Renewable Energy Standards Deliver Affordable, Clean Power
Renewable Energy Standards Deliver Affordable, Clean Power
Renewable Energy Standards Deliver Affordable, Clean Power
Introduction
New Jersey, Texas, and California have very different energy profiles. They use different types of energy to power their economy. They have different types of utility systems. And they have different expectations of their energy system. But these states share one important trait: Theyre reaping the benefits of renewable energy. New Jerseyans are first-hand witnesses of how solar power creates new businesses and new jobs.1 Texans can thank wind power for keeping the lights on during extreme weather that struck the state in early 2011.2 And Californians are using renewable energy to meet their states new greenhouse gas pollution reduction standards.3 Twenty-six other states also have renewable energy standards, which require a certain amount of the electricity sold within a state to come from renewable energy. These policies lead to cleaner air, economic development, and a more resilient electrical grid. Despite these facts, though, renewable energy standards have come under attack. A small but vocal group of right-wing activists and fossil-fuel advocates claim that these policies are raising electricity prices for consumers, which in turn is holding back state economies.4 As conservative lobbyist Grover Norquist wrote in a recent Politico op-ed: Renewable energy standards, by design, are intended to drive up energy costsrequiring utilities to use more expensive and often less reliable sources of energy. Not surprisingly, such laws have hit ratepayers hard. States that have a binding [renewable energy standard] now have electricity costs that are 39 percent higher than states that dont have a binding [standard].5
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
And Robert Bryce of the conservative Manhattan Institute adds: There is growing evidence that the costs may be too highthat the price tag for purchasing renewable energy, and for building new transmission lines to deliver it, may not only outweigh any environmental benefits but may also be detrimental to the economy, costing jobs rather than adding them.6 Fortunately for consumers in the 29 states with renewable energy standards, these critics are wrong. There are no data showing that these standards cause electricity rates to skyrocket. This issue brief will describe the history of renewable energy standards, explain how electricity rates are determined, and present evidence showing that these standards have not caused electricity prices to rise. This information sets the stage for moving forward in two critical ways: strengthening state-level renewable energy standards so consumers can see even greater benefits from renewable energy, and passing a similar policy at the federal level.
Renewable energy standards are commonsense policies with bipartisan support and economic benefits
At the most basic level, every renewable energy standard is the same: They require utilities to sell a certain amount of energy generated from renewable sources like wind, solar, geothermal, and biomass, among others. Beyond that, the details can vary: States can allow different technologies, such as hydropower or landfill gas; they can either allow electricity generation from out of state or restrict it to only in-state generation; and they can either cover all utilities or exempt certain utilities from the policy. When state policymakers implemented these standards they crafted them to meet the needs of their state in a commonsense way. Contrary to naysayers claims, these are not radical policies. In fact, theres a long history of bipartisan support for renewable energy standards. These policies were signed into law by former Republican governors like George W. Bush (Texas), Christie Todd Whitman (New Jersey), and Tim Pawlenty (Minnesota), as well as former Democratic governors like Jennifer Granholm (Michigan), Janet Napolitano (Arizona), and Gray Davis (California). There are many reasons why a state would want a renewable energy standard: Using renewable energy instead of fossil fuels has many public health benefits, such as reducing the harmful air pollution that causes asthma. These standards create opportunities for new businesses, which can build renewable energy projects.
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
These standards can drive down the cost of specific technologies through the learning by doing process, in which technologies like solar panels get cheaper as we gain more experience making them. There are also some very importantand often ignoredreasons why these standards can positively impact electricity rates. The Union of Concerned Scientists has documented how shifting electricity generation from natural gas to renewables causes natural gas prices to go down, making the remaining natural gas generation cheaper than it was before.7 Renewable energy standards also ensure resource diversity. In fact, some states call their renewable energy standard a renewable portfolio standard to emphasize that renewables are a valuable part of a diverse portfolio of energy resources. Such a diverse portfolio reduces exposure to any single energy source, reducing risk to consumers. Finally, renewable energy standards play especially important roles in states that restructured their electricity markets. Starting in the 1990s some states moved away from traditional monopoly utilities and toward so-called deregulated markets. In the traditional structure, utilities submit plans to state regulators about their generation mix. Regulators have the ability to make utilities account for things like how a future price on carbon will impact consumers if a utility builds a coal-fired power plant, or how natural gas price spikes could impact consumers if a utility builds a natural gas power plant. But in a restructured market regulated utilities no longer own power plants and regulators dont approve their resource plans. Instead, utilities buy power from independently owned and operated power plants. These power-plant owners (commonly called merchant generators) have no obligation to provide a diverse mix of electricity. In these states a renewable energy standard is the only way to ensure resource diversity. This is no small issue: Every single state with a restructured utility industry has a renewable energy standard.
