Skip Navigation

Research & Commentary: Researchers Say Renewable Energy Mandates Cause Large Electricity Price Increases

May 2, 2019

A 1-4 Percent In Renewable Generation Raises Electricity Prices By 11-17 Percent

An April 2019 working paper from the Energy Policy Institute at the University of Chicago shows renewable energy mandates (REMs), also known as renewable portfolio standards, are dramatically increasing retail electricity prices and serve as a very expensive way to try to reduce carbon dioxide emissions.

The authors of Do Renewable Portfolio Standards Deliver? found that seven years after REMs are enacted, renewables’ share of electricity generation increases by only 1.8 percent. They also found REMs raise retail electricity prices by 11 percent. After 12 years and a 4.2 percent increase in renewables’ share of generation, these prices rise by 17 percent. Altogether, the total extra electricity costs of REMs to consumers in the states that have enacted an REM are $125.2 billion.

The study also reveals reducing carbon dioxide emissions through an REM costs between $130-$460 per ton of carbon dioxide abated. These increased costs are, at the low end, almost three times higher than the social cost of carbon estimated by the Interagency Working Group set up by the Obama administration, which is roughly $46 per ton for 2020. (It should be noted that whether there is a “social cost” to carbon dioxide emissions at all is debatable.)

Outside of these higher prices, REMs impose other costs. Since wind and solar are so intermittent (having respective capacity factors of just 34.6 and 25.7 percent) and must be backed up by conventional sources of electricity generation, most estimates “do not account for the additional costs necessary to supply electricity when they are not operating.”

The paper also notes “renewable power plants require ample physical space, are often geographically dispersed, and are frequently located away from population centers, all of which raises transmission costs above those of fossil fuel plants.” Further, “[REM-driven] increases in renewable energy penetration can also raise total energy system costs by prematurely displacing existing productive capacity, especially in a period of flat or declining electricity consumption. Adding new renewable installations, along with associated flexibly dispatchable capacity, to a mature grid infrastructure may create a glut of installed capacity that renders some existing baseload generation unnecessary. The costs of these ‘stranded assets’ do not disappear and are borne by some combination of distribution companies, generators, and ratepayers. Thus, the early retirement or decreased utilization of such plants can cause retail electricity rates to rise even while near zero marginal cost renewables are pushing down prices in the wholesale market.”

The findings of this study are not surprising and have been mirrored elsewhere. States with these mandates had electricity prices 26 percent higher than those without. The 29 states with renewable energy mandates (plus the District of Columbia) had average retail electricity prices of 11.93 cents per kilowatt hour (cents/kWh), according to the U.S. Energy Information Administration. On the other hand, the 21 states without renewable mandates had average retail electricity prices of only 9.38 cents/kWh.

In just 12 states, the total net cost of renewable mandates was $5.76 billion in 2016 and will rise to $8.8 billion in 2030, a 2016 study revealed. A 2014 study by the left-leaning Brookings Institution found replacing conventional power with wind power raises electricity prices 50 percent and replacing conventional power with solar power triples electricity costs. The American Action Forum estimates the costs of moving the entire country to 100 percent renewable sources would be around $5.7 trillion, and a 2019 brief from the Institute for Energy Research estimates that the idea of getting to 100 percent renewable generation is “nothing more than a myth,” and that attempting to do would be a “catastrophe” for our country.

“Intermittent wind and solar cannot stand on their own,” the brief concludes. “They must have some form of back-up power, from reliable coal, natural gas, nuclear units, storage capability from hydroelectric facilities, and/or batteries. Batteries of the size and scope needed for 100-percent renewables are unproven and not cost effective. Even if a 100 percent renewable future were feasible, the land requirements and costs of transitioning would be enormous and would require subsidies to ease the electricity price increases that would result.”

State legislators should not mandate the use of renewable sources in electricity generation. Such mandates raise energy costs and disproportionally harm low-income families. Instead of trying to increase renewable mandates, legislators should repeal them.

The following document provide more information about renewable energy mandates.

Do Renewable Portfolio Standards Deliver?
https://bfi.uchicago.edu/working-paper/do-renewable-portfolio-standards-deliver/
This working paper from the Energy Policy Institute at the University of Chicago finds that average retail electricity prices in states after the passage of a renewable energy mandate are 11 percent higher after seven years and 17 percent higher after a dozen years, even though the increase in renewable electricity generation is a minimal 1-4 percent. Reducing carbon dioxide emissions in this fashion costs between $130 and $460 per metric ton.

The 100 Percent Renewable Energy Myth
https://www.instituteforenergyresearch.org/wp-content/uploads/2019/02/Renewable-Myth-Policy-Brief219.pdf
This Policy Brief from the Institute for Energy Research argues that a countrywide 100 percent renewable plan would put the U.S. economy in jeopardy. The brief investigates the intermittency, land requirements, capacity factors, and cost of transition and construction materials that limit the ability of the U.S. to adapt to 100 percent renewable energy.

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?source=policybot
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.

Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
https://www.pacificresearch.org/wp-content/uploads/2018/12/LegislatingEnergy_F_Web.pdf
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report’s authors found that collectively these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.

The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
https://files.texaspolicy.com/uploads/2018/11/27165514/2018-11-RR-US-Leads-the-World-in-Clean-Air-ACEE-White.pdf
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. The paper urges for the data to be considered and applied to the narrative.

The Social Benefits of Fossil Fuels
https://www.heartland.org/publications-resources/publications/the-social-benefits-of-fossil-fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-fossil-fuels---summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models and cost-benefit analysis.

 

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 subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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 George Jamerson, Heartland’s government relations director, at gjamerson@heartland.org or 312/377-4000.