Study: Renewable Portfolio Standards raise electricity prices substantially

Renewable Portfolio Standards increase electricity costs more than was previously believed, a comprehensive study by the University of Chicago’s Energy Policy Institute has found. Moreover, the study concluded that the costs outweigh the benefits of whatever carbon reduction RPS laws can be credited with producing. 

Measuring both direct and indirect costs, the EPI study concluded that “electricity prices increase substantially after RPS adoption.”

RPS mandates cause electricity rates to rise by 11 percent within seven years and by 17 percent within 12 years, the study concluded. And the largest burden of RPS laws falls on residential ratepayers.

“The estimated increases are largest in the residential sector, but there are economically significant price increases in the commercial and industrial sectors too.” 

Studies of RPS impacts have failed to capture the full cost because they tend to measure only the direct cost of new renewable generation, the authors of the EPI study wrote. Their review included a comprehensive examination of indirect impacts such as transmission and stranded costs.

“A particularly striking finding is that the indirect costs of RPS programs, which have not been possible to comprehensively measure to date, appear to account for the majority of RPS program costs,” the study found.

When all costs are included, the study found that RPS laws are an extremely expensive and inefficient way to reduce carbon emissions.

When the carbon reduction attributable to RPS laws is tallied, “the cost per metric ton of CO2 abated exceeds $130 in all specifications and can range up to $460, making it at least several times larger than conventional estimates of the social cost of carbon,” the study concluded. 

“This study joins a growing body of evidence that demonstrates that when climate policies favor particular technologies or target something other than the real enemy—carbon emissions—the result is less effective and more expensive than is necessary. In contrast, the global experiences from carbon markets and taxes make clear that much less expensive ways to reduce CO2 are available right now,” study co-author Michael Greenstone, director of the Energy Policy Institute and former chief economist for President Obama’s Council of Economic Advisors, said in a statement.

In New Hampshire, Senate Bill 124 would raise the state’s RPS from 25% to 60% by 2040. The study suggests that this would produce significant electricity rate increases because rates have been shown to rise along with the percentage of renewable energy utilities are required to use.

“RPS program passage leads to substantial increases in electricity prices that mirror the program’s increasing stringency over time,” the study found.