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Electricity Price Increase in Texas: What is the Role of RPS?

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Abstract

Over the last two decades, more than half of the states in the United States have adopted a renewable portfolio standard (RPS). While vital environmental goals underlie the rationale for RPS there is a rising concern that the policy may lead to increased electricity prices. Using the synthetic control method we conduct a comparative case study of Texas, an early adopter of RPS and arguably a success story. Our statistical tests find no evidence that RPS was a contributing factor in Texas’s electricity price increase.

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Notes

  1. https://emp.lbl.gov/sites/all/files/rps_summit_nov_2013.pdf. Accessed 25 March 2016.

  2. The Washington Post reports that American Legislative Exchange Council (ALEC) is promoting the Electricity Freedom Act at state legislatures across the country to reverse RPS mandates over concerns that RPS lead to increased electricity prices. (The Washington Post report: http://www.washingtonpost.com/national/health-science/climate-skeptic-group-works-to-reverse-renewable-energy-mandates/2012/11/24/124faaa0-3517-11e2-9cfa-e41bac906cc9_story.html, Electricity Freedom Act: http://www.washingtonpost.com/wp-srv/business/documents/Electricity-Freedom-Act-121123.pdf).

    Also, there is currently an argument put forward in the popular press by the Wind Action Group (http://www.windaction.org/about) asserting that states with significant wind capacity additions have significantly higher electricity prices, although the American Wind Energy Association (AWEA), the national trade association for the wind industry, has reached the opposite conclusion (Taylor 2014; http://www.aweablog.org/blog/post/fact-check-new-evidence-rebuts-heartlands-bogus-rps-claims. Accessed 29 June 2014).

  3. See also http://instituteforenergyresearch.org/wp-content/uploads/2011/01/IER-RPS-Study-Final.pdf, http://news.heartland.org/newspaper-article/2014/01/24/kansas-renewable-mandates-causing-skyrocketing-electricity-prices.

  4. The NPR reports, “The Texas RPS is one of the most effective and successful in the nation, widely considered a model RPS. It is one of the greatest influences on the rapid growth of the Texas wind energy industry” (http://stateimpact.npr.org/texas/2013/07/05/how-texas-won-the-race-to-harness-the-wind/). This is supported by Maguire and Munasib (2016) who find that Texas is unique among early adopter states in that RPS had a positive impact on the expansion of the state’s renewables generation capacity. Section 2.3 has a detailed discussion of Texas’s RPS vis-à-vis RPS in other states.

  5. EIA (http://www.eia.gov/state/?sid=TX, 062613), ERCOT Time-line (http://www.ercot.com/about/profile/history), Office of the Governor (www.TexasWideOpenForBusiness.com), Hurlbut (2008).

  6. For details see http://www.eia.gov/oiaf/beck_plantcosts. For information on distribution costs in Texas see “The Energy Report,” Texas Comptroller of Public Accounts, 2008, pp. 342.

  7. There are two state policies in Texas that provide tax breaks to for solar and wind turbine production or installation. http://programs.dsireusa.org/system/program/detail/82 and http://programs.dsireusa.org/system/program/detail/81.

  8. Office of the Governor (www.TexasWideOpenForBusiness.com), ERCOT (http://www.ercot.com/about, http://www.ercot.com/content/news/mediakit/maps/NERC_Interconnections_color.jpg).

  9. https://www.eia.gov/tools/faqs/faq.cfm?id=427&t=3. Accessed 25 March 2016.

  10. http://www.eia.gov/forecasts/aeo/section_elecgeneration.cfm. Accessed 25 March 2016.

  11. EIA: Environment (http://www.eia.gov/environment/emissions/carbon/?src=Environment-b1).

  12. http://www.capitol.state.tx.us/BillLookup/Text.aspx?LegSess=76R&Bill=SB7#.

  13. For comparison with other RPS that are specified as percentages of generation, 2000 MW translates to 1.2–1.6 % of 1999 total generation, and 5880 MW translates to 3.6–5 % of 1999 total generation in Texas depending on the assumed capacity factor of 25–35 %.

  14. For more details, see http://www.dsireusa.org/rpsdata/index.cfm and www.window.state.tx.us/specialrpt/energy.

  15. http://www.ercot.com.

  16. Texas Comptroller of Public Accounts (http://www.window.state.tx.us/specialrpt/energy/uses/electricity.php).

  17. As of 2003, “in the secondary energy market, consisting of most commercial and some small industrial customers, about 19 % of customers representing 42 % of all load have switched to competitive providers.” By 2008, it had increased to nearly 55 %. See http://www.puc.texas.gov/industry/electric/reports/RptCard/rptcrd/mar04rptcrd.pdf and http://www.puc.texas.gov/industry/electric/reports/RptCard/PastRC.aspx.

  18. See Texas Comptroller of Public Accounts http://www.window.state.tx.us/specialrpt/energy/uses/electricity.php for more details.

  19. For example, Connecticut allows for the regional purchase of renewable electricity within the ISO New England jurisdiction and Nevada did not meet 100 % of their RPS obligation until 2008.

