- Newsletter (211)
DTE Energy, the largest electric utility in Michigan, states that “creating a cleaner, healthier environment where we can all live and thrive is our highest priority.” In social media and public events, DTE broadcasts its commitment to reduce its carbon emissions by 80% by 2040, all while keeping electricity costs affordable for its 2.2 million customers.
But, despite these admirable goals, as clean energy use is growing around the country, DTE has ignored steps that would increase Michiganders’ access to clean energy in favor of hanging onto the old model of centralized, fossil fuel-burning power plants.
This foot-dragging can be seen in the most significant roadmap for the utility’s future: its 25-year plan on how it will meet customer needs for energy for the foreseeable future. Public utility regulation is usually the last thing on the average person’s mind. However, it is important for all residents of Michigan to pay attention to this plan, known as an “integrated resource plan,” or IRP. DTE customers will have the opportunity to express their feelings about the IRP at two public forums to be held June 20 at Wayne County Community College’s Downtown Detroit campus from 4:00 pm to 5:30 pm and 5:45 pm to 7:00 pm.
Required by state law, DTE’s IRP is supposed to represent the utility’s plan for the “most reasonable and prudent means of meeting the electric utility’s capacity and needs” for the next five, 10 and 15 years. But the plan filed by DTE fails to be reasonable or prudent in at least two major ways: First, it uses estimates for the cost of renewable energy that are unreasonably high today—and fail to account for continued declines in the future cost of renewables. Second, it deliberately avoids third-party sources of energy that could be more affordable for customers but would not be as beneficial for DTE shareholders.
Both problems lead to DTE proposing a plan that is more expensive and less reliant on clean energy sources that it could be.
Renewable energy costs: We won’t spend a lot of time on the impressive advances in the efficiency of solar and wind energy that have made these renewable sources cost-competitive with coal or natural gas, and in many cases actually cheaper. There has been a wealth of information on that subject published already. DTE’s IRP largely ignores these cost declines. The utility’s assumptions about the costs of renewables are skewed above the range of the most accepted industry analyses of the costs of generating electricity from various sources.
Lazard’s Levelized Cost of Energy Analysis is one of the most widely-cited set of estimates. For 2018, the most recent available data, Lazard reported the cost of new-build onshore wind at $29 to $56 per MWh and new-build utility-scale photovoltaic solar at $40 to $46 per MWh, not counting the further cost reductions that would come from federal tax credits.
DTE’s assumptions, however, are well above the top range of these estimates. In the IRP’s business-as-usual scenario, the IRP’s levelized cost of electricity (LCOE) for wind is $76 per MWh and for solar it is $69 per MWh (not counting tax credits again and assuming single-axis tracking solar, which tend to have higher capacity and energy than the alternative non-tracking systems.)
Even in the “emerging technology” scenario, which assumes ongoing cost declines in solar and wind, the IRP’s LCOE assumptions for wind and solar are slightly above the top range of Lazard’s.
The below figure shows the LCOE assumptions from the IRP compared to Lazard’s estimates as well as estimates from the U.S. Energy Information Administration.
*Does not include tax credits
*LCOE estimates assume slightly different timelines for year project going into service
We should note that LCOE is not the be-all and end-all. Other factors can affect the cost of generating electricity, such as factors specific to a region, like weather. But other things being equal, DTE’s LCOE assumptions undercut the cost-efficiency of renewable sources.
The IRP overestimates the cost of renewables in other ways. The plan includes a basic screen of technologies to use based on the capital costs for each kilowatt of power capacity. For wind, the capital cost assumption is $1,712 per kW. But in May, DTE asked the MPSC to approve a contract with the planned Isabella I and Isabella II wind farms at $1,498 per kW.
Outside energy providers: DTE’s proposed resource plan excludes renewable energy projects built by independent developers—even if those projects produce more affordable energy. DTE does not propose to issue a request for proposals that would allow outside developers to place competitive bids so the most affordable option could be selected. Instead, the utility contends that it does not need to ask for bids if there is no “persistent capacity need”—a need for power to be available to meet grid adequacy standards for the next five years. DTE says it does not need additional capacity for the next ten years, but that capacity is being filled by a $1 billion natural gas-fired power plant that started construction last year. That plant was approved by the MPSC despite protests from Michigan EIBC and other groups that DTE did not properly consider cleaner and cheaper alternatives. With this IRP, DTE is repeating that flawed approach.
In addition, there is no clear reason why that narrow “persistent capacity need” definition used by DTE should be the standard to decide when the utility issues a competitive solicitation. There are alternatives that could be superior for customers, the economy, and the environment. For example, a wind farm developed by a third party can sell its energy—meaning, the electricity it produces, rather than capacity, which means the potential to produce a certain amount of electricity—through a contract with the utility. At some point, if needed, the utility could also buy capacity from the project.
The choice to exclude third parties is convenient for DTE given that it and its shareholders—and not its customers—financially benefit from building power generation sources that are directly owned by the utility. DTE can treat projects it owns as capital investments that increase the company’s return on equity—recovered through higher bills paid by its customers–while purchasing power from third parties currently gives no extra return. However, as demonstrated by Consumers Energy in its recent IRP case, Michigan’s legislature created new tools to incentivize utilities to purchase power from third parties. DTE could use those same tools.
DTE’s plan does include some additional renewable power capacity in the near-term from now through 2024: 11 MW of solar, 693 MW of wind and anywhere from 465 MW to 715 MW through MIGreenPower, a voluntary “green pricing” program in which customers and companies can pay an extra charge on their bill to support a new DTE-owned wind farm in Huron County and new DTE-owned solar projects in Detroit and Lapeer.
But MIGreenPower, which makes up a massive chunk of the renewable investment DTE is proposing, is another example of how the utility is not considering more affordable options and instead favoring its own power plants. Customers who participate in MIGreenPower pay a premium on top of the electric bills they would be paying if they did not participate. So as businesses around the country from Apple to Walmart are signing deals with wind and solar projects for prices competitive with what they would get from local utilities, DTE customers who want to “go green” have to pay extra.
None of these criticisms change the fact that DTE has made substantial progress moving toward a cleaner energy future. The IRP and its proposed $2 billion in renewable investment (primarily new wind farms) represent more progress, and that achievement should not be ignored. But what should also not be ignored is the fact that the IRP has huge room for improvement in many ways that would benefit DTE customers.
The June 20 forum is a chance for Michigan residents to ask DTE to truly make a cleaner and healthier state a “top priority.”