Power prices have been dipping around the country because of low natural gas prices, but some states could face the potential of higher prices for electricity as more renewable energy comes online and seeking to replace threatened baseload power could drive prices higher regardless.
The Manhattan Institute released a study on February 28 by Senior Fellow Robert Bryce concluding US renewable portfolio standards (RPS) for power generation appear to pose risks to a fragile economy — increasing electricity costs in many states at a time when consumers are struggling with high unemployment and discretionary spending constraints.
The RPS mandates have been deemed, by one former federal regulator, as a “back-end way to put a price on carbon.” The Institute concludes, however, that mounting evidence shows the costs may be too high.
The mandates currently impact 29 states, along with the District of Colombia and Puerto Rico, and require utilities to provide a certain percentage of electricity from renewable sources. The goal is to reduce carbon dioxide and other harmful emissions, while boosting job creation by promoting advancements in green energy technology.
However, EIA data appears to show a significant electricity price divergence between RPS and non-RPS states — particularly in coal-dependent states — seven of which experienced average residential rate increases of 54.2% between 2001 and 2010, from 7.98 cents/KWh to 12.31 cents/KWh. The report acknowledges, however, the mandates are not the only reason for rate increases, citing stricter coal-fired power plant regulations as a contributing factor.
During a conference call introducing the study, Bryce made the point that oil prices tend to generate many more news headlines and garner much more political attention than electricity prices and maybe it is time for this to change.
The problem, according to the Manhattan Institute, is that comprehensive cost-benefit analysis on an individual state level would be required to get an accurate picture of how RPS mandates affect consumers, the environment, employment, etc. This detailed analysis has yet to be conducted and Robert Bryce’s conclusion is that mandates should be put on hold and new ones blocked until the true impacts can be clearly identified.
New York’s Nuclear Question
According to EIA data analyzed by the Manhattan Institute, New York – an RPS state – has the third most expensive average retail electricity prices in the country at 18.74 cents/KWh. Hawaii, which is the most expensive, generates much of its power by direct-burning crude oil which is currently trading at over $100 per barrel.
The Indian Point nuclear power plant, located approximately 30 miles north of New York City, generates about 30 percent of the state’s power. There is a considerable lobbying effort underway to close down Indian Point, mostly due to safety concerns.
However, the plant is a huge source of base load power that cannot be easily replaced with renewable sources alone. Given historically low natural gas prices as well as the fuel’s relatively lower emissions profile and shorter construction lead times, gas could potentially be the logical replacement choice.
Constructing additional gas-fired power plants, however, could be problematic given New York State’s RPS mandates, and prices could rise even by adding natural gas alone and ignoring the RPS impact. Additionally, New York’s electricity prices – already high by national standards – could increase over the short to medium term if natural gas were used to replace power from Indian Point due to the infrastructure costs associated with building new pipelines and power lines.