  20. See http://www.eia.gov/renewable/state/#tabs_gen-1 for cross state comparisons. Additionally, Maguire and Munasib (2016) show that among these early adopter states, only Texas RPS had a significant impact on the state’s renewables capacity expansion. It is also notable that one of the distinguishing features of the Texas RPS is that it sets the target in terms of capacity and not in terms of the percentage of generation. Kneifel (2007) identifies this as an important feature vis-à-vis the effectiveness of RPS. The only other state that set its RPS based on capacity was Iowa, but their target was small (a mandate of only 105 MW of renewable capacity).

  21. In Texas, the share of hydro-electricity before and after RPS has been very close to zero. Wind is by far the main renewable energy source. In 1998, the year before the passing of its RPS, combined nameplate (summer) capacity of wind, solar and biomass accounted for only 0.07 % of nameplate (summer) capacity of coal and natural gas.

  22. Power generated from renewable resources is used to create REC, which are measured in energy units. In Texas, one REC represents 1 MWh of qualified renewable energy that is generated and metered in Texas. For more details see: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=TX03R.

  23. Arizona, Nevada, Texas and Wisconsin were the earliest states to allow for or require the use of tradable REC to meet RPS. However, unlike Texas, in Wisconsin tradable credits are created only when an electric utility or cooperative provides total renewable energy to its retail electric customers in excess of the RPS requirements. See Berry (2002) for details.

  24. The existing REC markets and tracking systems serve a distinct region: the NEPOOL Generation Information System (NEPOOL GIS) supports a six-state area in New England comprising the ISO New England control area, the PJM Generation Attribute Tracking System (GATS) supports the PJM control area, which covers 13 states and the District of Columbia, while the ERCOT REC program only operates in Texas. See (Doot et al. 2007) for more details.

  25. As Abadie et al. (2014) put it, “... only units that are alike in both observed and unobserved determinants of the outcome variable as well as in the effect of those determinants on the outcome variable should produce similar trajectories of the outcome variable over extended periods of time” (p. 4).

  26. According to the information from the DSIRE database, in Texas, while tradable REC are to be used to meet the RPS requirement the electricity for each REC must be generated and metered within Texas.

  27. The electricity price is the total electric industry electricity price reported by the EIA, the average retail price (cents/kWh) across all sectors. http://www.eia.gov/electricity/data.cfm#sales. Accessed 06 Oct 2015.

  28. http://www.eia.gov/electricity/data/state/. Accessed 26 Oct 2015.

  29. http://www.ers.usda.gov/datafiles/Natural_Amenities_Scale/natamenf_1_.xls; Brown, William. NOAA. “Re: wb*Fwd: Degree Days”. Email to Karen Maguire. 20 Oct 2014.

  30. http://faq.bea.gov/regional/downloadzip.cfm.

  31. The two measures differ based on technological and land use assumptions. For instance, the 1991 measure was constructed at 50 m due to the availability of wind technology at the time, while the 2010 measure was constructed at 80 m (NREL 2010).

  32. The PTC expired and was extended in 2000, 2002, 2004, and 2012. It was extended in 2010 prior to expiration.

  33. See http://www.eia.gov/todayinenergy/detail.cfm?id=8870 (EIA-PTC) and http://www.eia.gov/todayinenergy/detail.cfm?id=15851 (EIA-Texas).

  34. There are two state policies in Texas that provide tax breaks for solar and wind turbine production or installation. http://programs.dsireusa.org/system/program/detail/82 and http://programs.dsireusa.org/system/program/detail/81.

  35. http://stateimpact.npr.org/texas/2012/05/31/texas-power-slim-reserves-getting-slimmer.

  36. https://stateimpact.npr.org/texas/2012/05/21/keeping-the-lights-on-in-texas-will-big-profits-spur-new-power-plants.

  37. http://www.nerc.com/pa/RAPA/ra/Pages/default.aspx.

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Authors and Affiliations

  1. Department of Economics and Legal Studies, Oklahoma State University, 327 Business Building, Stillwater, OK, 74075, USA

    Karen Maguire

  2. Bureau of Economic Analysis, U.S. Department of Commerce, 4600 Silver Hill Road, Suitland, MD, 20746, USA

    Abdul Munasib

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  1. Karen Maguire
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  2. Abdul Munasib
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Correspondence to Karen Maguire.

Additional information

This research was done when Abdul Munasib was a Research Scientist in the Department of Agricultural and Applied Economics, University of Georgia, Griffin, GA.

This paper was prepared by Abdul Munasib (in collaboration with Karen Maguire) in his personal capacity. The opinions expressed in this paper are the author’s own and do not reflect the views of the Bureau of Economic Analysis, the U.S. Department of Commerce, or the United States government.

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Maguire, K., Munasib, A. Electricity Price Increase in Texas: What is the Role of RPS?. Environ Resource Econ 69, 293–316 (2018). https://doi.org/10.1007/s10640-016-0079-2

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