Does Renewable Energy Raise Electricity Prices?

Since the big push from the U.S. government for investment in renewable energy in 2009, we’ve had the opportunity to see how prices have changed between states that have made large investments in renewable energy, and those that have not.

Critics of renewable energy investment say that renewable energy will never be as cost-effective as fossil fuels and could give customers sticker shock.

But is that the case?

To make the comparison, I took a sampling of 40 states; 20 states that have clearly invested heavily in increasing generation from renewable energy, and 20 states that have clearly been lagging behind on investment. I left out Alaska and Hawaii, where electricity prices are affected by different market forces than in the lower 48 states. I focused on the increased generation from geothermal, solar, and wind energy. Biomass has only grown measurably in New Hampshire and Virginia over the past several years.

I focused on generation rather than consumption, since the practice of actually constructing and operating these facilities within the state is more of an “investment” than buying power from hundreds of miles away. To do this, I compared the average price of power provided by the Energy Information Agency (EIA) for each of these states from 2010 through 2015 with the approximate average price over the last 18 months.*

In selecting the states for each list, I found it pretty clear to differentiate those that had invested heavily in renewable energy and significantly increased generation, with those that had not. This list takes into account EIA estimates on generation from distributed solar.

The obvious states that have invested heavily include California, Colorado, Iowa, Kansas, Maine, Massachusetts, Minnesota, Nevada, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, and Vermont. As for the remaining six states, I found Arizona worthy for the list, growing from 0.2 percent of its generation from wind and solar in 2010 to nearly 5.8 percent through the first half of 2016.

Idaho made the list because the state increased its percentage of wind generation by 550 percent between 2010 and 2015, even though Idaho is not known for having policies friendly to renewable energy. Nebraska increased from 1.2 percent of generation from wind energy in 2010 to 10.1 percent through the first half of 2016. The final three states are New Jersey, North Carolina, and Indiana. The first two had nearly zero renewable energy generation by the end of 2010, but drastically increased solar development; even though solar is still a modest percentage of total generation. Indiana just squeaked into the top 20 due to increasing from about 2.3 percent wind and solar in 2010 to over 6.1 percent through the first half of 2016.

The obvious states that have lagged behind include Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Missouri, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, Wisconsin, and Wyoming. In New England, despite some small wind projects and rooftop solar installations, Connecticut, New Hampshire, and Rhode Island have also been slow to increase renewable energy generation.

That situation is of course changing in Rhode Island with the Block Island offshore wind farm expected to start operation this fall. Delaware is in the same situation as its New England counterparts. Rounding out the list is Florida, which, despite investing in solar energy early on, still generates a fraction of 1 percent of its electricity from solar energy; and Washington State, which has also had very slow growth in renewable energy generation after being a major wind energy market prior to 2010.

Besides Alaska and Hawaii; states left out include Georgia, Illinois, Maryland, Michigan, Montana, New York, Oregon, and Utah. Each of these states has done enough to avoid being among the bottom 20, but not enough to make the top 20 through the first half of 2016.

What Did I Find?

The average increase in prices between the 20 states that had the most investment in renewable energy was 4.3 percent, when comparing the average from 2010 to 2015 with the average over the last 18 months. However, for the 20 states that had the least investment in renewable energy, the average increase was 4.6 percent.**

Therefore, the impact of renewable energy on the price of power appears to be statistically insignificant. Sticking with fossil fuels has not been a pathway to lower energy prices. And this result challenges critics’ assertions that renewable energy is simply too expensive, while fossil fuels will maintain reliable, inexpensive electricity prices.

Critics lament the loss of jobs in the coal industry and are concerned with the economic fallout from policies designed to promote cleaner forms of energy. There has been particular concern that the intermittent nature of wind and solar energy can cause issues within the electric grid, and increase ramping of natural gas for back-up power. Critics often leave out the fact that studies show renewable energy development creates more jobs and the fact that fossil fuels create far more pollution from their extraction and combustion.

But despite these concerns, there still does not appear to be a statistical correlation with increasing renewable energy on the electric grid and higher prices. Texas financed massive build outs in infrastructure to bring wind energy from rural areas to urban areas and yet its average electricity prices went down. California has had the most extensive, prolific renewable energy program in the country, and prices increased on average by only 7.9 percent. While higher than the average, this is not significantly higher given the magnitude of renewable energy development.

What’s probably most promising about these figures is that states that have increased renewable energy generation up until now relied on higher priced contracts to get there. Projects recently completed or currently under construction have far lower prices. Therefore, it is more likely that renewable energy will produce lower prices in years to come.

Naturally states with superior wind, solar, or geothermal resources can benefit from the lower cost of those resources. But with prices falling, particularly for wind and solar energy, even states without great solar or wind resources are able to benefit from low prices. The states with the lowest solar radiation are located in the northeast, which also has the highest price for electricity. So solar energy is now becoming cost-competitive in those markets. Meanwhile, states in the southeastern U.S. are accelerating development of solar energy dramatically, including in Alabama and Mississippi, which are currently at the bottom of the list for renewable energy generation.

Clearly, there are always going to be challenges when integrating new energy resources into the electric grid. However, 21st century technology produced from renewable energy clearly is succeeding in meeting the challenge of providing low-cost energy to the consumer.

*The methodology used calculates the average from H1 2015 and H1 2016, and an estimated average from H2 2015 assuming the same retail sales as H1 2015. While this does not create an exact calculation (since total retail sales vary for each half year) its application to all 40 states serves to compare apples to apples; and while some states peak in summer and others in winter; the broad regional nature of the calculation should serve to diminish the impact of any outliers.

**This average price increase takes the average change in electricity prices by state. When making this comparison, the change in the average price in Rhode Island is weighted equally to the change in the average price in Texas, even though Texas is a much larger consumer. The average increase for the U.S. in total was 2.2 percent.

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Daniel Fleischmann is the owner of Mountain Man Alternative Energy Consulting. He has a decade of experience developing and managing renewable energy projects in the U.S. and has helped develop over $600 million in renewable energy capacity.

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