Renewable portfolio standards: How much do they cost?

Published: Fri 18 Jul 2014
A blog entry by Smart Grid Watch

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Recently the Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory published a study of the costs and benefits of U.S. renewable portfolio standards. These standards set state-specific targets for how much electricity must come from renewable sources -- sometimes including energy efficiency and demand response as options.

More than half of all US states have RPS policies. This report summarizes the data so far on the costs and benefits of RPS policies in 24 states. It uses estimates developed by utilities and public utility commissions, as well renewable energy certificate pricing, to calculate the net (or "incremental") costs incurred by utilities in order comply with RPS requirements.

The report also surveys other recent studies assessing the magnitude of potential broader societal benefits.

Key findings include:

  • Total cost. During 2010-2012, RPS compliance costs averaged roughly 1% of retail electricity rates -- although there is substantial variation by state and year.
  • Incremental cost. During the same period, the average incremental ("above-market") amount for RPS compliance per unit of renewable generation varied considerably by state from -$4/MWh (a net savings) to $44/MWh. For context, average wholesale energy prices were roughly $40-50/MWh during 2010-2012 according to the Energy Information Administration.
  • Surcharges. In eight states, utilities assess surcharges on customer bills to recoup RPS compliance costs. In 2012 these ranged from about $0.50/month to $4.00/month on average for residential customers (depending on the state).
  • Cost containment. These mechanisms, incorporated into current RPS policies, will limit future compliance costs to 10% or less in most states -- with many capped at 5%.
  • Societal benefits. Several states have estimated the value of various RPS societal benefits. For avoided emissions, $4-$23/MWh of renewable generation. For economic development, $22-$30/MWh. For wholesale electricity price suppression, $2-$50/MWh. (These benefits are not included in the figures above.)

How do RPS costs and benefits relate to smart meters and the smart grid? At least two studies have found that smart technology enables the connection of 50% more distributed renewable resources to the grid.

The RPS report was funded by the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (Strategic Programs Office and Solar Energy Technologies Office).

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