Burning the Reliability Candle on Both Ends

A discussion between Robert Bryce and Isaac Orr on the reliability of America's electric grid

Energy Bad Boys co-founder Isaac Orr appeared on the Power Hungry Podcast with Robert Bryce to discuss the work he and Mitch Rolling are doing to calculate the cost of energy policies throughout the country.

In his fourth appearance on the podcast, Orr talks about the staggering cost of decarbonization mandates, why the EPA’s proposed greenhouse gas rule could result in blackouts across middle America, the impact that higher interest rates are having on renewable-energy projects, and the widening divide between urban and rural voters.

The following is a partial transcript (up to 19:50) of the podcast (with minor edits to make it easier to read). The full episode is attached below. Enjoy!

Robert Bryce: Hi everyone and welcome back to the Power Hungry Podcast. I'm Robert Bryce. On this podcast, we talk about energy power innovation and politics and I'm pleased to welcome back for the 4th time my friend Isaac Orr. He is a policy fellow at the center of the American experiment. Isaac, welcome back to the Power Hungry Podcast.

Isaac Orr: Hey, Robert, thanks for having me. Always, always, a great time to be here.

RB: Good, good. Well, you've been on the podcast before so you know the drill: guests introduced themselves. So, I've given your title but please tell us who you are.

IO: Yeah, I'm Isaac Orr, I work at Center of the American Experiment, a Minnesota-based think tank. My colleague Mitch Rolling and I have developed a model that allows us to calculate the cost of different energy policies. So, whether that's an EPA regulation or a state law, you're able to say, OK, well if you're going to rely on this much wind, solar, or battery storage, or conversely if you do the smart thing and build nuclear instead, this is what it would cost to decarbonize your system. So, we've had a lot of clients this year, we've been working a lot with the North Dakota Transmission Authority. But we also work with industry stakeholders and other think tanks, so we’ve basically become a modeling firm for the center-right and it's been a lot of fun over the last year.

RB: So, there's a lot to talk about here, and let me start there, though, because you now characterize what you're doing as a modeling firm that is within the Center of the American Experiment. And you and I worked together a little bit, we were on the same podium a couple of years ago for a project that I did for the Center on the resistance to wind and solar across the US, and documenting that was one of the reasons why I started publishing the renewable rejection database, because of the Center of the American Experiment. But let me talk about that because we hear about models and, you know, we see models when it comes to climate change and a lot of discussions about what – well, I'll ask the question: what makes a good model? How do you know your model is reliable?

IO: Well all models are wrong, some models are useful, right?

RB: Garbage in garbage out, is that the thing?

IO: That's the thing, Robert. There are a lot of models out there that are promoting wind and solar that are lots of garbage in so you get lots of garbage out. And I love how you call them spreadsheet jockeys. Mitch and I joke about that, like, “How's the jockeying going today?” Mitch is like, “It's pretty good.” But what we try to do is we try to say: this is the system that we have today and then this is what's going to happen if we make this change, this change, or this change. So, one of the things that we inevitably see whenever we hear claims that wind and solar will bring down costs, or they're somehow the lowest cost of energy or the most affordable portfolio, is it’s always a bait-and-switch baseline. So it's a BS baseline analysis. It's like when the federal government says that they're cutting spending. They never actually cut spending, they just don't spend as much as they said they were going to. So, let's say Congress says, “We're going to spend $2 trillion,” and the conservatives say, “No we're only going to spend $1.5 trillion,” and then everyone cries that they've cut spending by $500 billion, right, when really nothing got cut, it all got added. So the utilities play that same game, the EPA plays that same game, and states play that same game whenever they do their modeling. So, ultimately what we want to do is we want to establish that this is where we are today - we use FERC Form 1 data, so we go through to see what each power plant in a system costs to generate electricity and you can use the FERC Form 1 data for that - and we say this is the real baseline. We're not going to use some bait-and-switch tactic where we artificially make our system look better. So, I think that really distinguishes us from a lot of these other models that are overly optimistic about wind and solar. We also use realistic, or the most recent capital costs that have been announced by the Energy Information Administration (EIA). A lot of times these “wind and solar are the cheapest forms of energy” studies assume that the 80% cost decline that occurred from like 2009 until today for solar, for example, will continue to be another 80% cost decline in the future when, realistically, we're seeing capital costs for solar and wind increase due to inflation. And you know the other thing is they're very capital intensive and you have to spend that money up front.

