State renewable energy mandates raise power prices by only tiny amounts so far — study

Source: Daniel Cusick, E&E reporter • Posted: Friday, June 6, 2014

Electricity ratepayers in states with renewable portfolio standards (RPSs) have seen their power bills increase slightly as utilities and other power providers work to incorporate more wind, solar and biomass energy into their fuel mixes.

But the overall incremental increase in rates has been modest, averaging roughly 1 percent of what would have occurred had the RPS programs not existed, according to new findings from the National Renewable Energy Laboratory and Lawrence Berkeley National LaboratoryAnalysts with the Energy Department research facilities, relying on state RPS compliance filings and other state resources, found that meeting renewable energy mandates in most states cost much less than critics of the policies predicted, and that with a few exceptions the average rate increases are below caps that many state legislatures have adopted as part of their RPS programs.

According to DOE estimates, states that have implemented RPS policies have collectively added approximately 46,000 megawatts of new renewable energy capacity through 2012, roughly the equivalent output of 40 baseload power plants.

That amount of new generation, combined with the average length of five years or more that most RPSs have been in place, allowed researchers to perform one of the first detailed studies of the effects of renewable energy mandates on rates, according to Lori Bird, a NREL senior analyst and co-author of the study.

Among the states that have seen the highest incremental rise in rates are California, which has the nation’s most aggressive RPS — 33 percent by 2020 — along with Massachusetts, Delaware and Arizona. State’s that have seen the lowest incremental costs over the 2010-2012 period include Ohio, Missouri and Oregon, according to the analysis.

But the data are tricky, and estimates of cost increases vary widely depending on the methodology used for a given state.

Calif. uses different measures

California, for example, uses two different methodologies to calculate the state RPS’s effect on rates, with utility-derived estimates generally being higher than those used by the California Public Utilities Commission (CPUC). As a result, average incremental costs for California’s RPS in 2011 range from minus 2.4 cents per kilowatt-hour to 4.3 cents per kWh, according to the analysis.

Compliance costs in California also varied by utility, with Southern California Edison paying more on a per-kWh basis to meet RPS provisions than either Pacific Gas & Electric Co. or San Diego Gas & Electric Co. In 2011, the three utilities spent more than $2.5 billion to procure renewable electricity, according to the analysis.

Galen Barbose, a report co-author and research scientist with Lawrence Berkeley National Lab in California, said in an interview that although the data show many states are meeting RPS targets without significantly driving up electricity rates, “in future years, those costs will be influenced by a variety of factors,” including technology costs, fuel costs and the ramping up of RPS levels.

And, he noted, “the targets are increasing over time, in most cases pretty substantially. So it’s perfectly reasonable to still wonder and even be concerned about what might happen with RPS compliance costs going forward.”

The report also assesses benefits associated with the RPS implementation — including to public health and the economy — but the authors note that the findings are much more limited in scope.