Policy Documents

Research & Commentary: Ohio Alternative Energy Portfolio Standard

Isaac Orr
May 19, 2014

The Ohio Senate took a small but important first step for electricity consumers by voting to freeze the state’s Alternative Energy Portfolio Standard, also known as a Renewable Portfolio Standard (RPS). If the Ohio House of Representatives follows suit, Ohio will become the first state to delay its mandate to increase the amount of electricity sold in the state that must be generated from alternative sources. In 2013 and 2014, more than 20 states considered similar reforms to their RPS mandates as a result of increased electricity costs.

Ohio passed a law in 2008 requiring 25 percent of the electricity sold in the state to come from alternative sources of energy, including nuclear, by 2025. Additionally, half of those alternative sources must be categorized as renewable, such as wind, solar, biofuels, etc. (excluding nuclear). The new measure passed by the state senate calls for a two-year freeze in the state’s renewable-energy and energy-efficiency standards. During those two years, a special committee would conduct a study. If the legislature takes no action in response to the study’s results, the standards would resume increasing in 2017.

The freeze represents an important first step in reducing prices for electricity consumers and strengthening the state’s economy, because the alternative energy mandate forces utility companies to purchase electricity from less-reliable and more-expensive sources, causing prices to increase throughout the economy. This fact was highlighted in a 2011 study by the Beacon Hill Institute, which found the Alternative Energy Portfolio Standard will cause Ohio to lose 9,753 jobs by 2025 and cost Ohio energy consumers $8.629 billion in higher prices between 2016 and 2025, including more than $1.4 billion in 2025 alone.

The higher prices are not limited to Ohio. A study by the Manhattan Institute found the average price of residential electricity in RPS states was 31.9 percent higher than in non-RPS states in 2010. Commercial electricity rates were 27.4 percent higher, and industrial rates were 30.7 percent higher. Higher residential electricity prices unfairly increase the cost of keeping the lights on for seniors and low-income families least able to afford higher prices, and raising the costs for job-creators results in higher unemployment and less overall economic activity.

The proposal represents a good first step toward keeping electricity costs from skyrocketing due to RPS mandates and showing how these mandates raise consumer prices. However, consumers will begin to feel relief only when these mandates are repealed. Legislators should take up measures that liberate utility companies and consumers from higher energy costs.

The following documents provide additional information about renewable portfolio standards.

 

Ten Principles of Energy Policy
http://heartland.org/policy-documents/ten-principles-energy-policy
Heartland Institute President Joseph Bast outlines the ten most important principles for policymakers confronting energy issues, providing guidance to help deal with ongoing changes in markets, technology, and policies adopted in other states, supported by a thorough bibliography. 

Ohio Renewable Mandates Driving Up Electricity Prices
http://news.heartland.org/newspaper-article/2014/01/27/ohio-renewable-mandates-driving-electricity-prices
James M. Taylor of The Heartland Institute reports on the impact of Ohio’s Alternative Energy Portfolio Standard: “Renewable power mandates are driving up Ohio’s electricity prices, U.S. Energy Information Administration data show. Electricity prices in Ohio have risen more than twice as fast as the national average since Ohio enacted the mandates in 2008. The sharp price increases occurred despite promises during 2008 legislative hearings that renewable power mandates would have little or no impact on electricity prices.” 

Tip Sheet: Ohio Alternative Energy Portfolio Standard
http://heartland.org/policy-documents/tip-sheet-ohio-alternative-energy-portfolio-standard
Taylor Smith of The Heartland Institute analyses the Alternative Energy Portfolio Standards (AEPS) set in place by the Ohio legislature in 2008, noting the AEPS requires 25 percent of all electricity sold to come from alternative sources, with half coming from renewable sources. The analysis shows the AEPS will increase costs by 9.3 percent by 2025 and result in job losses.

The Cost and Economic Impact of Ohio’s Alternative Energy Portfolio Standard
http://www.atinstitute.org/the-cost-and-economic-impact-of-ohio’s-alternative-energy-portfolio-standard/
The American Tradition Institute and Beacon Hill Institute conducted an economic analysis of the effects of Ohio’s Alternative Energy Portfolio Standard, finding it will decrease real wages, increase the cost of electricity, destroy jobs, and reduce investment, all without measurably increasing environmental protection. 

The Status of Renewable Electricity Mandates in the States
http://heartland.org/sites/all/modules/custom/heartland_migration/files/pdfs/29330.pdf
The Institute for Energy Research analyzed the practical effects of renewable electricity mandates and found states with mandates have on average 40 percent higher electricity rates than those without such mandates.

The High Cost of Renewable-Energy Mandates
http://heartland.org/policy-documents/httpwwwmanhattan-instituteorgpdfeper10pdf
The Manhattan Institute conducted an economic analysis of the effects Renewable Portfolio Standards had on the average price of electricity in states with mandates as compared to those without mandates. The study found residential and commercial electricity rates were significantly higher in states with RPS mandates than in states without them. 

Study of the Effects on Employment of Public Aid to Renewable Energy Sources
http://heartland.org/policy-documents/study-effects-employment-public-aid-renewable-energy-sources
Researchers at King Juan Carlos University in Spain found each “green job” created in Spain cost about $750,000 and electricity rates would have to be increased by 31 percent to account for the additional costs of renewables.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Research Fellow Isaac Orr at iorr@heartland.org or 312/377-4000.