RB: Right.

IO: It's not a pay-as-you-go system with fuel, so as interest rates increase, you're actually baking in higher costs if you are going to be building wind and solar. So a lot of those trends are reversing. Mitch and I did a piece recently where we said -

RB: And the trends, sorry to interrupt, in the cost reductions you're talking about, specifically, that those are reversing and that is largely a function of the higher interest rates?

IO: That, and higher material cost. Steel, concrete – I mean, I think 70% of a wind turbine is the concrete base, so when you have an increase in concrete, and the other main component is steel, the price goes up. So yeah, we don't need to get into all the nuts and bolts of the modeling but if anybody has questions comments, or scathing rebuttal for the way that we do it, check out the appendices, send us an e-mail, and we'll be happy to chat with any of your listeners about that.

RB: So, have you had much in terms of honest and real serious debate? I want to get into and just preface this because you've done a calculation, some calculations, on what the EPA's proposed greenhouse gas rule could mean in terms of cost for MISO, the Midcontinent Independent System Operator, and Minnesota is in MISO. And I think part of Texas is in MISO, if I'm not mistaken, I know a very small piece is in the SPP - a very small thing - and a very small piece in MISO. So, I want to talk about what you calculated there, as well as what the potential costs are in Colorado. But talk about that further, have you had a real serious debate with people on the other side, or what I'd say the left or the people pushing renewables, saying, “Oh no your model's wrong.” Have you had any serious engagement on that?

IO: Yeah we had a good back-and-forth with Jesse Jenkins when we released our 100% carbon-free Minnesota report. He didn't like some of our assumptions, I don't remember what they were now. He thought that we were extrapolating Minnesota’s hourly wind generation to the entire MISO footprint when realistically that's not what we were doing. We were taking the entire MISO footprint and saying this is how effective Minnesota’s wind turbines are going to be – which is overly generous to Minnesota because the wind turbines work better in North Dakota, South Dakota, and Iowa, and that's why you're seeing a lot of the wind that is serving Minnesota markets being built in the Dakotas. So, we had some back and forth like that, but I felt like we were able to defend it really well. Most people don't mess with us because they know we're going to come with receipts. But, you know, whenever people do, it always makes the product better. So we're always open to that kind of critique because, you know, iron sharpens iron in that respect.

RB: So, you've been at this for a while… I'd say you and Mitch together have created or are trying to create an open and transparent model that shows what the potential impacts of different energy policies are. Is there anyone else doing this and in the same way that you are?

IO: There are a lot of groups on the left. I mean, there's more than you can shake a stick at. On the right, there are a few consulting firms like Energy Ventures Analysis and NERA Economic Consulting. Those are the two that come to mind. But other than that, in the nonprofit space, not really, Robert. I think that we're kind of in our own lane on that, which is really cool because we have it all to ourselves and that allows us to do a lot of different projects all over the country. But on the left, you've got Rocky Mountain Institute, I don't know, Energy Innovation. There are way too many.

RB: But those are, I would typify those outfits –  and I'm this is speaking broadly – those are advocacy groups, right? They're nonprofits, but they are advocating for these claims, “Oh no this is going to be cheaper.” I mean, what is Amory Lovins’ line, “Renewables aren't just… a free lunch, it's a lunch you get paid to eat,” right? That's his line - and it's going to make you thinner, this is also part of the promise. So, you've done some modeling on the EPA rules on the potential impact on MISO, and you've done Colorado – what other states have you done the modeling on?

