Researchers Say Renewable Energy Mandates Cause Large Electricity Price Increases

By Tim Benson

A 1-4 Percent In Renewable Generation Raises Electricity Prices By 11-17 Percent

An April 2019 working paper from the Energy Policy Institute at the University of Chicago shows renewable energy mandates (REMs), also known as renewable portfolio standards, are dramatically increasing retail electricity prices and serve as a very expensive way to try to reduce carbon dioxide emissions.

The authors of Do Renewable Portfolio Standards Deliver? found that seven years after REMs are enacted, renewables’ share of electricity generation increases by only 1.8 percent. They also found REMs raise retail electricity prices by 11 percent. After 12 years and a 4.2 percent increase in renewables’ share of generation, these prices rise by 17 percent. Altogether, the total extra electricity costs of REMs to consumers in the states that have enacted an REM are $125.2 billion.

The study also reveals reducing carbon dioxide emissions through an REM costs between $130-$460 per ton of carbon dioxide abated. These increased costs are, at the low end, almost three times higher than the social cost of carbon estimated by the Interagency Working Group set up by the Obama administration, which is roughly $46 per ton for 2020. (It should be noted that whether there is a “social cost” to carbon dioxide emissions at all is debatable.)

Outside of these higher prices, REMs impose other costs. Since wind and solar are so intermittent (having respective capacity factors of just 34.6 and 25.7 percent) and must be backed up by conventional sources of electricity generation, most estimates “do not account for the additional costs necessary to supply electricity when they are not operating.”

The paper also notes “renewable power plants require ample physical space, are often geographically dispersed, and are frequently located away from population centers, all of which raises transmission costs above those of fossil fuel plants.” Further, “[REM-driven] increases in renewable energy penetration can also raise total energy system costs by prematurely displacing existing productive capacity, especially in a period of flat or declining electricity consumption. Adding new renewable installations, along with associated flexibly dispatchable capacity, to a mature grid infrastructure may create a glut of installed capacity that renders some existing baseload generation unnecessary. The costs of these ‘stranded assets’ do not disappear and are borne by some combination of distribution companies, generators, and ratepayers. Thus, the early retirement or decreased utilization of such plants can cause retail electricity rates to rise even while near zero marginal cost renewables are pushing down prices in the wholesale market.”

The findings of this study are not surprising and have been mirrored elsewhere. States with these mandates had electricity prices 26 percent higher than those without. The 29 states with renewable energy mandates (plus the District of Columbia) had average retail electricity prices of 11.93 cents per kilowatt hour (cents/kWh), according to the U.S. Energy Information Administration. On the other hand, the 21 states without renewable mandates had average retail electricity prices of only 9.38 cents/kWh.

In just 12 states, the total net cost of renewable mandates was $5.76 billion in 2016 and will rise to $8.8 billion in 2030, a 2016 study revealed. A 2014 study by the left-leaning Brookings Institution found replacing conventional power with wind power raises electricity prices 50 percent and replacing conventional power with solar power triples electricity costs. The American Action Forum estimates the costs of moving the entire country to 100 percent renewable sources would be around $5.7 trillion, and a 2019 brief from the Institute for Eenergy Research estimates that the idea of getting to 100 percent renewable generation is “nothing more than a myth,” and that attempting to do would be a “catastrophe” for our country.

“Intermittent wind and solar cannot stand on their own,” the brief concludes. “They must have some form of back-up power, from reliable coal, natural gas, nuclear units, storage capability from hydroelectric facilities, and/or batteries. Batteries of the size and scope needed for 100-percent renewables are unproven and not cost effective. Even if a 100 percent renewable future were feasible, the land requirements and costs of transitioning would be enormous and would require subsidies to ease the electricity price increases that would result.”

State legislators should not mandate the use of renewable sources in electricity generation. Such mandates raise energy costs and disproportionally harm low-income families. Instead of trying to increase renewable mandates, legislators should repeal them.

Tim Benson is a policy analyst in the Government Relations Department of
The Heartland Institute.