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Research & Commentary: Higher State Support for Green Energy Increases Energy Costs for Consumers

May 12, 2016

An analysis published in early May 2016 by the Daily Caller News Foundation (DCNF) has found a “statistically significant correlation … between high electricity bills and states with numerous policies supporting green energy.

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An analysis published in early May 2016 by the Daily Caller News Foundation (DCNF) has found a “statistically significant correlation … between high electricity bills and states with numerous policies supporting green energy.”

The study, which provided an analysis of data from the Energy Information Administration (EIA) and the Database of State Incentives for Renewables and Efficiency, found “states which offered rebates, buy-back programs, tax exemptions and direct cash subsidies to green energy were 64 percent more likely to have higher than average electric bills. For every additional pro-green energy policy in a state, the average price of electricity rose by about .01 cents per kilowatt-hour.”

For example, DCNF points out the two very different experiences of California and West Virginia. The electricity prices in the Golden State, which has 183 different policies “supporting” green energy, currently sit at about 14.3 cents per kilowatt-hour. The electricity prices in West Virginia, which has only 11 green-energy-friendly policies, average at just 7.91 cents per kilowatt-hour. 

New York (15.7 cents per kilowatt-hour) and Connecticut (15.4 cents per kilowatt-hour) had the most expensive energy costs in the continental United States, while Washington State (7.1 cents per kilowatt-hour) and Wyoming (7.55 cents per kilowatt-hour) had the lowest. While Washington is above-average in the number of green-energy policies it has passed, it is also responsible for 30 percent of the nation’s net hydroelectricity generation, which helps to lower energy prices. Because of Washington’s unique geography, however, this course would not be possible in most states.

The green energy forced on consumers by state legislatures through these subsidies and renewable power mandates, also known as renewable portfolio standards, is extremely expensive. A 2014 study by the Brookings Institution found wind power is twice as expensive as the conventional power it replaces. The same study found solar power is three times as expensive as conventional power. These higher costs impose real burdens on electricity consumers. H. Sterling Burnett, an environment and climate research fellow at The Heartland Institute, says retail electricity prices in states with renewable power mandates are rising twice as fast as the national average.

The wind and solar power industries receive disproportionate federal, state, and local taxpayer subsidies. Those subsidies require higher taxation that imposes still-higher costs than those reflected in retail electricity prices. According to the EIA, solar power by itself receives more federal subsidies than all fossil fuel sources combined, even though it produces only 0.4 percent of the nation’s electricity. Wind power, too, receives more federal subsidies than all fossil fuel sources combined, even though it produces only 4.4 percent of the nation’s electricity. On a dollar-per-unit-of-electricity-produced basis, EIA reports wind and solar power receive 25 times more subsidies than fossil fuels.

Because low-income households spend a larger share of their income on essential services such as electricity, renewable power mandates essentially act like a regressive tax. The repeal of renewable power mandates and the elimination of green-energy subsidies would lower electricity prices substantially. Living standards increase because lower-cost electricity frees up money for consumers to purchase additional goods and services that improve their lives. Economic growth and net job numbers increase because the newly available money spent on additional goods and services creates additional jobs throughout the economy.

The best policy option for state legislators would be to start rolling back costly and destructive renewable mandates and energy subsidies.

The following documents provide more information on renewable energy.

Ten Principles of Energy Policy
https://www.heartland.org/publications-resources/publications/ten-principles-of-energy-policy
In this Legislative Principles booklet, Heartland Institute President Joseph Bast identifies the ten most important energy issues facing the nation and outlines the energy policy actions that will lead to the highest, most efficient production at the lowest cost to consumers. 

Ten State Solutions to Emerging Issues
https://www.heartland.org/publications-resources/publications/ten-state-solutions-to-emerging-issues
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2016 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

Study of the Effects on Employment of Public Aid to Renewable Energy Sources
https://www.heartland.org/publications-resources/publications/study-of-the-effects-on-employment-of-public-aid-to-renewable-energy-sources
Researchers at King Juan Carlos University in Spain found each “green job” created in Spain cost about $750,000. Electricity rates would have to be increased by 31 percent to account for the additional cost of renewables. 

Study: Consumers Unwilling to Pay More for Renewable Energy
https://www.heartland.org/news-opinion/news/study-consumers-unwilling-to-pay-more-for-renewable-energy
Relatively few consumers are willing to pay extra for renewable energy offered under voluntary “green” pricing programs, according to a report from the Institute for Energy Research. 

