Policy Documents

The Cost and Economic Impact of Ohio’s Alternative Energy Portfolio Standard

David G. Tuerck, Ph.D., Paul Bachman, MSIE, Michael Head, MSEP –
April 1, 2011

Executive Summary

Ohio enacted its Alternative Energy Portfolio Standard (AEPS) legislation in May 2008. The law requires one-quarter of all electricity sales by Ohio utilities to come from “alternative energy” sources by the year 2025, with 12.5 percent required to come from sources identified as “renewable.” While the law includes a provision cap electricity costs due to the mandate, it is unlikely that the cap would be breached due to its structure.

The American Tradition Institute commissioned the Beacon Hill Institute to apply its STAMP® (State Tax Analysis Modeling Program) to estimate the economic effects of the AEPS mandate. To account for excessively optimistic Energy Information Administration (EIA) measures of renewable electricity costs and capacity factors, we reviewed academic literature to provide three estimates of the cost of Ohio’s AEPS mandates ─ low, average and high ─ using different cost and capacity factor estimates for electricity-generating technologies. Major cost findings include:

• The state’s electricity consumers will pay $1.427 billion more for power in 2025, within a range of $262 million and $2.373 billion, because of the AEPS.

• Over the period of 2016 to 2025, Ohioans will pay an additional $8.629 billion over a baseline of no AEPS, within a range of $5.22 billion and $10.929 billion.

• Ohio’s electricity prices in 2025 will increase by an average of 9.3 percent, within a range of 1.7 percent and 15.4 percent.

These increased energy prices will hurt Ohio’s households and businesses and thus impair the state economy. According to the study, by 2025:

• Ohio will lose an average of 9,753 jobs, within a low-end estimate of 2,480 jobs and a high-end estimate of 15,523 jobs.

• The AEPS will reduce annual wages by an average of $334 per worker, within a range of $61 per worker and $556 per worker. • Real disposable income will fall by $1.097 billion, within a range of $201 million and $1.824 billion.

• Net investment will fall by $79 million, within a range of $15 million and $132 million.

• The policy will cost families on average $123 per year, commercial businesses on average $867 per year, and industrial businesses on average $31,024 per year.

• From 2016 to 2025 the average household ratepayer will pay $756 in higher electricity costs; the average commercial ratepayer will pay an extra $5,350; and the average industrial ratepayer an extra $191,490.