America’s Renewables: Increasingly the Low-Cost Option

Environmental Defense Fund
June 15, 2015

By Nan­cy E. Pfund, Man­ag­ing Part­ner of DBL Investors, and Anand Chhabra, for­mer Sum­mer Asso­ciate at DBL Investors and cur­rent JD/​MBA Can­di­date at Stan­ford University

Does more renew­able ener­gy mean more expen­sive elec­tric­i­ty? In the nation’s debate on ener­gy, few ques­tions are more impor­tant to Amer­i­can fam­i­lies and businesses.

Many crit­ics of renew­ables allege sky­rock­et­ing elec­tric­i­ty prices and eco­nom­ic cri­sis, owing to grow­ing reliance on renew­ables. This com­men­tary has empha­sized “explod­ing elec­tric­i­ty prices,” an “attack on any state’s econ­o­my,” and “goug­ing job cre­ators and Amer­i­can fam­i­lies with high­er elec­tric­i­ty bills.”

Wait, what?

In our report, Renew­ables Are Dri­ving Up Elec­tric­i­ty Prices – Wait What?, we address this con­cern direct­ly by assess­ing aver­age retail elec­tric­i­ty prices in the U.S., with a par­tic­u­lar focus on whether states rely a lot or a lit­tle on renew­ables. What we dis­cov­ered is that many of the fears espoused by crit­ics of renew­able ener­gy are overblown.

Our find­ings

In 2013, states that led on renew­ables (mea­sured by share of over­all gen­er­a­tion from renew­able sources) actu­al­ly had low­er aver­age retail elec­tric­i­ty prices than states that lagged on renew­ables. States that led on renew­ables also expe­ri­enced, on aver­age, cheap­er elec­tric­i­ty than the nation­al average.

These find­ings are sig­nif­i­cant because about ten years ago, this was not the case. In 2001, the lead­ing renew­able states we stud­ied had slight­ly more expen­sive aver­age retail elec­tric­i­ty than lag­ging renew­able states. By 2013, how­ev­er, the states had flipped. Those that led on renew­ables actu­al­ly had slight­ly cheap­er elec­tric­i­ty on aver­age than states that lagged on renewables.

Sim­i­lar pric­ing trends exist in states with Renew­able Port­fo­lio Stan­dards (RPS). In these states, man­dates require an “increase[d] pro­duc­tion of ener­gy from renew­able sources such as wind, solar, bio­mass and oth­er alter­na­tives to fos­sil and nuclear elec­tric gen­er­a­tion.” Many states began to adopt these stan­dards in the ear­ly 2000s, and at that time, aver­age retail elec­tric­i­ty was more expen­sive in many states that adopt­ed an RPS com­pared to states that did not. By 2013, how­ev­er, elec­tric­i­ty prices in these RPS states only exceed­ed elec­tric­i­ty prices in non-RPS states by a hair’s breadth (less than 1 cent/​kWh) above the price dif­fer­ence that already exist­ed in 2001.

The road ahead

Look­ing to the future, an array of fac­tors will affect elec­tric­i­ty prices, includ­ing fuel costs, pow­er plant con­struc­tion and oper­a­tion costs, trans­mis­sion and dis­tri­b­u­tion, reg­u­la­tion, and rate design. But research into two eco­nom­ic trends deserve par­tic­u­lar note.

First, a series of stud­ies have con­clud­ed that increased reliance on wind will save peo­ple and busi­ness­es mon­ey. Accord­ing to an Amer­i­can Wind Ener­gy Asso­ci­a­tion (AWEA) analy­sis, more than one dozen reports find that increased wind gen­er­a­tion would decrease retail elec­tric­i­ty costs across the coun­try. These analy­ses fore­cast sav­ings of $231 mil­lion per year over 20 years in Col­orado, $177 mil­lion per year in Illi­nois, $7 bil­lion in the PJM region (the elec­tric­i­ty mar­ket in the Mid-Atlantic region), and more than $3 bil­lion in the Midwest.

Sim­i­lar­ly, more Amer­i­cans than ever before can save on their elec­tric­i­ty bills by rely­ing on solar pow­er. Accord­ing to Deutsche Bank, by the end of 2016, near­ly three out of four states in the nation will have reached grid par­i­ty (the “point where the cost of PV-gen­er­at­ed elec­tric­i­ty equals the cost of elec­tric­i­ty pur­chased from the grid”). The list of states ranges from Maine and Mass­a­chu­setts, to Michi­gan and Mon­tana. This means that many Amer­i­cans can actu­al­ly save cash by rely­ing on clean and renew­able solar power.

These trends offer wel­come news for Amer­i­cans who are con­cerned about increas­ing elec­tric­i­ty costs. Greater adop­tion of renew­able ener­gy is not going to result in eco­nom­ic cri­sis, as some crit­ics would have us believe. Instead, the future of renew­ables looks bright.

Nan­cy Pfund is a Man­ag­ing Part­ner of DBL Investors, a “dou­ble-bot­tom line” ven­ture cap­i­tal firm based in San Fran­cis­co, Cal­i­for­nia. Anand Chhabra was a Sum­mer Asso­ciate at DBL Investors and is a JD/​MBA Can­di­date at Stan­ford Uni­ver­si­ty. Their recent report, “Renew­ables Are Dri­ving Up Elec­tric­i­ty Prices – Wait What?” is avail­able online.