What is the relationship between RPS and electricity prices?

February 12, 2019

Project Summary

States around the country are considering whether to enact or increase renewable portfolio standards (RPS), which are policies meant to lower carbon emissions and encourage renewable energy use. RPS require that utilities provide some percentage or amount of their electricity from qualifying renewable sources.

A wide range of academic research finds that RPS raise electricity prices and are not the most cost-effective way to reduce carbon emissions. Research also shows policies that offer more choices to energy consumers may be preferable to state mandates that require specific sources for energy. For example, an RPS that permits a wider variety of low-carbon sources, such as large hydropower and nuclear power, may have a lower economic cost than an RPS that limits the permissible energy sources to solar power and wind. Another possibility is to provide a green power option, which allows individuals who want to source their electricity from cleaner or renewable sources to pay a premium on their electricity bill to do so.

Although utilities are sometimes required to provide these options, they also emerge naturally as electricity providers attempt to satisfy consumers’ demands for clean energy sources. For example, Texas’s competitive electricity market offers plans that consumers can choose from according to their own preferences, ranging from zero to 100 percent renewable energy.

As policymakers debate implementing and increasing RPS, they must not lose their focus on choosing policies that achieve desired environmental goals at the lowest cost to electricity consumers.

Project Authors
Josh T. Smith
Vidalia Cornwall

CGO Undergraduate Research Fellow