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Archive for January, 2012

Big Green, made up of powerful environmental lobbying groups along with elected and appointed officials, now rules Delaware. Legislation that could not be passed nationally is now routinely approved here. Delaware’s Renewable Portfolio Standard (RPS) requires the increased use of expensive solar, fuel cell, and wind power. Delaware also participates in a regional carbon cap and trade program. This will cost Delaware electric ratepayers $38 million in 2012 and could surpass $300 million in 2025. Those higher electric rates will eliminate 2100 jobs and will add $275 a year to residential electric rates according to a study done by the American Traditions Institute.

So far, Delaware has not allowed less expensive clean energy options such as electric grid efficiency improvements, natural gas fueled power, and nuclear power to count against the standard. This may change in 2012 if the legislature replaces the RPS with a Clean Energy Standard. Beware, the new standard could be a Trojan Horse. The details of the new standard could either make energy much more expensive or put us on the road to lower energy costs.

The current RPS requires 25% of electricity used in Delaware come from renewable sources such as wind and solar by 2025. Solar is five times as expensive as conventional power and offshore wind and fuel cells cost two to three times more. Meanwhile, energy efficiency and natural gas fueled power reduce greenhouse gas emissions and actually cost less than other conventional power. New nuclear power technologies will also reduce emissions at potentially much lower cost. If we simply allowed these options to count toward the 25% goal we could reach the goal a lot quicker than 2025 and move Delaware toward competitive electric rates.

More likely, however, we will see an effort to dramatically increase the 25% goal combined with larger carve outs for the more expensive renewable options. Big Green is trying to severely curtail the use of coal to produce electricity. Nationally, 43% of electricity (55% in Delaware) comes from coal fired plants and Big Green would like to see that cut in half. The problem is the U. S. is the Saudi Arabia of coal. Eliminating the use of coal is like asking American manufacturers to compete globally with one hand tied behind their backs.

The 1990 Clean Air Act required individual coal fired electric generating plants to reduce air pollutants, such as sulfur dioxide and nitrous oxide, by 90% and that goal was met at a cost of about $30 billion. New EPA regulations aim to reduce emissions another 5% but will likely cost about $300 billion. Coal emits about twice the greenhouse gas as natural gas for each kilowatt-hour of electricity produced. Congress has rightly refused to pass expensive greenhouse gas reduction legislation so environmental groups are attacking coal with new regulations such as a national Clean Energy Standard that would require 80% of electricity be produced without coal. An Energy Information Agency study of the proposed legislation shows electric rates on the east coast would increase 50% more than a base case without the legislation. The national effort is going nowhere so the battleground is moving to individual states.

We certainly encourage legislative changes to allow the use of energy efficiency, natural gas, and nuclear power be used to meet the current 25% RPS requirement. However, Delaware manufacturers already pay 50% more for electricity than the average state. We should not increase the 25% RPS goal and risk making Delaware even less competitive on the national and world stage. We should also be eliminating carve outs for specific technologies not increasing them. Government initiatives always seem to bet on the wrong horse. The market place can react much faster and favor the best electric generating option.

David T. Stevenson, Director Center for Energy Competitiveness

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The DuPont Co just received a state grant for $920,000 for a prototype organic LED plant at Stine-Haskell Research Center in Newark. The money couldn’t come at a better time.

DuPont just announced a 20% increase in sales in 2011 for a total of $38 billion. But all is not coming up roses. In addition to fines paid to the EPA and for chemical leaks in West Virginia, DuPont also paid the state of Delaware a $500,000 fine for noncompliance with the Clean Water Act at its Edge Moor Plant. Certainly these fines are taking a toll and at least DuPont nets $420,000 from Delaware household and business taxpayers. The Company promises to create 35 “good paying” jobs.

Oh, mentioning Delaware businesses, over the 12 months ending in March of 2011 Delaware businesses shed 66,606 jobs through the contraction of firms and 16,729 jobs through the closure of firms. While these businesses did not merit any grants from the state, surely they are happy to fork over the taxes to help their successful neighbor.

