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

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.

This is a preview of subscription content, log in to check access.

Fig. 1
Fig. 2
Fig. 3

Notes

  1. 1.

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

  2. 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. 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. 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. 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. 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. 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. 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. 9.

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

  10. 10.

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

  11. 11.

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

  12. 12.

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

  13. 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. 14.

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

  15. 15.

    http://www.ercot.com.

  16. 16.

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

  17. 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. 18.

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

  19. 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. 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. 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. 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. 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. 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. 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. 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. 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. 28.

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

  29. 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. 30.

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

  31. 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. 32.

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

  33. 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. 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. 35.

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

  36. 36.

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

  37. 37.

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

References

  1. Abadie A, Diamond A, Hainmueller J (2010) Synthetic control methods for comparative case studies: estimating the effect of California’s tobacco control program. J Am Stat Assoc 105:493–505

    Article  Google Scholar 

  2. Abadie A, Diamond A, Hainmueller J (2014) Comparative politics and the synthetic control method. Am J Polit Sci (First published online: 23 APR 2014)

  3. Abadie A, Gardeazabal J (2003) The economic costs of conflict: a case-control study for the Basque country. Am Econ Rev 93(1):113–132

    Article  Google Scholar 

  4. Barbose G (2013) Renewables portfolio standards in the United States: a status update. In: State-federal RPS collaborative national summit on RPS. Washington, DC, November 6

  5. Bernow S, Dougherty W, Duckworth M (1997) Quantifying the impacts of a national, tradable renewables portfolio standard. Electr J 10(4):42–52

    Article  Google Scholar 

  6. Berry D (2002) The market for tradable renewable energy credits. Ecol Econ 42(3):369–379

    Article  Google Scholar 

  7. Bertrand M, Duflo E, Mullainathan S (2004) How much should we trust differences-in-differences estimates? Quart J Econ 119(1):249–275

    Article  Google Scholar 

  8. Bhatti J (2013) The cost of green: Germany tussles over the bill for its energy revolution. Time 28 May 2013

  9. Bohn S, Lofstrom M, Raphael S (2014) Did the 2007 legal Arizona workers act reduce the state’s unauthorized immigrant population? Rev Econ Stat 96(2):258–269

    Article  Google Scholar 

  10. Bryce R (2012) The high cost of renewable electricity mandates. Manhattan Institute Center for Energy Policy and the Environment, New York

    Google Scholar 

  11. Bryce R (2014) Maintaining the advantage: why the U.S. should not follow the EU’s energy policies. Manhattan Institute Center for Energy Policy and the Environment, New York

  12. Buchmueller TC, DiNardo J, Valletta RG (2011) The effect of an employer health insurance mandate on health insurance coverage and the demand for labor: evidence from Hawaii. Am Econ J Econ Policy 3(4):25–51

    Article  Google Scholar 

  13. Cardwell D (2014) A pushback on green power. The New York Times, 28 May 2014

  14. DeMeo EA, Grant W, Milligan MR, Schuerger MJ (2005) Wind plant integration [wind power plants]. IEEE Power Energy Mag 3(6):38–46

    Article  Google Scholar 

  15. Donald SG, Lang K (2007) Inference with difference-in-differences and other panel data. Rev Econ Stat 89(2):221–233

    Article  Google Scholar 

  16. Doot DT, Belval PN, Fountain LM (2007) State mandates most effective so far in renewable portfolio standards. Nat Gas Electr 23(12):1–31

    Article  Google Scholar 

  17. Elliott DL, Wendell LL, Glower GL (1991) An assessment of the available windy land area and wind energy potential in the contiguous United States. Pacific Northwest Laboratory, Richland

    Google Scholar 

  18. Fischer C (2010) Renewable portfolio standards: when do they lower energy prices? Energy J 31(1):101–119

    Article  Google Scholar 

  19. Fischer C, Newell RG (2008) Environmental and technology policies for climate mitigation. J Enviro Econ Manag 55:142–162

    Article  Google Scholar 

  20. Gallucci M (2013) Renewable energy standards target of multi-pronged attack. InsideClimate News, 19 March 2013

  21. Germany’s energy transformation: energiewende (2012) The Economist, July 28th. http://www.economist.com/node/21559667

