Predicted Renewable-Energy Compliance Costs

Ohio’s renewable energy goals were frozen in 2014 at 2.5%. Unless the Legislature acts they will resume increasing annually in 2017 until they reach a maximum of 12.5% in ten years. There is debate on how much the increased goals will cost householders. Currently the renewable-energy rider on electric bills averages 57¢ per month (1). Extrapolating this charge from 2.5% to 12.5% results in a predicted cost of $2.85.

However it is reasonable to expect that the cost will be smaller. Four companies in the AEP zone currently offer both zero 100% renewable energy. Details are given in Table 1. The resulting premium ranges from nothing to $6 per month. Since the goal is 1/8 of a dollar, dividing the premiums by 8 gives predicted charges ranging up to 75¢/month (2).

Table 1. Cost Premium of Renewable Energy as of 15 November 2014

Company Terms Price, $/MWh Premium,

$/MWh

No

Renewables

100%

Renewables

AEP 24 Months Fixed $61.50 $67.50 $6
IGS Energy 12 Months fixed $58.90 $60.90 $2
Star Energy Partners 12 Months Fixed $61.90 $62.90 $1
24 Months Fixed $68.90 $69.90 $1
36 Months Fixed $71.90 $72.90 $2
Viridian Energy 12 Months Variable $59.10 $59.10 0

 

Notes

(1) Industrial Energy Users of Ohio website.

(2)  Ohio has 4.457 million households (U.S. Census Bureau Quick Facts http://quickfacts.census.gov/qfd/states/39000.html) in 2014 they consumed 52,722 million kWh of electricity (Electric Power Monthly, Feb. 2015). These numbers lead to an average usage of 960 kWh per month. One MWh = 1000 kWh is a close approximation.

 

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Renewable Energy has Little Impact on a State’s Economy

Arguments against state-mandated renewable-energy goals usually focus on cost. The claim is that renewables are too expensive. But rapidly falling costs of wind and solar power have made this argument tenuous. Instead, attention is now shifting to claims that renewables somehow hurt a state’s economy.

Such arguments are difficult to credit, since renewable energy is a very small part of any state’s economy. Consider Iowa. Last year wind produced almost 30 percent of Iowa’s electricity, which sold at a total price of about $1.3 billion. This is a large sum, but Iowa’s gross domestic product was about $170 billion. Wind accounted for 0.8 percent of that total.

Put another way, a $1.3 billion impact on the Iowa economy is about the same as a fifty-cent change in the price of corn, well within its price variability.

Ohio, and neighboring states, have much smaller percentages of renewable energy. It is unlikely that estimating the effect of the mandate on state economies is within the range of economic analysis.

 

Electricity data from Electric Power Monthly for Feb. 2015;

GDP from http://www.tradingeconomics.com/united-states/total-gross-domestic-product-by-state-for-iowa-mil-of-$-a-na-fed-data.html

Corn production from http://www.iowacorn.org/en/corn_use_education/faq/

Corn prices from http://www.extension.iastate.edu/agdm/crops/pdf/a2-11.pdf