New Jersey, Texas, and California have very different energy profiles. They use different types of energy to power their economy. They have different types of utility systems. And they have different expectations of their energy system.
But these states share one important trait: They’re reaping the benefits of renewable energy. New Jerseyans are first-hand witnesses of how solar power creates new businesses and new jobs. Texans can thank wind power for keeping the lights on during extreme weather that struck the state in early 2011. And Californians are using renewable energy to meet their state’s new greenhouse gas pollution reduction standards.
Twenty-six other US states also have renewable energy standards, which require a certain amount of the electricity sold within a state to come from renewable energy. These policies lead to cleaner air, economic development, and a more resilient electrical grid.
Despite these facts, though, renewable energy standards have come under attack. A small but vocal group of right-wing activists and fossil-fuel advocates claim that these policies are raising electricity prices for consumers, which in turn is holding back state economies. As conservative lobbyist Grover Norquist wrote in a recent Politico op-ed:
“Renewable energy standards, by design, are intended to drive up energy costs – requiring utilities to use more expensive and often less reliable sources of energy. Not surprisingly, such laws have hit ratepayers hard. States that have a binding [renewable energy standard] now have electricity costs that are 39 per cent higher than states that don’t have a binding [standard].”
Fortunately for consumers in the 29 states with renewable energy standards, these critics are wrong. There are no data showing that these standards cause electricity rates to skyrocket.
At the most basic level, every renewable energy standard is the same: They require utilities to sell a certain amount of energy generated from renewable sources like wind, solar, geothermal, and biomass, among others. Beyond that, the details can vary: states can allow different technologies, such as hydropower or landfill gas; they can either allow electricity generation from out of state or restrict it to only in-state generation; and they can either cover all utilities or exempt certain utilities from the policy.
When state policymakers implemented these standards they crafted them to meet the needs of their state in a commonsense way. Contrary to naysayers’ claims, these are not radical policies. In fact, there’s a long history of bipartisan support for renewable energy standards. These policies were signed into law by former Republican governors like George W. Bush (Texas), Christie Todd Whitman (New Jersey), and Tim Pawlenty (Minnesota), as well as former Democratic governors like Jennifer Granholm (Michigan), Janet Napolitano (Arizona), and Gray Davis (California).
There are many reasons why a state would want a renewable energy standard:
-- Using renewable energy instead of fossil fuels has many public health benefits, such as reducing the harmful air pollution that causes asthma.
-- These standards create opportunities for new businesses, which can build renewable energy projects.
-- These standards can drive down the cost of specific technologies through the ‘learning by doing’ process, in which technologies like solar panels get cheaper as we gain more experience making them.
There are also some very important – and often ignored – reasons why these standards can positively impact electricity rates. The Union of Concerned Scientists has documented how shifting electricity generation from natural gas to renewables causes natural gas prices to go down, making the remaining natural gas generation cheaper than it was before.
Renewable energy standards also ensure resource diversity. In fact, some states call their renewable energy standard a “renewable portfolio standard” to emphasise that renewables are a valuable part of a diverse portfolio of energy resources. Such a diverse portfolio reduces exposure to any single energy source, reducing risk to consumers.
No pattern of price rises
Several recent studies claim to look at electricity rates from each state and find that renewable energy standards drive up rates. But these studies tend to have significant methodological shortcomings. For instance, conservative lobbyist Grover Norquist claims that states with renewable energy standards have higher rates. While this may very well be true, it’s irrelevant.
There are at least 13 – and probably many more – reasons why one state could have higher rates than another one, and this doesn’t tell us anything about the impact of renewable energy standards. Instead it just tells us that states with higher initial rates adopted these standards.
Robert Bryce of the conservative Manhattan Institute takes a more sophisticated approach by finding that states with these standards have seen higher rate increases since 1990. This is a better approach but it is still flawed. Again, there are plenty of reasons why one state’s electricity rates could increase faster than another state’s and this doesn’t tell us anything about how a renewable energy standard impacts rates.
What we need to do is find a way to isolate the impact of these standards on rates. To do this, I adapted a methodology Emily Hickey and J Lon Carlson developed in a paper about the rate impacts of electricity restructuring. Their system looks at how a state’s rates were changing compared to the national average before restructuring, and then does the same comparison for the post-restructuring period.
If the state’s rates were increasing 1 per cent per year faster than the national average before restructuring and were then increasing at 0.5 percent per year faster than the average after restructuring, then Hickey and Carlson judge restructuring a success. Note that Bryce would wrongly conclude that restructuring had failed, because the state’s rates increased more than the national average, even though the actual impact of restructuring was positive.
We can do the exact same analysis for renewable energy standards. I built a collection of average residential electricity rates for all 50 states and the District of Columbia from 1990 to 2010, using Energy Information Administration data. I also used data from the Database of State Incentives for Renewable Energy, or DSIRE, to identify the 29 states and the District of Columbia with these standards in place.
For each state with a renewable energy standard, I calculated the average annual rate increase before the first year that the standard was in effect and compared it to the average for states without these standards for those same years. Then I did the same comparison for the years after the renewable energy standard went into effect. (For states with renewable energy standards that went into effect in 2010 or 2011, this methodology won’t work because we don’t have data for any years after the standards went into effect.)
The results of this exercise are in the table below. If Bryce and Norquist are correct that renewable energy standards are bad for ratepayers, rates would increase faster after the standard went into effect, compared to the national average. That is, the number in the “post-standard” column would be larger than in the “pre-standard” column. This is clearly not the trend.
Look at Maine, for example. Before its renewable energy standard went into effect, Maine’s rates were rising 3.42 percent faster than in states without a standard. After the standard went into effect, however, Maine’s rates were actually rising 0.82 percent slower than in states without a renewable energy standard.
The conclusion is clear: anyone who says they’ve looked at all of the states and found that renewable energy standards drive up rates is wrong. There are no data showing a nationwide pattern of these standards leading to rate increases for consumers. Instead, the data show that these standards do not cause electricity rates to go up faster than they otherwise would have, and that the standards are not responsible for electricity rates increasing faster than average.
The next steps
Now that we know renewable energy standards are an affordable, effective way to bring the benefits of clean energy to consumers, we should broaden their reach. There are two ways to do this: create a federal standard and strengthen state standards.
At the federal level Senator Jeff Bingaman introduced a bill last month called the Clean Energy Standard Act of 2012. This national standard would include all low-carbon electricity sources – including nuclear and natural gas – in addition to renewables. While this is different from many state standards, Department of Energy analysis shows that this proposed standard would lead to new wind, solar, and biomass power, just like the state standards.
Some states that have renewable energy standards have found meeting the standards easier than expected and have amended them to include more ambitious targets. California, for example, now has a target of 33 per cent renewables by 2020. Colorado’s standard now has a target of 30 per cent by 2020. Other states can follow their lead and increase targets to reap more benefits of renewable energy.