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
Obviously, this is a highly simplified version of a complicated process. Even within this simplified model, though, there are countless factors that influence rates. What is a reasonable profit, for example?8 Is it 8 percent, 10 percent, or higher? How often should a utility replace electric meters? Should a utility install new pollution-control equipment at an existing power plant, or build a new power plant? In an analysis of utility rates, economists Ernst Berndt, Roy Epstein, and Michael Doane identified 13 reasons why a utilitys rates may be higher or lower than the average.9 They include things like the average use per customer, the age of the distribution system, the generation resource mix, and local taxes. If anything is clear from this, its that determining the impact of any particular policy on electricity rates is a challenge, given all the moving parts involved. This is where many people who claim that renewable energy standards are leading to dramatic rate increases go down the wrong path.
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
If the states rates were increasing 1 percent per year faster than the national average before restructuring and were then increasing at 0.5 percent per year faster than the average after restructuring, then Hickey and Carlson judge restructuring a success. Note that Bryce would wrongly conclude that restructuring had failed, because the states rates increased more than the national average, even though the actual impact of restructuring was positive. We can do the exact same analysis for renewable energy standards. I built a collection of average residential electricity rates for all 50 states and the District of Columbia from 1990 to 2010, using Energy Information Administration data. I also used data from the Database of State Incentives for Renewable Energy, or DSIRE, to identify the 29 states and the District of Columbia with these standards in place. For each state with a renewable energy standard, I calculated the average annual rate increase before the first year that the standard was in effect and compared it to the average for states without these standards for those same years. Then I did the same comparison for the years after the renewable energy standard went into effect. (For states with renewable energy standards that went into effect in 2010 or 2011, this methodology wont work because we dont have data for any years after the standards went into effect.) The results of this exercise are in the table at right. If Bryce and Norquist are correct that renewable energy standards are bad for ratepayers, rates would increase faster after the standard went into effect, compared to the national average. That is, the number in the poststandard column would be larger than in the pre-standard column. This is clearly not the trend. Look at Maine, for example. Before its renewable energy standard went into effect, Maines rates were rising 3.42 percent faster than in states without a standard. After the standard went into effect, however, Maines rates were actually rising 0.82 percent slower than in states without a renewable energy standard. (For more on the methodology, see the appendix.) This shows that state renewable energy standards have no predictable impact on electricity rates. Even using an approach that attempts to isolate these standards from other factors driving rate changes, theres simply too many other factors. Maryland, for examplewhere the standard appears to have had the worst impacthas seen dra-
FIGURE 1
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
matic changes due to how their restructuring program has been implemented: In the Baltimore area, restructuring caused rates to go up by 50 percent in 2007 alone.13 The conclusion is clear: Anyone who says theyve looked at all of the states and found that renewable energy standards drive up rates is wrong. There are no data showing a nationwide pattern of these standards leading to rate increases for consumers. Instead, the data show that these standards do not cause electricity rates to go up faster than they otherwise would have, and that the standards are not responsible for electricity rates increasing faster than average.
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
While some utilities had to charge higher rates, theres some evidence that this is due to these utilities making long-term investments that are having short-term negative impacts. Great River Energy, for example, has seen relatively large-rate impacts because they locked themselves into contracts for wind power that they havent needed in the short term. These conclusions are similar to those that the Lawrence Berkeley National Laboratory reached.19 In a 2008 report they examined states experiences with renewable energy standards to that point and found: The electricity rate increases associated with existing state RES policies, for those states in which such impacts are readily calculable, generally equal 1% or less so far; in several states, the renewable electricity required by these policies appears to be priced competitively with fossil generation.
Conclusion
Consumers in 29 states are seeing the benefits of renewable energy today thanks to renewable energy standards. They have access to cleaner air, reliable power, and growing economiesall of which are benefits of a simple, commonsense policy. Despite these benefits, however, some right-wing commentators and fossil-fuel advocates have launched an effort to discredit these standards. In particular, they claim that
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
renewable energy standards are hurting consumers by driving up rates. While these claims are certainly scary, there simply is no evidence that theyre accurate. In fact, the evidence suggests that renewable energy is affordable. Knowing this, we should all have access to these new energy resources. And since it is unlikely that every state will adopt a renewable energy standard in the near future, the only way to provide this access is through a similar federal policy. By passing a federal renewable energy standard, or a clean energy standard that would also encourage renewables growth, Congress can put our country on a safer, cleaner, more reliable, and more affordable path to the future. Richard W. Caperton is the Director of Clean Energy Investment at American Progress.
