Favorable Review of Renewable Energy Standards

Twenty-four states have passed renewable energy standards (RES) that require a certain percent of a state’s electricity to be generated by clean energy. From Texas and Montana to California and New York, state legislatures have passed these standards for a wide range of reasons: To develop local economies, reduce energy imports from out-of-state or out-of-country, reduce pollution, and reduce the environmental impact of digging up fossil fuels. These are state-wide benefits that keep money in the state economy and pollution out of citizens’ lives. Their value is obvious.

But what about costs? Some policymakers are concerned that utility customers’ bills will rise to achieve these benefits. Are renewable energy standards increasing the cost of electricity? Recent reports in Minnesota offer a positive message for the rest of the country.

Minnesota established one of the nation’s most ambitious renewable energy standards in 2007. The RES directs the state’s electric utilities to obtain 25 percent of their electricity from renewable resources by 2025. The utilities are on track to meet their benchmarks, and many are tapping into cost-competitive wind projects across the Midwest. Minnesota policymakers asked utilities to report on whether those renewable resources drive up rates for utility customers.

Now: Low-Cost or No-Cost

According to analysis by League staff, recent reports filed by Minnesota utilities show that for most utilities, acquiring renewable energy has had either minimal price impacts (less than one percent increase) or no impact on prices at all. For example, Xcel Energy reported that in 2008 and 2009, energy prices were 0.7 percent lower with wind resources than they would have been without them. Otter Tail Power concluded their report by saying, “Over the entire life of a wind project, there is a significant reduction in electricity costs to Otter Tail’s customers.”

Some utilities stated that they would have procured renewables regardless of the state requirements because they are simply the optimal choice for least-cost, least-risk portfolios. During the recent recession, energy demand was significantly down, contributing to lower prices for fossil fuels. As demand picks up, the price of fuel will increase as well, making it more expensive for utilities to run coal and natural gas plants. Wind and other no-fuel renewables are a very good hedge against increasing and fluctuating fossil fuel prices.

Future: Cheaper Energy

A few utilities modeled future impacts of the RES, looking at an energy portfolio with additional renewables versus one with no additional renewables. Those utilities found that a portfolio with renewable energy may be cheaper for the utility and its ratepayers in future years. Otter Tail Power projects that their RES-compliant portfolio through 2025 will cost $34 million less than a “no-wind” scenario, resulting in lower rates for customers. Minnesota Power projects that their new renewable resources will “provide significant benefit to customers in comparison to energy market pricing and are…very competitive energy supply sources over the 2011-2026 period.” With an eye to the uncertain future, Minnesota’s renewable energy provides certain prices at competitive rates.

In addition to reaping the benefits renewable energy offers to local economies, public health, and the environment, Minnesota is experiencing very few adverse effects on its energy bills — and in fact might be seeing lower energy bills in the long term — by implementing an RES. Minnesota utilities will continue to report the effects that RES compliance is having on their rates. The first wave of reports is certainly a positive indicator for Minnesota citizens, whether they are thinking of themselves as utility customers or beneficiaries of a cleaner energy economy.

Izaak Walton League Energy Program Director Nancy Lange and Energy Associate Drew Bennett contributed to this article.

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