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Renewable Energy Adoption and the Increasing Cost of Electricity in the U.S.

The health, environmental, and direct job creation benefits of renewable energy vs. traditional forms of power generation are widely accepted. All other things being equal, it would be a foregone conclusion that renewable energy should be chosen over other types of generation. Of course, all other things are not equal. To understand the total impact of integrating renewables into an electricity supply mix, the value of any benefits must be carefully weighed against the costs that may arise from choosing renewables.

ClearSky Advisors has conducted a significant amount of research into the costs and benefits of renewable generation and our analysis has consistently shown that renewables are an attractive alternative to traditional forms of power generation. Unfortunately, this analysis typically requires dozens of spreadsheets and produces complex findings that are challenging to communicate to those outside the industry.

The purpose of this article is to offer a simple, high-level analysis — based on solid data provided by the U.S. Energy Information Administration — that can help put the cost impacts of renewables in perspective. Specifically, it looks at retail electricity price increases across the U.S. and asks how states that have incorporated a high volume of wind and solar PV compare with those that have not.

Increasing Costs of Electricity

Between 2005-2010, 49 out of 50 U.S. states experienced an increase in their average cost per watt for electricity. On average over the five years, retail electricity costs in the U.S. increased by 4.1 percent annually. In real dollars, the average cost/kWh increased by a total of 1.8¢ from 2005-2010. This is a substantial increase that points to the rising costs of producing and distributing energy, regardless of the generating technologies used.    

How Do States with High Volumes of Solar and Wind Compare?

Despite the fact that electricity costs are rising across the U.S., there is a widely held perception that adding wind and solar PV generating capacity results in undue costs to ratepayers. To frame the ratepayer impact of utilizing renewable energy technologies, we compared retail electricity price increases in the five states with the highest capacity of solar PV and wind with both the U.S. average and the five states with the lowest capacity of solar PV and wind. The results challenge the prevailing perception that renewable generation is expensive to ratepayers.  

Note: The top five states were chosen because they accounted for over 50 percent of installed wind and solar PV volume by the end of 2010; the bottom five states were the only states to have each installed less than 1 MW of cumulative solar PV and wind capacity through 2010.

  • The five states with the highest installed capacity are Texas, California, Iowa, Minnesota, and Oregon
    • By the end of 2010, these states had installed a cumulative 22.4 GW of wind and solar PV
    • On average, rates in these states increased by 1.35¢/kWh over five years (or 3.2 percent annually)
  • The five states with the lowest installed capacity are South Carolina, Louisiana, Kentucky, Mississippi, and Alabama
    • By the end of 2010, these states had installed a cumulative 0.001 GW of wind and solar PV
    • On average, rates in these states increased by 1.39¢/kWh over five years (or 4.0 percent annually)
  • On average across the U.S., by comparison, electricity prices increased by 1.8¢/kWh over five years (or 4.1 percent annually)

Over the past five years, ratepayers in jurisdictions with high uptakes of wind and solar PV have experienced below-average price increases for retail electricity. In fact, the five states with the largest capacities of wind and solar PV saw an average increase in cost/kWh that was not only significantly less than the U.S. average, but also less than the five states with the lowest adoption of solar PV and wind. As the graph illustrates, this statement is true whether cost increases are judged as growth rates or as real dollar figures.

Conclusion

Obviously, to provide a comprehensive analysis of the costs and benefits of various types of electricity generation, there are many other factors and datasets that need to be considered.

Nonetheless, the findings presented here show quite clearly that states with high volumes of wind and solar PV have seen well below average cost increases. When this fact is considered in conjunction with the various health, environmental, energy security, and job creation benefits of renewable forms of generation, it helps to form a compelling argument in their favor. The next time someone tells you that they would support renewable energy if the costs weren’t so high, share these findings with them and see if their perspective changes.  

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