New report shows mixed rate impact from renewables

How do state renewable energy mandates affect electricity rates?

The national data remain a Rorschach test for supporters and opponents of the policies.

Richard Caperton, Center for American Progress

The latest attempt to bring the picture into focus comes from a policy paper released Wednesday by the Center for American Progress.

Author Richard Caperton examines the average annual electricity rate increases in states before and after they adopted renewable standards. He then compares those to the average increases in states that don’t have renewable standards.

Of the 22 states where enough data exist, 12 saw electricity prices increase at a slower rate, relative to the national average, after they adopted a renewable standard. The other 10 states saw steeper relative rate increases.

Caperton says, correctly, that the results refute generalizations from some conservative groups that the policies lead to dramatic increases in utility rates.

“There are no data showing that these standards cause electricity rates to skyrocket,” the report says.

However, there are also no conclusive data proving renewable standards aren’t leading to modest increases in some places — almost half the states saw sharper relative rate increases after adopting the policies. The paper only concludes that the data it compiled doesn’t indicate a nationwide pattern of renewable standards leading to rate increases.

Hard to generalize

It’s difficult to generalize about how renewable standards affect electricity rates on a national or state level. The policies set targets and determine what sources qualify, but it’s up to utilities to decide the right mix of wind, solar, biomass or other projects they’ll use to meet the targets.

So it’s the decisions made at the utility level about what and when to buy that affect the return on capital investments and ultimately rates for customers.

For example, when Minnesota lawmakers asked utilities last year how the state’s renewable standard was affecting rates, the responses were mixed.

Xcel Energy, the state’s largest utility, said its renewable investments had been cost-effective and helped keep prices about 0.7 percent lower than they would have been otherwise. Meanwhile, Minnkota Power saw a nearly 16 percent increase in its average wholesale power rate in 2010 – after the company locked in expensive wind contracts, betting incorrectly that the price would continue to rise.

“There are all sorts of things that go into electricity rates and all sorts of reasons why different states have different rates,” Caperton said in an interview Wednesday. “What I like to say is that when somebody tells you that your rates in a state are low for one particular reason or high for one particular reason, you’re probably being misled,” he said.

Midwest results

In Iowa, electricity rates were increasing 0.31 percent faster than states without renewable standards before 2000, the target date for the state’s policy, which was implemented in 1997. Since then, Iowa’s electricity rates have increased 0.92 percent slower than those states, according to Caperton’s analysis.

Before-and-after annual electricity rate data wasn’t yet available for Michigan, Minnesota or Missouri.

Three other Midwest states with renewable standards, Ohio, Illinois and Wisconsin, saw their average annual electricity rates increase faster relative to other states after implementing their policies.

In at least one of those states, there’s an explanation for that increase that has nothing to do with renewables. In Illinois, residential electricity rates were frozen from 1997 to 2006 as part of the state’s transition to a deregulated utility market, in which consumers can now choose their electricity supplier.

The report shows that Illinois’ electricity prices were increasing 1.43 percent slower than other states from 1990 to 2008, but for more than half of those years the state’s rates were held artificially low. Since 2008, when Illinois implemented its renewable standard, rates have increased 0.42 percent faster than other states.

“There is no way you can attribute the purchase of renewable resources in any way shape or fashion to what’s going on with utility rates in Illinois. You just can’t,” says Arlene Juracek, acting director of the Illinois Power Agency, which oversees the state’s renewable portfolio. “We’ve been buying one-year [renewable energy credits] that are practically free.”

Caperton says the wide variety of experiences states have had with renewable standards doesn’t point to any clear pattern between renewables and rates. That said, the numbers also don’t point to the doomsday scenario some critics have predicted.

“What I think there is evidence for is that these are affordable,” Caperton said. “The impact on rates is tough to discern from national data, and they do lead to more clean energy investment.”

Editor’s note: An earlier version of this post incorrectly stated that Iowa’s renewable energy standard took effect in 2000.

Dan Haugen is an Energy Journalism Fellow at Midwest Energy News. Contact him at dan@danhaugen.com.

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