| As policymakers balance goals such as mitigating climate change, promoting environmental sustainability, increasing energy security, and protecting the economic interests of their constituents, one of the tools available to them is the renewable portfolio standard (RPS), which requires that electric utilities produce or obtain a certain percentage of their electric power from renewable sources.After recounting the history of RPS policies and describing the numerous options legislators have in designing such policies, this paper analyzes the relationship between RPS policies and electricity prices. Using state-level electricity price data from the Energy Information Administration's State Energy Data System (SEDS) data set, along with data compiled on the RPS requirements in the states between 1999 and 2007, and controlling for other determinants of price, I was able to judge how strong an effect RPS policies have on electricity prices. The analysis shows that higher electricity prices can be tied to higher RPS percentage requirements.These results suggest that, at least in the short term, the costs of installing new renewable capacity, as well as transmission lines, outweigh the savings from lower fuel costs. In considering RPS policies, lawmakers should weigh the possibility of higher electricity prices against the benefits of RPS policies. Benefits would include environmental, public health, and energy security gains. There could also be opportunities to mitigate the undesirable effects of price increases by using revenues generated by the RPS policy. Additionally, it is noted that the literature indicates the possibility of electricity price decreases as a result of RPS policies leading to lower coal and natural gas demand, and therefore lower coal and natural gas prices. |
