“Clean” Energy Mandates are Raising Power Bills, Not Data Centers
By Steve Haner
No, Virginia, we cannot blame the data centers. The impact of the Virginia Clean Economy Act (VCEA) on rising electricity bills is more significant and destined to grow. With the cost of living turning up in election polls as a top voter concern, a repeal of the VCEA is one step the next Virginia General Assembly could take if voters make the right choices.
Some of the ways VCEA is raising electricity bills, mainly for 2.7 million Dominion Energy accounts, are easy to find:
The up-front construction cost of the $11.3 billion offshore wind project for Dominion, which will not produce electricity until next year. If your Dominion bill is 1,000 kWh, as of September 1 you are paying $11.23 per month for that. Without VCEA the project likely would not have been approved as prudent.
The cost of purchasing renewable energy certificates (RECs) from companies other than Dominion, most of them not in Virginia. Under the VCEA, Dominion must hit an annual target for non-hydrocarbon electricity, and when it misses the target, it must pay for RECs or pay a fine. That is adding another $7.68 to the 1,000-kWh bill.
The up-front construction cost of a growing fleet of large solar projects. The VCEA also mandated that and is calling for much more solar in the next several years. The cost for the current projects is $3.67 on that monthly 1,000-kWh bill.
The cost of energy efficiency subsidies offered to induce customers to reduce their use of electricity, often with the purchase of LED lighting, insulation or newer appliances. Some of the subsidies are given to businesses. They currently add $1.45 to that 1,000-kWh monthly bill.
Those four provisions of the Virginia Clean Economy Act have added a combined $24 a month, or almost $300 per year, in cost to a residential customer of Dominion using 12,000 kWh over 12 months. They account for more than half of the recent increase in price, which was about $120 per 1,000 kWh when VCEA passed in 2020 and is now about $160 for the same amount.
The price impact will grow over the years because the Virginia Clean Economy Act demands far more solar and wind projects, and the purchase of far more outside RECs, going into the 2030s and 2040s. The removal of federal subsidies for some of those future projects means a more honest – and much higher – price imposed on Virginia’s ratepayers.
How little power Virginia is getting from these expensive projects has become clearer in recent proceedings down at the State Corporation Commission. Dominion’s own data filed at the SCC show that the utility-sized solar farms it owns are failing to hit even the modest goals for energy output promised when they were approved. Some produce electricity less than 20% of the time.
While making its case to the SCC to add a new natural gas unit, Dominion presented a model that shows that the offshore wind output is likely to disappear just when it was needed most, during a major winter cold snap. That has already happened with the two smaller test turbines operating off Virginia Beach.
The word used by an SCC analyst to describe what happened was “collapse,” and he told the Commission that for the same $11.3 billion dollars, the utility could be building up to six new natural gas plants. Natural gas provides about double the operational reliability compared to the turbines, working 80 plus percent of the time compared to 40 to 45 percent.
The Virginia Clean Economy Act and related legislation have additional ways they have or soon will boost electric bills.
Based on the outcome of the election, Virginia could again join the Regional Greenhouse Gas Initiative, a multi-state cap-and-tax-and trade system that imposes a tax on all hydrocarbon fuels used by electricity generators. Should Virginia join again, the tax our generators pay will be far higher than it was when Governor Glenn Youngkin took us out of it. That will add at least $5-6 to that 1,000-kWh bill and is destined to grow.
The VCEA created a subsidy for low-income electricity users, with the money to cover part of their bills (or pay their arrearages) provided by all the other customers. Dominion instituted the charge on its bills before the program was up and running, and then temporarily removed it. Now that the program is growing, that VCEA-mandated surcharge will return.
The VCEA also applies to Appalachian Power Company, serving 500,000 accounts in Western Virginia, but has had less impact on its customers so far. Appalachian’s recent price increases are more related to the cost of production and its challenging rural service area, with far fewer customers and less revenue per mile of power lines. Appalachian customers are currently paying a $1.32 monthly PIPP charge because of VCEA, however.
The VCEA project costs and RGGI carbon tax flow through to rural cooperatives, which often buy power from Dominion or Appalachian or independent generators. A coal plant some of the cooperatives operate jointly with Dominion is slated to close under VCEA.
And the cooperatives have been among the first to feel the impact of the spike in contracted future energy prices within the regional PJM Interconnection energy marketplace. Other than that shared coal plant, they basically run on purchased power.
Those PJM capacity contract price spikes are the reason so many governors in PJM states are demanding PJM reform and are threatening to leave the marketplace. Few are willing to admit the role the anti-hydrocarbon laws and politics in their own states played in widening the gap between supply and demand. The plants they have been closing had been the most reliable, and those that remain can demand higher contract pricing.
The VCEA and related legislation, in Virginia and elsewhere within PJM, are not the only cause for the rise in electricity prices.
Natural gas remains the dominant fuel source for generating electricity both within Virginia and in the other states which are part of the PJM regional electricity market. If wind and solar fade as choices, more natural gas will be needed to replace them. The price of gas has risen about 70 percent since the recent low point in 2020, with the largest spike caused by the Russian invasion of Ukraine and its disruptions of the market.
General cost inflation and now tariffs have increased all the costs of building and maintaining the transmission and distribution lines at the heart of electricity service. This is where the explosion of data center demand plays a major role, requiring system expansions now in the pipeline, and without doubt more cost increases to serve them are ahead. Steps may be taken to limit that impact on residential customers, however.
Blaming fuel costs, PJM capacity costs or the data center growth for the higher prices is too easy. Of the energy cost drivers which are controlled by Virginia government policy, laws such as the Virginia Clean Economy Act and the related Regional Greenhouse Gas Initiative cannot be ignored and should be removed from the table.
First published this morning by the Thomas Jefferson Institute for Public Policy.
Republished with permission from Bacon’s Rebellion.
