Renewable Portfolio Standards provide economic benefits at ‘little or no’ cost

By John Hensley

Trailblazing the renewable energy frontier, in 1983 Iowa became the first state to implement a renewable portfolio standard (RPS).  Though modest – the RPS only required the state’s two biggest utilities to procure 105 megawatts (equivalent to about 50 modern-day wind

turbines) of renewable generation capacity – the policy positioned Iowa to become a renewable energy leader.  Fast forward to today and you will find that 29 states and the District of Columbia have RPS policies in place.

In concept, an RPS is a simple policy designed to provide renewables, which have historically been more expensive than fossil fuels and thus unable to be competitive, with a guaranteed market.  Renewable energy is an infant industry facing an uphill battle against well-established conventional fuels that have enjoyed decades of government support.  As such conventional fuels are relatively cheap, especially since they do not have to account for external costs such as pollution.  In this setting, RPS programs provide renewables an opportunity to establish themselves and quantify the environmental benefits they offer including reducing greenhouse gas emissions. 

Basically, an RPS requires electric utilities to gradually increase the amount of renewable energy that they deliver to customers.  By design, an RPS does not hand-pick a technology; rather all renewables are forced to compete, incentivizing cost reductions and efficiency gains.  Over time, the more efficient renewables close the gap with conventional fuels and are capable of competing directly in the open-market.

And guess what? It’s working.  Since Iowa began requiring renewables, RPS policies have successfully driven renewable energy demand, bringing down costs and providing economic benefits to rural communities across America. A new report from the Union of Concerned Scientists, How Renewable Electricity Standards Deliver Economic Benefits, captures these cost savings and economic benefits, concluding that “utilities are successfully meeting their renewable energy requirements with little or no additional costs to consumers, while supporting rapidly growing renewable energy industries that provide substantial economic benefits.”

According to UCS, RPS policies apply to approximately 50% of the total U.S. electricity demand and will drive the development of more than 87,000 MW of new electricity generating capacity from renewable energy sources through 2025 – enough electricity to meet the annual needs of more than 24 million American homes.  To date, compliance with the renewable requirements has been high – over 96 percent of RPS requirements were met through 2010 – with many states, including Colorado, Kansas, and Minnesota, “several years ahead of schedule.”  High levels of compliance in future years are also expected, with many utilities continuing to bring substantial renewable energy capacity online.

Not only are utilities successfully complying with the renewable energy laws, they are doing so with “little or no additional costs to consumers.” Examining 2009 and 2010 RPS cost data, Lawrence Berkeley National Laboratory researchers found that out of 14 states only one experienced cost increases of more than 1.6 percent.  UCS points to eight states – Michigan, Minnesota, Oregon, Illinois, North Carolina, Kansas, Wisconsin, and Rhode Island – where consumers’ electricity rates have been minimally impacted, exemplifying the cost-effectiveness of RPS programs.

In fact, in some states, building renewable electricity generation is saving customers millions of dollars.  Just yesterday, Xcel Energy, the major utility in Colorado, announced that the company’s plan to add 550 MW of new wind capacity will save customers $300 million over the life of the projects.  As renewables continue to become cheaper – wind costs have fallen 20 percent since 2010 and solar PV costs dropped 33 percent from 2011 to 2012 alone – consumers will enjoy further reductions in their electric bills.

Moreover, because renewable electricity sources have zero “fuel costs” – the wind and the sun are free – they serve as a hedge against future fossil fuel price volatility.  As UCS concludes, “increasing renewable energy also helps stabilize electricity rates and provide long-term savings. Once a wind or solar facility is installed, the ‘fuel’ is free. Fossil fuels, on the other hand, are subject to potentially volatile prices that can lead to significant fluctuations in electricity rates.”

In addition to minimally impacting consumer’s electricity rates, RPS policies create a range of economic benefits, summarized by UCS:

• The renewable energy industry supports American jobs. More than 119,000 people worked in solar-related industries in 2012, while wind energy development employed 75,000 full-time workers across the U.S., including 30,000 jobs at manufacturing facilities throughout the country.
• Renewable energy development promotes investments in the U.S. economy. In 2012, wind power made up 42 percent of all new U.S. electric capacity additions, representing a $25 billion investment in the U.S. economy.
• Renewable energy development outperforms fossil fuels in two important ways when it comes to driving job growth: 1)  Renewable energy development is relatively labor intensive, so it creates more jobs per dollar invested than fossil fuel resources and 2) Installing renewable energy facilities uses primarily local workers, so investment dollars are kept in local communities.
• Local landowners benefit from renewable energy development. When wind turbines are installed on privately owned land, the land owners typically receive payments in the form of lease, royalty, or right-of-way payments. These payments can be an important source of income for rural families.
• Renewable energy projects pay property and income taxes that help support states and local communities. For example, wind projects in Iowa, which now generates more than 20 percent of its electricity with wind, provided more than $19.5 million in annual property tax payments to state and local governments in 2011.

Unfortunately, despite the success of RPS policies there has been an onslaught of legislative bills attempting to diminish or repeal renewable requirements in more than two dozen states.  Support for these attacks come from conservative organizations like the American Legislative Exchange Council (ALEC), Beacon Hill Institute, and the Heritage Foundation, which all support a fossil fuel dominated status-quo.  To their dismay, the dominance of fossil fuels is increasingly undermined by cheap renewable energy, so they are desperate to eliminate key drivers such as RPSs. 

Luckily, bipartisan support for RPS policies remains strong and most of the attacks have been successfully defended.  Even North Carolina’s legislature where Republicans enjoy a super-majority refused to retract its RPS – and not once, but twice. 

RPS policies have proven their effectiveness, and lawmakers have shown they are aware of the positive economic benefits accompanying renewables.  But it’s important not to stop here; we need to continue to educate lawmakers to prevent future attacks from happening.  The UCS report is a great addition to the growing mountain of evidence in favor of renewables.  

John Hensley is a policy analyst at the American Wind Energy Association where he provides market analytics, focusing on wind energy’s economic impact at the state-level. A native of Wyoming, he is passionate about renewable energy as a mechanism to promote rural electrification and mitigate climate change impacts. Opinions in this article are his alone. You can follow him on twitter @WYOhensley.