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

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  • Constant Tra

    ()
    (Department of Economics, University of Nevada, Las Vegas)

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.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/0923.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 0923.

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Length: 26 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:nlv:wpaper:0923

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Keywords: Renewable energy; Electricity; Renewable Portfolio Standards;

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  1. Christopher R. Knittel, 2004. "Regulatory Restructuring and Incumbent Price Dynamics: The Case of U.S. Local Telephone Markets," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 614-625, May.
  2. Kira Markiewicz & Nancy L. Rose & Catherine Wolfram, 2004. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency," NBER Working Papers 11001, National Bureau of Economic Research, Inc.
  3. Burtraw, Dallas & Palmer, Karen, 2005. "Cost-Effectiveness of Renewable Electricity Policies," Discussion Papers dp-05-01, Resources For the Future.
  4. Michaels, Robert J., 2008. "A National Renewable Portfolio Standard: Politically Correct, Economically Suspect," The Electricity Journal, Elsevier, vol. 21(3), pages 9-28, April.
  5. Fischer, Carolyn, 2006. "How Can Renewable Portfolio Standards Lower Electricity Prices?," Discussion Papers dp-06-20, Resources For the Future.
  6. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  7. Michael Greenstone & Ted Gayer, 2007. "Quasi-Experimental and Experimental Approaches to Environmental Economics," Working Papers 0713, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  8. Rose, Kenneth, 2004. "The State of Retail Electricity Markets in the U.S," The Electricity Journal, Elsevier, vol. 17(1), pages 26-36.
  9. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
  10. Paul L. Joskow, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-138, Summer.
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