IO: Yeah so we've done 11 total. We've done Arizona, West Virginia, Washington, Colorado Minnesota, Wisconsin, Michigan, North Carolina, and Virginia, and I'm missing two, but your listeners will hopefully forgive me for that.

RB: So, Michigan let's talk about that. I don't know if you have the numbers at hand, but the governor there just implemented – and the legislature just passed – a clean electricity or zero-carbon electricity mandate by I think it was 2045. They also passed a provision that allows the state to Bigfoot local communities that will give legislators in Lansing the ability to override local zoning when it comes to wind and solar projects. Do you have those numbers in hand because I've been in Michigan, in fact, I was in Ida Township in April and met with local people fighting a solar project. I'm putting you on the spot here, but do you have those numbers for what the Michigan cost would be?

IO: Yeah if you vamp for a minute longer I can get those because we did the modeling for the Mackinac Center for Public Policy. So, anyone who's interested in reading more about that can go to the Mackinac Center website, or Jason Hayes has a Substack, he's their energy policy researcher, and his Substack is called Forest, Fuels, and Freedom. I'm just strolling through his Substack at the moment, but it's hundreds of billions of dollars, Robert.

RB: So, let me – well, I will vamp. I can vamp, you know me. My guest is my friend Isaac Orr, he's a policy fellow at the Center of the American Experiment in Wayzata MN, if I'm remembering correctly. No, Golden something. What's the name of the town, what is it?

IO: It's Golden Valley. Golden Valley sort of, but it's really Minneapolis.

RB: We'll just say that, yeah. He's on Twitter @thefrackingguy, or you can find out more about him at americanexperiment.org. So, you've done now 11 states, you've done the EPA model, and I want to come back to the EPA discussion because that is one of – the proposed rule which came out earlier this year, I believe it was in May, they have since extended the comment period on that but it is a narrowly focused extension of the comments. So, it appears that the EPA is going to go forward with this effort to try and cut CO₂ emissions from the utility sector by something 90%. It's a drastic move, a drastic proposal, that's coming not from Congress but from the administrative state again. So did you find the Michigan numbers?

IO: I didn't but let's move on to the EPA, that’s the more interesting thing.

RB: Sure, no problem. So, you recently did, I think it was in August, you and Mitch released a report, and… I’ll cut down to the punch line here, you said that the cost will be $246 billion. This is from the EPA's proposed greenhouse gas rule which would result in additional costs for ratepayers in MISO of $246 billion, which is $7.7 billion in annual compliance cost for the MISO region alone and that is through, $7.7 billion through 2045 or 2040. Is that right?

IO: Yes.

RB: I think that's right. Yeah, so these are massive costs over a massive area, the MISO district or MISO segment of the US grid is enormous. So, how did you get to the $246 billion, what are the key, what are the biggest components of that in terms of extra cost?

IO: Yeah, I want to hit on the most important thing that we did for modeling the EPA's proposed carbon rule: we looked at the reliability of the proposal. EPA did not do this. So, the EPA said, “OK, well we have this assumption that the post-IRA base case is going to be responsible for 99% of the emissions reductions and changes on the grid.” So they just think all the subsidies in the IRA are going to lead to this fundamental transformation of the electric grid and only the last 1% of emissions reductions will be due to the EPA carbon rules. So 99% IRA, one incy-wincy little bit for the carbon rules. And that's why they were able to artificially suppress the publicized cost of those regulations. So, it was a bait-and-switch baseline, Robert. And the EPA said, “Well we're not going to look at the reliability of it, but we'll look at the resource adequacy of this little, little piece compared to our post-IRA base case.”

RB: May I interrupt you just a second, because you hit on something here that I think is absolutely essential and it's one that I keep coming back to in my own work and also on my own Substack. I wrote about the issue of the gas system in New York City almost failing. Well, what happened in retrospect is no one's responsible for the reliability of the natural gas system and the same is true with the US grid as a whole. There is no one entity that says, “Oh you've got to do this for reliability.” But this reliability part is the one that I think could very well come back to haunt us because there is no real focus on this issue of reliability of electricity around the country and I think it's extremely, extremely dangerous. But so EPA says that their focus is on emissions reduction and not on the reliability of our most important energy network, is that a fair way to say that [to] rephrase what you're saying?