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
Appendix: Methodology
The table below lists every state with a renewable energy standard. Column 1 is the annual rate of change in that states average residential electricity rate from 1990 until the year before the standard went into effect, and Column 2 is the average rate for all states without these standards over the same years. Columns 3 and 4 are the same rates, only starting in the year the standard went into effect through 2010. Columns 5 and 6 show how that states changing rates compared to the states without renewable energy standards for each time period (before and after the standard went into effect). Finally, Column 7 shows how the states electricity rates were changing before and after the renewable electricity standard, compared to the national average. In Maine, for example, rates were going up 3.42 percent faster than states without renewable energy standards before 2000, when the states standard went into effect. Since then, though, Maines rates have increased 0.82 percent slower than states without these standards.
FIGURE 2
Differences
State
Annual electric Annual electric rate change in Annual electric rate change states without rate change (1990 until standards (1990 (standard year standard year) until standard until 2010) year) 2.82% 3.85% 2.68% 3.86% 2.84% 1.58% 0.75% 1.42% 1.42% 2.08% 2.72% 2.16% 2.54% 0.14% 0.12% 1.18% 0.43% 1.55% 0.93% 1.55% 0.77% 0.43% 0.77% 0.64% 1.18% 1.51% 1.55% 1.18% 1.18% 1.55% -2.54% 2.32% -0.47% 3.92% 0.16% 3.21% 2.21% 3.67% 3.93% 3.37% 4.25% 2.02% 4.74% 3.81% 2.01%
Pre-standard rate change (compared to average) 1.64% 3.42% 1.13% 2.93% 1.29% 0.81% 0.31% 0.65% 0.78% 0.90% 1.21% 0.62% 1.36% -1.04% -1.43%
Post-standard rate change (compared to average) -5.59% -0.82% -2.05% 0.17% -1.42% -0.71% -0.92% -0.25% 0.13% 0.33% 0.90% 0.43% 1.70% 0.76% 0.42%
Texas Maine Delaware Nevada Montana California Iowa Massachusetts New York Connecticut Rhode Island New Hampshire Wisconsin New Mexico Illinois
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
Differences
State
Annual electric Annual electric rate change in Annual electric rate change states without rate change (1990 until standards (1990 (standard year standard year) until standard until 2010) year) -0.13% 0.73% 1.58% 3.06% 0.58% 1.25% 1.06% 4.62% 1.25% 2.35% 2.07% 1.06% 1.28% 3.19% 3.07% 1.18% 1.51% 1.51% 1.51% 0.93% 1.84% 1.18% 1.87% 1.82% N/A 1.87% 1.82% 1.87% 1.82% N/A 3.94% 5.07% 6.07% 7.81% 7.13% 6.09% 10.20% 5.17% 1.25% 2.35% 2.24% 1.06% 1.28% 3.19% 3.07%
Pre-standard rate change (compared to average) -1.32% -0.79% 0.07% 1.55% -0.35% -0.60% -0.12% 2.75% -0.57% N/A 0.21% -0.76% -0.58% 1.38% N/A
Post-standard rate change (compared to average) 0.90% 1.72% 2.72% 4.46% 3.39% 5.21% 7.16% N/A N/A N/A N/A N/A N/A N/A N/A
Arizona Pennsylvania Colorado District of Columbia New Jersey Ohio Maryland Hawaii Kansas Michigan Minnesota Missouri North Carolina Oregon Washington
10
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power
Endnotes
1 Paul McGill, New Jersey Needs to Keep Its Solar Leadership, Renewable Energy World, March 27, 2011, available at http://www.renewableenergyworld.com/rea/news/article/2011/03/new-jersey-needs-to-keep-its-solar-leadership. Kate Galbraith, An Interview with the CEO of the Texas Grid, Texas Tribune, February 4, 2011, available at http://www. texastribune.org/texas-energy/energy/an-interview-withthe-ceo-of-the-texas-grid/. California Public Utilities Commission, 33% Renewables Portfolio Standard: Implementation Analysis Preliminary Results (2009), available at http://www. cpuc.ca.gov/NR/rdonlyres/1865C207-FEB5-43CF-99EBA212B78467F6/0/33PercentRPSImplementationAnalysisInterimReport.pdf. David G. Tuerck, Michael Head, and Paul Bachman, Economic Impact of Oregons Renewable Portfolio Standard (Boston, MA, and Portland, OR: Beacon Hill Institute and Cascade Policy Institute, 2011), available at http://cascadepolicy.org/pdf/2011-3-9-RPSreport.pdf; Clint Bolick, Put energy policymaking decisions back where they belong, Goldwater Institute, March 2, 2012, available at