  22. Hitaj C (2013) Wind power development in the United States. J Environ Econ Manag 65:394–410

    Article  Google Scholar 

  23. Hurlbut D (2008) A look behind the texas renewable portfolio standard: a case study. Nat Resourc J 48:129–161

    Google Scholar 

  24. Kneifel J (2007) Effects of state government policies on electricity capacity from non-hydropower renewable sources. University of Florida, Department of Economics

    Google Scholar 

  25. Langniss O, Wiser R (2003) The renewables portfolio standard in Texas: an early assessment. Energy Policy 31:527–535

    Article  Google Scholar 

  26. Maguire K, Munasib A (2016) The disparate influence of state renewable portfolio standards (RPS) on renewable electricity generation capacity. Land Econ 92:450–467

    Article  Google Scholar 

  27. Muller NZ, Mendelsohn R, Nordhaus W (2011) Environmental accounting for pollution in the United States economy. Am Econ Rev 101:1649–1675

    Article  Google Scholar 

  28. Munasib A, Rickman D (2015) Regional economic impacts of the shale gas and tight oil boom: a synthetic control analysis. Reg Sci Urban Econ 50:1–17

    Article  Google Scholar 

  29. Novan K (2011) Valuing the wind: renewable energy policies and air pollution avoided. Working Paper

  30. NREL (2010) New wind energy resource potential estimates for the United States. AWS Truwind, National Renewable Energy Laboratory

    Google Scholar 

  31. Palmer K, Burtraw D (2005) Cost-effectiveness of renewable electricity policies. Energy Econ 27:873–894

    Article  Google Scholar 

  32. Plumer B (2013) State renewable-energy laws turn out to be incredibly hard to repeal. The Washington Post, 8 Aug 2013

  33. Rubin AM (2001) The challenge of writing the quantitative study. In: How to publish your communication research, an insider’s guide, p 57

  34. Simmons RT, Yonk Ryan M, Tyler B, Ken S, Jacob FB (2015a) Renewable portfolio standards: North Carolina. Utah State University Institute of Political Economy and Strata Policy, Logan

    Google Scholar 

  35. Simmons RT, Yonk RM, Brough T, Sim K, FishBeck J (2015b) Renewable portfolio standards: Kansas. Utah State University Institute of Political Economy and Strata Policy, Logan

    Google Scholar 

  36. Tao HYS, Srivastava, AK, Pineda RL, Mandal P (2012) Wind power generation impact on electricity price in ERCOT. In: Proceedings of the 2012 IEEE power and energy society general meeting

  37. Taylor J (2014) Wind industry study: electricity prices skyrocketing in largest wind power states. Forbes, 27 Feb 2014

  38. Tra CI (2015) Have renewable portfolio standards raised electricity rates?. Evidence from US electric utilities, Contemp Econ Policy

    Google Scholar 

  39. Tuerck DG, Head M, Bachman P (2011) Economic impact of Oregon’s renewable portfolio standard. The Beacon Hill Institute at Suffolk University and Cascade Policy Institute, Boston

    Google Scholar 

  40. Wiser R (2007) Wind power and the production tax credit: an overview of research results. Lawrence Berkeley National Laboratory, Berkeley

    Google Scholar 

  41. Wiser R, Bolinger M, Barbose G (2007) Using the federal production tax credit to build a durable market for wind power in the United States. Lawrence Berkeley National Laboratory, Berkeley

    Google Scholar 

  42. Woo CK, Horowitz I, Moore J, Pacheco A (2011) The impact of wind generation on the electricity spot-market price level and variance: the Texas experience. Energy Policy 39(7):3939–3944

    Article  Google Scholar 

  43. Wynn T, Lowe E (2010) Think twice: why wind power mandates are wrong for the northwest. Cascade Policy Institute, Oregon

    Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

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.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

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

Download citation

Keywords

  • Renewable portfolio standard (RPS)
  • Electricity price
  • Synthetic control method (SCM)

JEL Classification

  • Q4
  • Q42
  • Q48
  • H7