The University of Chicago (UCH) released a “working paper” this week examining renewable portfolio standards (RPSs). Unfortunately, it’s based on false pretenses and uses a questionable economic model to claim RPSs are substantially more costly to consumers than previously thought. While it is important to understand the effectiveness and impacts of these programs, the authors’ use of unrealistic assumptions and faulty logic leads to biased estimates that don’t align with real-world outcomes.
Renewable Portfolio Standards and their benefits
RPSs are state-level policies that require electric utilities to gradually increase the amount of renewable energy they deliver to their customers. They are proven policies with long track records of success. Evidence shows using more renewable energy to meet state electricity demand has a minimal impact on, and in many cases reduces, electricity prices.
Beyond electricity prices, RPSs have also been shown to bring far-reaching benefits to consumers, which the UCH paper fails to account for. For example, a 2017 Lawrence Berkeley National Lab (LBNL) report estimated existing RPS policies will generate $258 billion in health and environmental benefits from reduced air pollution and create 4.7 million job-years of employment. Factors like these are notably absent from the new paper.
The working paper, entitled “Do Renewable Portfolio Standards Deliver,” takes a simplified approach to a complex question. The authors argue that previous analyses of RPS cost impacts are not robust because they do not account for all costs associated with an RPS program. While it is true that a comprehensive “net-benefit” analysis would provide a clearer picture of RPS program costs and effectiveness, the authors stop painfully short of achieving this by looking only at costs while ignoring critical benefits of RPS programs.
Where the new paper falls short
The authors claim there are three key cost categories not included in prior RPS analyses. Unfortunately, all three of these categories are rooted in commonly misunderstood renewable energy myths.
First, the authors argue the intermittency of wind and solar energy resources requires the construction of “back-up” capacity, leading to greater costs for ratepayers. The truth is, grid operators already maintain reserve generation to back up all sources of energy, including large fossil fuel and nuclear plants that can unexpectedly trip offline, causing a rapid drop in available capacity. In fact, grid operator data from Texas has shown that the cost of reserves needed to back up conventional power plants is far larger than the cost to back up wind generation.
Furthermore, using their sophisticated controls and power electronics, modern wind and solar plants can provide many of the grid reliability services as conventional power plants. Grid operators have a century’s worth of experience balancing changes in electricity supply and demand, and because wind’s output can be predicted reasonably well 24 to 48 hours ahead of time, it’s much easier to accommodate changes in wind than when a large, centralized power plant unexpectedly fails.
Second, the authors point to increased costs from added transmission infrastructure needed to support RPS-incentivized renewable energy development. While it is true that strengthening our grid resources comes at a cost, evidence shows transmission upgrades more than pay for themselves in the long run due to increased reliability, reduced congestion and many other economic benefits. For example, when the 2018 Polar Vortex brought record low temperatures to the Midwest, interregional transmission lines delivered electricity from PJM to MISO, helping to keep the lights and heat on in MISO during peak demand hours. This shows the value of the geographic diversity of energy sources paired with a well-connected grid, creating a more resilient overall system.
Transmission also benefits all energy sources and gives consumers access to the lowest-cost power while enhancing reliability. The American Society of Civil Engineers rates the country’s electric grid an unacceptable D+, hardly adequate to support a competitive economy and today’s modern technology. Transmission expansion and grid updates are necessary across the board, and the University of Chicago paper ignores this reality.
Lastly, the authors claim that increased renewable energy development leads to premature retirement of coal and nuclear plants, which in turn imposes costs on ratepayers. Although it is true that premature retirements may come at a cost, market data shows that it is often low natural gas prices, and not renewable energy development, that renders coal and nuclear plants less competitive.
Besides using the faulty logic explained above to justify their analysis, multiple economists quickly identified serious flaws and unrealistic assumptions used in the analysis, which cause the RPS cost estimates to be inflated. For example:
It appears to me that the paper analyzes effects (on generation mix, CO2 emissions) on a per-state basis. But RPS laws don't work that way. Most have regional effects, since they don't generally have state-specific requirements.
— Ari Peskoe (@AriPeskoe) April 22, 2019
Treating all RPS policies as same & estimating their average effect is a bit like treating 29 patients with a dozen similar but distinct drugs, each using different doses, and then trying to say something about the average effect of all of the treatments. What does that tell us?
— JesseJenkins (@JesseJenkins) April 22, 2019
Was it one particular drug that was most effective, while others had no effect? Did some drugs hurt while others helped? Looking at an average treatment effect for heterogeneous treatments makes it impossible to say.
— JesseJenkins (@JesseJenkins) April 22, 2019
By design, an RPS does not hand pick a technology; rather all renewables are able to compete, incentivizing cost reductions and efficiency gains. As a result, RPS policies encourage the growth of additional homegrown electricity sources that diversify our energy portfolios, spur local economic development, reduce pollution, cut water consumption, and save consumers money.