IDEAS home Printed from https://ideas.repec.org/p/nlv/wpaper/0923.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Constant Tra, 2009. "Have Renewable Portfolio Standards Raised Electricity Rates? Evidence from U.S. Electric Utilities," Working Papers 0923, University of Nevada, Las Vegas , Department of Economics.
    • Handle: RePEc:nlv:wpaper:0923
    as

    Download full text from publisher

    File URL: http://web.unlv.edu/projects/RePEc/pdf/0923.pdf
    File Function: First version, 2009
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366, Elsevier.
    2. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    3. Palmer, Karen & Burtraw, Dallas, 2005. "Cost-effectiveness of renewable electricity policies," Energy Economics, Elsevier, vol. 27(6), pages 873-894, November.
    4. Fischer, Carolyn, 2006. "How Can Renewable Portfolio Standards Lower Electricity Prices?," RFF Working Paper Series dp-06-20, Resources for the Future.
    5. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    6. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
    7. Michaels, Robert J., 2008. "A National Renewable Portfolio Standard: Politically Correct, Economically Suspect," The Electricity Journal, Elsevier, vol. 21(3), pages 9-28, April.
    8. 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.
    9. 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.
    10. Rose, Kenneth, 2004. "The State of Retail Electricity Markets in the U.S," The Electricity Journal, Elsevier, vol. 17(1), pages 26-36.
    11. 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 929-953, October.
    12. Greenstone, Michael & Gayer, Ted, 2009. "Quasi-experimental and experimental approaches to environmental economics," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 21-44, January.
    13. Cooper, Christopher, 2008. "A National Renewable Portfolio Standard: Politically Correct or Just Plain Correct?," The Electricity Journal, Elsevier, vol. 21(5), pages 9-17, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hongbo Wang, 2016. "Do Mandatory U.S. State Renewable Portfolio Standards Increase Electricity Prices?," Growth and Change, Wiley Blackwell, vol. 47(2), pages 157-174, June.
    2. Karen Maguire & Abdul Munasib, 2013. "Do Renewables Portfolio Standards Increase Electricity Prices? A Synthetic Control Approach," Economics Working Paper Series 1403, Oklahoma State University, Department of Economics and Legal Studies in Business, revised Aug 2013.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hongbo Wang, 2016. "Do Mandatory U.S. State Renewable Portfolio Standards Increase Electricity Prices?," Growth and Change, Wiley Blackwell, vol. 47(2), pages 157-174, June.
    2. Juyong Lee & Youngsang Cho & Yoonmo Koo & Chansoo Park, 2018. "Effects of Market Reform on Facility Investment in Electric Power Industry: Panel Data Analysis of 27 Countries," Sustainability, MDPI, vol. 10(9), pages 1-16, September.
    3. Xuejuan Su, 2015. "Have customers benefited from electricity retail competition?," Journal of Regulatory Economics, Springer, vol. 47(2), pages 146-182, April.
    4. Mou, Dunguo, 2014. "Understanding China’s electricity market reform from the perspective of the coal-fired power disparity," Energy Policy, Elsevier, vol. 74(C), pages 224-234.
    5. Sharabaroff, Alexander & Boyd, Roy & Chimeli, Ariaster, 2009. "The environmental and efficiency effects of restructuring on the electric power sector in the United States: An empirical analysis," Energy Policy, Elsevier, vol. 37(11), pages 4884-4893, November.
    6. Kung, Harold H., 2012. "Impact of deployment of renewable portfolio standard on the electricity price in the State of Illinois and implications on policies," Energy Policy, Elsevier, vol. 44(C), pages 425-430.
    7. Richard J. Cebula & Franklin G. Mixon Jr., 2014. "The Roles of Economic Freedom and Regulatory Quality in Creating a Favorable Environment for Investment in Energy R&D, Infrastructure, and Capacity," American Journal of Economics and Sociology, Wiley Blackwell, vol. 73(2), pages 299-324, April.
    8. Berthélemy Michel & Bonev Petyo & Dussaux Damien & Söderberg Magnus, 2019. "Methods for strengthening a weak instrument in the case of a persistent treatment," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(1), pages 1-30, February.
    9. Pio Baake & Sebastian Schwenen & Christian von Hirschhausen, 2020. "Local Power Markets," Discussion Papers of DIW Berlin 1904, DIW Berlin, German Institute for Economic Research.
    10. Karakatsani, Nektaria V. & Bunn, Derek W., 2008. "Forecasting electricity prices: The impact of fundamentals and time-varying coefficients," International Journal of Forecasting, Elsevier, vol. 24(4), pages 764-785.
    11. Karakatsani Nektaria V & Bunn Derek W., 2010. "Fundamental and Behavioural Drivers of Electricity Price Volatility," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 14(4), pages 1-42, September.
    12. Nikolaos Georgantzis & Aitor Ciarreta & Carlos Gutiérrez-Hita, 2010. "Renewable sources, technology mix, and competiton in liberalized electricity markets: the case of Spain," Working Papers. Serie EC 2010-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    13. James B. Bushnell & Catherine Wolfram, 2009. "The Guy at the Controls: Labor Quality and Power Plant Efficiency," NBER Chapters, in: International Differences in the Business Practices and Productivity of Firms, pages 79-102, National Bureau of Economic Research, Inc.
    14. Pär Holmberg & Andy Philpott, 2014. "Supply function equilibria in transportation networks," Cambridge Working Papers in Economics 1421, Faculty of Economics, University of Cambridge.
    15. Crawford, Gregory S. & Crespo, Joseph & Tauchen, Helen, 2007. "Bidding asymmetries in multi-unit auctions: Implications of bid function equilibria in the British spot market for electricity," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1233-1268, December.
    16. Sloczynski, Tymon, 2018. "A General Weighted Average Representation of the Ordinary and Two-Stage Least Squares Estimands," IZA Discussion Papers 11866, Institute of Labor Economics (IZA).
    17. Carlos Suarez, 2021. "Private management and strategic bidding behavior in electricity markets: Evidence from Colombia," IREA Working Papers 202102, University of Barcelona, Research Institute of Applied Economics, revised Jan 2021.
    18. Greenstone, Michael & Gayer, Ted, 2009. "Quasi-experimental and experimental approaches to environmental economics," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 21-44, January.
    19. Tennbakk, Berit, 2000. "Power trade and competition in Northern Europe," Energy Policy, Elsevier, vol. 28(12), pages 857-866, October.
    20. Dzikri Firmansyah Hakam, 2018. "Market Power Modelling in Electricity Market: A Critical Review," International Journal of Energy Economics and Policy, Econjournals, vol. 8(5), pages 347-356.

    More about this item

    Keywords

    Renewable energy; Electricity; Renewable Portfolio Standards;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nlv:wpaper:0923. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bill Robinson (email available below). General contact details of provider: https://edirc.repec.org/data/denlvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.