Wind Power and Electricity Rates

It has been taken for granted that switching to a renewable energy mix for electricity would naturally raise electricity rates.  Many states have passed renewable energy mandates over the years willing to accept the increase in electricity rates as a trade-off for a greener energy mix. 

A report by the Minnesota Free Market Institute, warned that Minnesota should expect an increase in electric rates of up to 37% by 2025 as a result of the state’s standards on renewable electricity.  The Minnesota standard which required that 25% of Minnesota’s electricity come from renewable sources by 2025 is one of the highest in the nation.

Texas was another state to pass renewable energy mandates. The Texas Renewable Portfolio Standard(RPS) passed in 1999 mandated that the state’s electricity providers collectively generate 2,000 megawatts of additional renewable energy by 2009.  In 2005 that mandate was raised to require 10,000 megawatts by 2025.

A number of recent studies, however, have challenged the assumption about the cost of alternative energy by pointing out that price increases that can be attributed to wind power might be negligible or maybe even non-existent.  The US Energy Information Administration concludes that a national 25% standard would have no increase in prices at least through 2020 and a moderate impact after that.

Some critics of renewable portfolio standards point to Minnesota as an example of a state that has seen electricity price increases since passing renewable energy standards.  But a closer look at the situation in Minnesota will show that their price increases can mostly be blamed on business decisions and a poorly timed hedge by the state’s electricity provider that locked in high prices for wind energy over a 25 year period just before a collapse in wholesale electricity prices.  The actual cost of generating wind electricity is not a real factor behind their rate increases.

By contrast, electricity rates in Texas are at multiyear lows right now.  Since 2008 Texas electricity rates are down over 40%.  It’s true that these declines can be largely attributed to plummeting natural gas prices and the poor economy but it shows that the impact to electricity prices that may be attributed to wind power is so insignificant as to be completely overshadowed by other market forces. Texas is the largest user of wind power in the United States. 


A version of this post was originally published on the Texas Electricity Watch Blog: The Real Impact of Wind Energy on Electricity Rates

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Holbert is the editor for the Texas Chamber of Commerce Energy Association newsletter, businessman, expert on Texas electricity and a lifelong Texan.

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