IO: Right, that is 100% correct, Robert. And it gets worse.

RB: Good. Ohh good! (laughs)

IO: Yeah, but wait there's more!

RB: But wait there's more. We're from the government we're here to help.

IO: That's right, that's right. Those are not terrifying words, either, if you're in the administration. OK, so what happens in the EPA's Regulatory Impact Analysis (RIA) – that's the long document that they have to produce justifying their rules – in that RIA, whenever EPA was closing down coal plants due to the carbon rule they would build about the same amount in natural gas plants in order to maintain the resource adequacy of their proposal. That's all well and good – whenever you shut down a coal plant you should have to build a GW of gas. You shut down a GW coal, and replace it with gas, that's sensible. But the problem is EPA never did a resource adequacy or reliability analysis on their base case. So what EPA effectively did was the regulatory equivalent of making sure that the top floor of a 100-story building was structurally sound without doing the same thing for the preceding 99 floors. So the top floor looks great, but for the other 99 floors, I hope it's legit. This is basically the way that we talk about this and when we discuss these rules. So what Mitch and I did – and you know Mitch carried a lot of the water so you should have him on the show sometime just to give the listeners a break from me.

RB: Sure!

IO: So we said, “OK, here's what the EPA thinks would be in the MISO system, so they go through and they say each of the regions in my cell will have X megawatts of this X megawatts of that.” So we plotted all of that out and we said, “OK, so EPA thinks that there's going to be a huge increase in the amount of installed capacity on the grid as a result of these rules.” MISO would effectively go from about a few 100 gigawatts of installed capacity – 204 gigawatts of installed capacity – as of 2021, so that's the steel in the ground, to 457 gigawatts of installed capacity by 2055. But almost all of that is going to be wind, solar, and battery storage and they're going to be retiring the coal, and they assume the nuclear plants close down too. So, EPA makes some very crazy assumptions about this. All of these things are, all of the graphs that I'm going to be talking about are available on americanexperiment.org. And Mitch and I started a Substack – it's Energy Bad Boys – so check that out. There's an article that we wrote for Thinking Minnesota, which is the magazine that we produce at Center of the American Experiment, called Enjoy the Blackouts, Jack.

RB: But just to repeat here. So the numbers you just ran through, again, when I read your summary of the MISO report, and also what you're talking about in Colorado which we'll get to in just a minute, the key here in terms of the cost, as I see it, is that the costs increased dramatically because of the amount of overbuilding on the system that has to occur. So you're saying in MISO that the capacity would more than double to meet the demand to meet this model or these claims that the EPA is making. You talked about the same thing in Colorado, that… with all of these renewable plants is all about a massive, massive construction project that will result in huge overbuilding of the grid in order to compensate for the unreliability or the weather dependence of wind and solar. Is that fair?

IO: That's exactly what we did in Colorado. It's a little bit more nuanced for the EPA rules and I'll get into that. So, what we did is we said this is the grid that EPA thinks will exist in 2028, 2030, 2035, 2040, and so on.

RB: Right.

IO: We said, “What if we have the same wind and solar capacity factors in the future that we had in 2019, 2020, 2021, and 2022?” So, what we do is we go through the MISO data and find the hourly fluctuation in wind and solar and we divide that by the amount of installed capacity on the system, and that gives you the productivity of wind and solar during those times. So we took the MISO grid that EPA thinks will exist in the future and we asked “Can this work? Can this provide electricity 8760 based on past you know weather conditions… and the electricity demand that we experience during those years?” So we did the most basic hindcast model to make sure that you don't royally screw up the future and you get devastating blackouts.

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This transcript goes up until 19:50 of the podcast - if you enjoyed and want to watch the rest of this Power Hungry Podcast episode with Robert Bryce and Isaac Orr, please continue watching on YouTube or at Robert Bryce’s podcast channels.