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Research & Commentary: New Mexico’s Renewable Power Mandates Are Too Costly

July 21, 2016

A study released in July 2016 by the Rio Grande Foundation argues New Mexico’s renewable portfolio standards (RPS) – which were first enacted in 2002 and require each electric utility in the state to generate at least 15.

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A study released in July 2016 by the Rio Grande Foundation argues New Mexico’s renewable portfolio standards (RPS) – which were first enacted in 2002 and require each electric utility in the state to generate at least 15.7 percent of its output from renewable-energy sources by 2021 – have had a negative impact on state taxpayers and ratepayers, as well as on the entire state economy.

Renewable portfolio standards – often referred to as “renewable power mandates” – force expensive, heavily subsidized electricity on ratepayers and taxpayers while providing few if any net environmental benefits.

Based on data supplied by Timothy Considine, a professor of economics at the University of Wyoming who evaluated the impact of RPS mandates in 12 different states, the study finds New Mexico’s renewable mandate will cost state taxpayers and ratepayers over $192 million in 2016, increasing electricity prices by 6.18 percent. Losses in economic activity in 2016 due to the mandate will be over $405 million, and it will cost the state over 3,000 jobs. By 2020, electricity costs will rise to $206 million, with electricity prices increasing by 6.77 percent. Economic activity in 2020 will be reduced by $444 million, and almost 3,500 jobs will be lost. The RPS will result in 2,000 to 3,000 net jobs lost through 2040.  

The wind and solar power forced on consumers by renewable power mandates 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: Retail electricity prices in states with renewable power mandates are rising twice as fast as the national average.

“In summary, the costs of avoiding carbon dioxide emissions using renewable portfolio standards in New Mexico are higher than [Environmental Protection Agency] estimates of the social cost of carbon assuming a 5 percent discount rate but are below the social cost of capital assuming a 3 percent discount rate after 2020,” wrote Considine in his own analysis.

“From the viewpoint of the New Mexico economy … renewable portfolio standards raise electricity costs that on balance result in a net reduction in the state’s value added and employment even after accounting for the economic stimulus that building and operating renewable energy facilities provide,” Considine wrote. 

Rio Grande president Pail J. Gessig noted, “The study serves as a reminder that despite modest benefits of RPS, state lawmakers cannot ignore the economic implications for their constituents.”

By lowering electricity prices, repealing renewable power mandates will raise living standards, stimulate long-term economic growth, and create a substantial increase in net jobs. 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 following documents provide more information on renewable portfolio standards.

Evaluating the Costs and Benefits of Renewable Portfolio Standards
https://www.heartland.org/publications-resources/publications/evaluating-the-costs-and-benefits-of-renewable-portfolio-standards
This paper by Timothy J. Considine, a distinguished professor of energy economics at the School of Energy Resources and the Department of Economics and Finance at the University of Wyoming, examines the renewable portfolio standards (RPS) of 12 different states and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.

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.

Higher State Support for Green Energy Increases Energy Costs for Consumers
https://www.heartland.org/publications-resources/publications/research--commentary-higher-state-support-for-green-energy-increases-energy-costs-for-consumers?source=policybot
Heartland Institute Policy Analyst Tim Benson discusses an analysis by the Daily Caller News Foundation (DCNF), which 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.” 

The Status of Renewable Electricity Mandates in the States
https://www.heartland.org/publications-resources/publications/the-status-of-renewable-electricity-mandates-in-the-states
The Institute for Energy Research finds states with renewable electricity mandates have on average 40 percent higher electricity rates than those without such mandates. 

The High Cost of Renewable-Energy Mandates 
https://www.manhattan-institute.org/html/high-cost-renewable-electricity-mandates-5987.html 
The Manhattan Institute conducted an economic analysis of the effects renewable portfolio standards (RPS) had on the average price of electricity in states with mandates compared to those without mandates. The study found residential and commercial electricity rates were significantly higher in states with RPS mandates than in states without them. 

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. 

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.

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. 

 

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 Energy News at https://www.heartland.org/topics/energy/index.html The Heartland Institute’s website at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, atwww.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 additional 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 Logan Elizabeth Pike, Heartland’s state government relations manager, at lpike@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