Renewable Energy and its costs

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A new study estimated that North Carolina’s Renewable Energy and Energy Efficiency Portfolio Standards (RPS) has increased electricity costs by $276 million, and that the bulk of these costs are concentrated on commercial electricity consumers and residential consumers, and significantly less on industrial customers.

The study, by a team of investigators at Strata Policy of Logan, Utah, and the Institute of Political Economy at Utah State University, also underscored key facts:

This effect is mostly “with a REPS mandate that only reaches 3 percent of total electricity sales in 2012.” As the mandate increases over the next several years (up to 12.5 percent by 2021) these price effects will become greater and more burdensome.


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Prices are now being mitigated by the Cost Recovery Rider (CRR), which sets caps on how much utilities can charge to recoup their compliance costs from consumers. As the RPS requirements ramp up, however, look for a collision with CRR.

Policymakers will soon be forced to choose between freezing the RPS mandate, or — much worse for customers — raising the caps. Under this scenario, commercial electricity customers would face much higher rates, “posing a potential threat to the competitiveness of North Carolina’s commercial business base.”

Electricity is a critically important good, and its prices have significant effects on household and business income as well as purchasing power. Renewable energy sources such as solar and wind are more expensive than conventional sources. Mandating their use imposes higher costs on businesses and households, demanding resources that otherwise would go into more productive uses throughout the economy.

Arbitrarily creating price increases in a basic necessity such as electricity will have negative repercussions. It will cost consumers personal income, it will keep businesses from expanding as much, it will curtail consumer spending, it will harm state employment and investment, and so forth.

Jobs, income effects overstated

There really is no question about the negative direction of the economic effects of the RPS mandate. Unfortunately, the methodology employed in the study, while eye- opening in the aggregate case against RPS mandates, is not helpful for pinpointing the exact effects of North Carolina’s mandate on citizens’ incomes and employment.

Using state coincident indices used by the Federal Reserve Bank of Philadelphia, the study estimates the long-run effects of state RPS mandates on electricity sales, real personal income, and employment. It then takes those aggregate findings and applies them to a particular state.

The problem is that it appears unable to account for the varying degrees of different state RPS mandates. North Carolina’s mandate is not as impressive as those of many other states. So the study’s touted results of 23,769 fewer jobs and $3,870 less income per family is likely overstated.

Looming fight over the cost caps threatens the state’s economy and poor

The prospect of policymakers getting rid of the cost caps to keep the RPS mandate hangs over North Carolina’s economy like the Sword of Damocles. At stake is not only the future competitiveness of North Carolina’s business climate, but also the quality of life for North Carolina’s poor.

Not to mention that voters have repeatedly signaled their opposition to being forced to pay more for electricity than necessary.

Addendum

The chart below reflects the study’s’ findings of negative economic effects of various state RPS mandates, including a study for North Carolina, and putting all their dollar findings in same-year (2013) dollars. Below you will note the most recent version of that chart.

 

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