Readers have responded warmly to our research on Michigan’s looming energy crisis. In recent months, the Mackinac Center covered increasingly urgent warnings from energy experts, debunked inflated claims about battery capacities, and outlined the threat to the entire Great Lakes electricity grid.

But two questions stand out among people interested in energy policy:

1) When will political leaders stop making an enemy of carbon dioxide and realize that “zero carbon” policies will lead to zero energy?

2) Why are energy utilities, which presumably understand the danger of an energy mix dependent on wind and solar power generation, signing up for net zero policies? Are they being coerced by the government?

While there is not much cause for optimism on the first question, there are reasons to believe things can change. “Green New Deal” policies have not proven popular, and “climate change,” despite heavy promotion by government and media, still ranks very low among voter concerns. And as bad energy policies lead to real power failures, angry citizens may challenge politicians’ ardor for banning fossil fuels (though many of these policies are already enacted in law and will be hard to unwind, even during an energy crisis).

Here are a few more points that could help lawmakers reach smarter conclusions.

First, weather-dependent forms of generation leave us with a no-win scenario. When wind turbines aren’t spinning, they are little more than a massive visual blight on the landscape. When they are turning, they actively consume taxpayer money, adding to our federal deficit. Wind and solar receive a production tax credit from the federal government, which is just a subsidy. It’s such a strong incentive that when the tax credit runs out, utilities often ”repower” the turbine — that is, dismantle it just enough that the turbine is considered a new turbine eligible for a fresh round of generous subsidies. This repowering often happens at the ten-year point, though the nominal shelf life of the turbine is 20 years. This article explains more about the process.

Second, when it comes to using fossil fuels for generation, the United States is blessed with a massive supply. The U.S. is referred to as “the Saudi Arabia of coal,” with enough recoverable reserves to last more than four centuries at current demand levels. Many technologies can lower the particulate matter associated with coal generation. The most obvious and widely used are fabric filters, or “baghouses,” which remove more than 99% of fly ash or particles emitted in the flue gas stream. Given America’s plentiful supply of coal, it is worth giving that fuel another look, rather than banning it outright. Natural gas use is also growing, with the U.S. possessing about 90 years worth of natural gas in technically recoverable reserves.

Finally, nuclear power is an alternative energy source with high power density, zero emissions and unmatched reliability. France has generated most of its power with nuclear energy for decades. As a result of its pro-nuclear energy policies, France also enjoys far lower electricity prices than neighboring Germany. It is quite possible to provide reliable baseload energy without carbon emissions, as France does. (The Mackinac Center does not accept the view that CO2 is the ”climate control knob,” or a pollutant, but given that so many policymakers believe it is, we must be pragmatic.) Nuclear power’s energy density is orders of magnitude above the competition, and we’ve got a lot of uranium. The Mackinac Center has published a trilogy of articles as well as reports such as Grading the Grid, which give far more detail on the advantages of nuclear power.

Regarding the second question, “Why are large monopoly utilities ignoring their own quantitative analyses and throwing out a century of experience providing carbon-based energy?”

Unfortunately, the main reason is quite boring: Utilities are crippling the grid because governments pay them to do so.

The three largest vectors of these incentives come from the federal government, state regulatory policy, and Wall Street.

In some states (including Michigan), net zero policies and laws require thermal generation (coal and natural gas) closures. Utilities also receive significant financial incentives to shutter reliable fossil fuel and nuclear plants. Both carrots and sticks prompt utilities to abandon their traditional focus on delivering reliable and affordable energy supplies for their customers.

1) Federal incentives

Across the board, federal subsidies distort energy markets. Regardless of state policies, the federal government gives more money to wind and solar than every other form of generation combined. The ironically titled Inflation Reduction Act has increased federal wind and solar support significantly, and utilities respond by building more solar and wind facilities. ”On wind energy, we get a tax credit if we build a lot of wind farms,” Warren Buffett said a decade ago. “That’s the only reason to build them. They don’t make sense without the tax credit.” Apart from the growing sums of tax dollars lavished on wind and solar, little has changed since then.

However, state policies do make a difference.

2) State regulatory policies

We recently studied Midwest states where residents do and do not have a choice from whom to buy electricity. States that offer electricity choice (Illinois, Ohio and Pennsylvania) create different incentives for utilities than states that do not (Minnesota, Indiana, Wisconsin and Michigan).

In states without electricity choice, public service commissions or public utility commissions (the name varies by state) set prices and approve projects that have been proposed by the utilities. In the absence of a free market, monopoly utilities get a guaranteed return on their spending on new electricity generation facilities (that rate of return is usually around 10% of total spending on new assets).

Effectively, the more they build, the more they make. Public service commissions historically have rejected what the industry calls ”gold plating,” in which utilities plan to build unnecessary infrastructure so as to charge the rate base, or their customers, more. But the commissions are almost always instructed to approve wind and solar projects. Because wind and solar are inefficient and expensive, and because they receive significant subsidies, building them is a logical move to collect money from ratepayers.

Utilities also typically receive approval to continue charging their customer base for the thermal generation plants that they plan to close. They argue that the assets’ value needs to be paid for up front so as to justify their earlier investment.

Next, the utilities charge to build new wind, solar, and new transmission lines to connect them to the grid. For grids that are comprised almost entirely of wind and solar, this means building out almost an entire second grid’s worth of generation. After that, the utilities need to build out grid-scale batteries and natural gas plants to provide reliable power when the wind stops blowing or the sun stops shining. State governments allow utilities to charge for them as well. When this grid proves unreliable, utilities will return to ask state regulators for approval to rebuild new thermal generation necessary to meet consumer needs.

In states with electricity choice, federal subsidies still distort the markets. Some of these states also have net zero climate policies that prevent utilities from offering traditional reliable generation. Illinois is one such example. It has electricity choice, but customers still can’t choose reliable generation because the state mandates the closure of coal plants and a shift away from natural gas generation.

3) Wall Street and Environmental, Social and Governance (ESG) investing

Wall Street is another actor that pressures utilities to abandon fossil and nuclear energy in favor of ostensibly green wind and solar. Here’s an example: Ohioans enjoy electricity choice. The state does not have net zero mandates. Yet its utilities are still promising to close thermal generation. Most of Ohio’s big transmission companies are pledged to net zero because they're subsidiaries of large, national energy companies such as Duke and AEP. Those parent companies have committed to strict Environmental, Social and Governance requirements as a means of demonstrating to investors how low their carbon footprint is. Wall Street regards any action taken to lower carbon emissions as an environmentally good thing, regardless of any other form of cost-benefit analysis.

The impact of ESG investing is not easy to quantify, but it seems to be a significant driver of the push to replace fossil fuels with wind and solar. A state like Ohio can oppose replacing reliable generation with weather-dependent generation, but the state's options are limited when its major utilities are focused on appeasing progressive Wall Street investors and Securities and Exchange Commission bureaucrats.

Conclusion: Don’t Hate the Player, Hate the Game

It should come as no surprise that utilities raise little fuss about declining reliability. We pay them to hollow out the grid, and they do so. Who can blame them? They have a fiduciary responsibility to their shareholders, and they follow the legal and financial incentive structures created for them. We must change those incentives to make it profitable for utilities to provide reliable energy.

No organization is monolithic. Some people within the utility companies recognize how dangerous this energy transition is. Unfortunately, they don’t appear to be the ones making decisions.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.