Why is Renewable Energy So Expensive?
http://www.economist.com/blogs/economist-explains/2014/01/economist-explains-0
This brief but useful essay in a January 2014 blog post for The Economist states countries with the most renewable power generation also have the highest electricity prices, and government efforts to alleviate this problem have been unsuccessful. 

Model Legislation: The Market-Power Renewables Act
http://www.alec.org/model-legislation/market-power-renewables-act/
The American Legislative Exchange Council (ALEC), the largest voluntary membership organization of state legislators in the United States, has been highly critical of renewable power mandates, arguing they unnecessarily raise energy prices and do nothing to protect the environment. In 2013, ALEC’s members approved model legislation replacing these mandates with a voluntary renewable energy credit market.

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
https://www.heartland.org/publications-resources/publications/less-carbon-higher-prices-how-californias-climate-policies-affect-lower-income-residents
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group.

Three Steps to Reducing Carbon Emissions Effectively
https://www.heartland.org/publications-resources/publications/three-steps-to-reducing-carbon-emissions-effectively
Todd Myers of the Washington Policy Center says Washington State’s climate policies are the result of a destructive cycle: Exaggerated promises are adopted, and then when they fail, politicians blame opponents. This cycle creates more partisanship and encourages even larger, less workable promises. Instead of trying to force lifestyle changes, as many environmental activists have proposed, Myers says Washington State should utilize technological advancements that have the potential to improve energy efficiency.

The Reliability of Renewable Energy: Wind
https://www.heartland.org/publications-resources/publications/the-reliability-of-renewable-energy-wind
This study from the Institute of Political Economy at Utah State University shows wind power is not efficient, cost effective, or dependable. At best, the authors say wind power may serve as a supplement to the nation’s energy portfolio. Wind power cannot serve as a source of baseload electricity or peaking power, and the study argues it is a waste of tax dollars because it is not reliable and the financial investments needed to make it reliable outweigh its limited environmental benefits.

The Reliability of Renewable Energy: Solar
https://www.heartland.org/publications-resources/publications/the-reliability-of-renewable-energy-solar
This study from the Institute of Political Economy at Utah State University shows solar power is inefficient and unreliable because the Sun is not always available and because it cannot consistently meet electricity demand, which means it must rely on backup power sources. The study notes solar power is the most expensive source of power in the United States and requires significant tax dollars to maintain production. The study’s authors say these high costs come with limited environmental benefits.

The Reliability of Renewable Energy: Biomass
https://www.heartland.org/publications-resources/publications/the-reliability-of-renewable-energy-biomass
This study from the Institute of Political Economy at Utah State University argues Biomass can be a reliable energy source on a small scale, but at the grid scale, it is costly, inefficient, and environmentally degrading. Without government mandates and subsidies, the biomass industry would use organic waste as a supplement rather than the main source of electricity generation. Further, the researchers of this study argue power facilities that generate large amounts of electricity using woody biomass often rely on unsustainable logging practices.

The Reliability of Renewable Energy: Geothermal
https://www.heartland.org/publications-resources/publications/the-reliability-of-renewable-energy-geothermal
This study from the Institute of Political Economy (IPE) at Utah State University notes geothermal power plants are reliable energy sources that can produce electricity without interruption and adjust output as demand fluctuates. The study’s authors also say that although geothermal is more environmentally friendly than traditional fossil fuels, power production is geographically constrained because only certain locations have viable geothermal reservoirs. Despite geothermal power’s physical and environmental benefits, the largest barriers to its development continue to be its high capital costs and financial riskiness. Much of the geothermal industry’s growth relies on government subsidies to help overcome these barriers. Ongoing improvements in geothermal drilling and exploration technology may help the geothermal industry become financially independent, according the IPE study.

The Reliability of Renewable Energy: Hydro
https://www.heartland.org/publications-resources/publications/the-reliability-of-renewable-energy-hydro
This study from the Institute of Political Economy at Utah State University notes hydropower is more efficient than many other energy sources and can run consistently with little maintenance, making it an ideal source of baseload power. However, future growth in large-scale hydropower generation is unlikely, because public pressure discourages the construction of large dams and most ideal large-scale dam sites are already used. Hydropower can be a reliable, cost effective, and environmentally friendly way to increase renewable energy production in certain regions in the United States, but the authors say federal regulations continue to hinder hydropower’s growth.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the website of Environment & Climate News at http://news.heartland.org/energy-and-environment, The Heartland Institute’s website at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at jnothdurft@heartland.org or 312/377-4000.

Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org @BenceAthwart