emitter reduces its emissions by some amount, it can then sell (i.e., trade) the credits for that amount to another entity that desires to increase its emissions by that amount. Since the increases and decreases involved in each trade offset each other, the total emissions remain at the amount of the cap.
- Interview with the Editorial Board of the San Francisco Chronicle
- Michigan Energy Overview, prepared by the Michigan Public Service Commission, September, 2008.
- For example, the legislation includes, for the first time in Michigan law, special ratemaking provisions that facilitate the construction of new power plants. Also, the new certificate of need process is dependent on the utility’s own timetable, rather than on an advance assessment by the State of the need for new plants.
- NextEnergy, “A Study of Economic Impacts From the Implementation of a Renewable Portfolio Standard and an Energy Efficiency Program in Michigan,” April 2007, at page vii.
- Id at page viii.
- Id at page iii (emphasis added)
- Id at page x.
- American Wind Energy Association press release, May 6, 2008.
- Executive Order 2008-20, dated 10/27/08.
- Governor Granholm’s Policy Statement on Alternative Energy Development.
- For example, Hemlock Semiconductor Corporation is already the world’s largest producer of hyper-pure polycrystalline silicon — an essential component of most solar panels. Hemlock Semiconductor is in the process of a $1-billion expansion, creating hundreds of new high-tech jobs in Saginaw County. Also, United Solar Ovonic (Uni-Solar) — the world’s leading producer of thin film solar electric modules and laminates — built its new manufacturing facilities in Greenville. Uni-Solar currently operates three manufacturing plants in Michigan, exporting Michigan-made solar film across the country and around the world. The company plans to double its Michigan production in the near future.
- Governor Granholm, 10/27/08 press release announcing a reorganization of all activities related to renewable energy.
- Interestingly, Michigan has been ranked 14th in the nation in land-based wind potential. This ranking is primarily a function of the fact that so many other states have even worse land-based wind potential than Michigan.
- Michigan’s Offshore Wind Potential, MSU Land Policy Institute, 9/30/08, at p. ii.
- At a maximum depth of 60 meters and a distance from shore of at least 10 kilometers, wind turbines could produce 36,337 MW, which exceeds the state’s peak generating capacity of 30,189 MW.
- Michigan’s Offshore Wind Potential, MSU Land Policy Institute, 9/30/08, at p. 3.
- Id at p 1.
- Id.
Insert your email (required)
Subject
Comments
Insert email of your friends (required)