It has been a long held assumption that switching to renewable energy sources for electricity generation will raise electricity rates. Despite that belief many states have passed mandates over the years to increase the amount of electricity derived from renewable sources. The increase in electricity rates was just considered to be the price to be paid for the shift to renewable energy sources. However, recent research has challenged the assumption that alternative energy will dramatically raise electricity costs.
Guidelines were passed by several states such as the Texas Renewable Portfolio Standard(RPS). The original Texas 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 5,880 megawatts by 2015 and 10,000 megawatts by 2025.
It’s been common wisdom that electricity costs were going to go up and maybe substantially as a result of adopting this greener energy mix. A report by the Minnesota Free Market Institute, for example, said that Minnesota can expect an increase in electric rates of up to 37% by 2025 as a result of the state’s standards on renewable electricity. The standards require that 25% of Minnesota’s electricity come from renewable sources by 2025. The Minnesota standard is one of the highest in the nation.
It turns out, however, that conventional wisdom may be wrong about the cost of alternative energy. A number of recent studies challenge that assumption by pointing out that price increased that can be attributed to wind power might be negligible or maybe even non-existent. One such study by 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.
Minnesota has seen electricity price increases since their renewable energy standards have been passed. But that can be attributed more to 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 prior to the economic collapse of 2008 and the subsequent 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 extremely low at present; especially when you compare them to the 2008 peaks. Since 2008 electricity rates in Houston 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.