http:// goldwaterinstitute.org/blog/put-energy-policymakingdecisions-back-where-they-belong; American Tradition Institute, The Effects of Federal Renewable Portfolio Standard Legislation on the U.S. Economy (2011), available at http:// www.atinstitute.org/the-effects-of-federal-renewableportfolio-standard-legislation-on-the-u-s-economy/. Grover G. Norquist and Patrick Gleason, Rethink renewable energy mandates, Politico, December 18, 2011, available at http://www.politico.com/news/stories/1211/70610.html Robert Bryce, The High Cost of Renewable-Electricity Mandates (New York: The Manhattan Institute, 2012), available at http://www.manhattan-institute.org/pdf/eper_10.pdf. Union of Concerned Scientists, Clean Energy, Green Jobs, March 23, 2009, available at http://www.ucsusa.org/ clean_energy/solutions/renewable_energy_solutions/ clean-energy-green-jobs.html. Independent Pricing and Regulatory Tribunal of New South Wales, The Rate of Return for Electricity Distribution Networks (1998), available at http://www.regulationbodyofknowledge.org/documents/091.pdf. Ernst R. Berndt, Roy Epstein, and Michael Doane, System Average Rates of U.S. Investor-Owned Electric Utilities: A Statistical Benchmark Study. Working Paper 95-005 (Cambridge, MA: MIT Center for Energy and Environmental Policy Research, 1995), available at http://dspace.mit.edu/bitstream/handle/1721.1/50183/35719406.pdf?sequence=1. 13 Paul Davidson, Shocking Electricity Prices Follow Deregulation, USA Today, August 10, 2007, available at http://www. usatoday.com/money/industries/energy/2007-08-09-power-prices_n.htm 14 London Economics International LLC, Review of RPS Requirements and Compliance in Maine (2012), available at http://www.maine.gov/tools/whatsnew/attach. php?id=349454&an=1. 15 John D. Quackenbush, Orjiakor N. Isiogu, and Greg R. White, Report on the Implementation of the P.A. 295 Renewable Energy Standard and the Cost-Effectiveness of the Energy Standards (Lansing, MI: Michigan Public Service Commission, 2012), available at http://www.michigan.gov/ documents/mpsc/implementation_PA295_renewable_energy2-15-2012_376924_7.pdf. 16 Vote Solar, Colorado to achieve 30% renewables 8 years early, saves ratepayers big bucks, November 13, 2011, available at http://votesolar.org/2011/11/colorado-toachieve-30-renewables-8-years-early-ratepayer-savings-of409-million/ 17 Letter from Karen V. Clopton to parties of record in Rulemaking 11-05-005, available at http://docs.cpuc.ca.gov/EFILE/ PD/162134.PDF; Public Utilities Commission of the State of California, Resolution E-4442, December 1, 2011, available at http://docs.cpuc.ca.gov/WORD_PDF/FINAL_RESOLUTION/154753.PDF. 18 Dan Haugen, Are renewable standards driving up utility rates? Midwest Energy News, May 17, 2011, available at http://www.midwestenergynews.com/2011/05/17/arerenewable-standards-driving-up-utility-rates/. 19 Ryan Wiser and Galen Barbose, Renewables Portfolio Standards in the United States (Washington: Lawrence Berkeley National Laboratory, 2008), available at http://eetd.lbl.gov/ ea/emp/reports/lbnl-154e.pdf 20 U.S. Senate Committee on Energy and Natural Resources, Clean Energy Standard Act of 2012, available at http:// www.energy.senate.gov/public/index.cfm/democraticnews?ID=67e21415-e501-42c3-a1fb-c0768242a2aa 21 U.S. Energy Information Administration, Analysis of Impacts of a Clean Energy Standard, November 2011, available at: http://www.eia.gov/analysis/requests/ces_bingaman/pdf/ ces_bingaman.pdf 22 California Public Utilities Commission, California Renewables Portfolio Standard, available at http://www.cpuc. ca.gov/PUC/energy/Renewables/index.htm 23 Database of State Incentives for Renewables and Efficiency, Colorado: Renewable Energy Standard, available at http:// www.dsireusa.org/incentives/incentive.cfm?Incentive_ Code=CO24R
10 Norquist and Gleason, Rethink renewable energy mandates. 11 Bryce, The High Cost of Renewable-Electricity Mandates. 12 Emily A. Hickey and J. Lon Carlson, An Analysis of Trends in Restructuring of Electricity Markets, The Electricity Journal (June 2010).
11
Center for American Progress | Renewable Energy Standards Deliver Affordable, Clean Power