And as to the households who are contributing to the DuPont Co, surely they aren’t complaining about subsidizing DuPont even though the price of Girl Scout cookies has just gone up (as has the poverty rate).

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

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Dover, DE (Jan. 18, 2012): The Caesar Rodney Institute, Delaware’s preeminent non-partisan, free-market oriented think tank, today announced the creation of its Center for Excellence in Education.
The Institute is pleased to announce James Hosley will direct the new Center. His background in business and development will help CRI move The First State to a leading position by offering fact-based research and innovative solutions to tackle inefficiencies and shortcomings in Delaware’s educational system.

Through its Centers for Economic Policy and Energy Competitiveness, the Institute has become a strong voice informing Delawareans of alternate public policy solutions and publishing reliable analytics to increase every citizen’s influence over public policy decisions that directly impact their personal situation.

“Education has always been one of our areas of emphasis and given the increasing awareness for the need to improve our system both in terms of efficiency and opportunities for our children, the time is right to start the Center,” Barrett Kidner, Chairman and CEO said. “CRI is dedicated to improving the quality of life, individual liberty, and opportunity for personal fulfillment of all Delawareans. We have aggressive plans to expand our offering and expand the influence of our citizens. Creation of the Center for Excellence in Education is the logical next step in our commitment to Delaware’s future.”

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Delaware imports 60% of its electric power. We get penalized for causing grid congestion and are missing out on 1000 direct jobs at generating facilities. This is a major reason our manufacturers pay 50% more for electricity than the average state and why residential customers pay an extra $400 a year.

For over 100 years the primary focus of electric generation has been to provide reliable power at the lowest possible cost. That mission was accomplished very well and power generation was an engine of economic growth. More recently we also expect power production to reduce air pollution and green house gases.

You have $2.5 billion to re-build Delaware’s electric generating infrastructure. We currently pay about 9 cents a kilowatt-hour because of pricing rules from PJM Interconnection, the regional grid manager. To avoid pricing penalties we need to build 75% of our generating needs including reserve capacity. You should consider cost, reliability, job creation potential, air pollution reduction, and green house gas reduction.

In regard to reliability, base load power is available all the time, intermittent power is available only part time and the hours of availability cannot be predicted. The larger the air pollution and carbon dioxide index number the better. For example an index of “1” is eight times better than “0.16”. Read the full article for comparative properties of different generating resources. You decide the best solution!

 

David T. Stevenson, Director, Center for Energy Competitiveness

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The state of Delaware has secured an agreement by on-line behemoth Amazon to locate a regional fulfillment center near Middletown in exchange for $7.5 million of state grants and road construction. Is this a good deal? No or yes?

On one hand this can be seen as another example of corporate highway robbery. As of 2010 Amazon’s gross revenue was $34 billion, up 46% from 2009. Given the expansion of the product lines carried by Amazon and their continued investment in information technology, 2011 should see a double-digit rise in revenue as well.

Amazon is riding a wave of cash. Their simple business model is a small percentage of an ever larger size gross flow. This is backed by cutting edge computer and logistical systems, consumer research, and the increasing willingness of customers to shop on-line. As important, at this point, they are far ahead of any serious competitors.

On the other hand, as CRI has recognized before, Delaware is in competition with other states for firms and often the wheels have to be greased. The Delaware Economic Development Office is increasingly tying grants to job creation targets, often through convertible loans. Moreover, Amazon is hot and the risk of the firm not producing the 850 jobs at this time is low.

The majority of the jobs will require no more than a high school education. This couldn’t come at a better time given the high rates of unemployment among Delaware residents with less formal education. The occasional seasonal surge in hiring will be a plus to retail spending and restaurants around Middletown as well.

And, it may well be that the promised $4 million in road improvements will encourage other industry development to the west of Middletown.

Compared to heavily subsidized fuel cells and expensive hybrid cars with no established markets or service system, Amazon is a clear winner for Delaware.

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis

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