Have Renewable Portfolio Standards Raised Electricity Rates? Evidence from U.S. Electric Utilities

Constant Tra ()

No 923, Working Papers from University of Nevada, Las Vegas , Department of Economics

Abstract: Renewable Portfolio Standards (RPS) have been a contentious issue amongst policymakers in recent years. Neoclassical theory would suggest that, in the short-run, RPS mandates will raise electricity rates if the cost of electricity generation via renewable energy technologies exceeds that of convention fossil fuel technologies. This study uses a quasi-experimental approach to investigate the effect of RPS policies on retail residential electricity rates. The study provides one of the first econometric investigations of the economic effect of RPS mandates. The empirical approach uses a panel dataset of 2,602 U.S. electric utilities from 1990 to 2006. The empirical findings provide several policy insights on the effect of RPS mandates. First, a state RPS mandate, on average, positively affects the average residential electricity rate. Second, no spillover effect exists for the RPS effect on electricity rates. In other words, utilities that operate in a RPS state, but are not subject to an RPS requirement, do not experience a significant increase in electric rates. Third, the RPS effect on residential electricity rates is significantly lower in states with a higher wind and solar energy potential. Finally, the magnitude of the RPS effect on residential electricity rates increases for utilities subject to higher requirements. The estimated elasticity of residential electricity rates with respect to an RPS requirement equals roughly 0.3.

Keywords: Renewable energy; Electricity; Renewable Portfolio Standards (search for similar items in EconPapers)
JEL-codes: L98 Q42 Q48 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-06
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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