RPS Forces People to Buy Expensive Electricity

Approximately 27 states have Renewable Portfolio Standards (RPS) that forces people to buy expensive electricity.

By looking at one state, it’s possible to see the economic impact of RPS.

Illinois has passed a law (Public Act 095-0481) establishing Renewable Portfolio Standards (RPS). The law requires that 25% of electricity sold in Illinois come from expensive renewable sources by 2025. (Municipal Utilities and Rural Co-ops were excluded from the RPS requirements.)

It will cost Illinois residential customers a total of around $1.4 billion more in 2025 than they would have paid without Renewable Portfolio Standards.

Virtually everyone agrees that electricity generated from wind and solar costs more than electricity generated from coal or natural gas. The only question is how much more it will cost.

Adding costly renewables to the electricity mix will result in higher costs. One approach to quantifying the added costs is to prorate the 25% of high-cost renewables and the 75% of low-cost electricity.

Wind-generated electricity costs at least 10.5 cents per kWh to generate, and this is lower than many estimates. It certainly doesn’t include the cost of keeping gas turbines running so they can be brought on-line the minute the wind stops blowing. It also doesn’t include the cost of building new transmission lines to bring wind-generated electricity to where it can be used.

And, everyone agrees that solar is even more expensive than wind.

If we assume that the added cost is 10.5 cents per kWh (which is less than the actual cost when solar is included) and prorate this cost with an average cost of electricity generated using coal or natural gas of 5 cents per kWh, we have a composite cost of 6.5 cents per kWh, or a 28% increase. Apply this percentage increase to the current residential rate of 11.7 cents per kWh and we arrive at a residential rate of 14 cents per kWh. Using only the raw 1.5 cent increase gives a new rate of 13.2 cents, but this ignores added overhead costs.

Nuclear has been omitted because the cost to generate electricity is around 2 cents per kWh after the plant is fully written off, which, except for recent upgrades, nearly all of Exelon’s plants in Illinois are. This avoids a debate over nuclear while being conservative, i.e., minimizing the estimated increased costs from RPS.

Not only are Illinois residents forced to pay more for their electricity, but the law also established a new agency, the Illinois Power Agency, to administer the RPS.

While this added bureaucracy is relatively small, it’s just another reason why Illinois income tax rates were raised.

The law did place a cap on how much residential rates can be increased, but it established a process for reviewing and increasing the cap. It’s hard to believe the cap won’t be raised when there are over a billion dollars in added costs. Illinois utilities can’t absorb $1.4 billion. Where else will the money come from? The State government that’s broke?

The other 26 states will have similar outcomes with higher rates causing their residents to incur very high costs for electricity. The exact amounts will depend on population and other factors that relate specifically to each state, such as hydro power in the West.

RPS laws were passed with little fan fare. Were you aware of these laws? It’s time to repeal RPS. And stop forcing Illinois residents and those from the other 26 states to pay for expensive electricity.

(Residential sales and the average residential rate for Illinois were from the Energy information Agency. The number of Illinois households was from the U.S. Census Bureau. For a discussion on the cost of wind energy, see:  http://www.windaction.org/documents/25496


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