What That Flashy Renewable Energy Paper Got Wrong

Credit: Drawn from Lazard's Levelized Cost of Energy v12.0.

The costs of wind and solar energy keep falling; installing a new wind turbine costs about a third of what it did in 2008. Solar prices fell by 88 percent during that time. In fact, renewable energy is so inexpensive, utilities have found that they can save customers money by closing coal plants early and replacing them with wind and solar power.

It’s against this backdrop that we must consider the much-hyped new paper from the University of Chicago’s Energy Policy Institute analyzing the impact of state renewable energy standards. The economists looked at these state efforts to boost solar and wind deployment (dating back to 1990) and conclude that these so-called RPS programs are costly and ineffective at addressing climate change.

But there are many reasons to be skeptical of these conclusions.

And this isn’t the first paper to look at the impact of renewable energy standards, but it is one of the few to find such high costs. The Energy Department’s national labs have done their own large-scale studies each year and found that these polices drive significant renewable energy development at low costs for customers—about 2 percent of an U.S. household’s average monthly bill (or a little more than $2 a month). And the benefits are enormous: They could top $1 trillion—yes, trillion with a T—by 2030.

So, what did the Chicago researchers get wrong?

Changing Times  

The working paper, which hasn’t been peer reviewed, looks at the cost impacts in the first seven years after an RPS is put in place, and only includes data through 2015. That means it has missed out on the recent declines in renewable energy prices. Since 2015, costs for solar energy have fallen by 33 percent, onshore wind by 22 percent, offshore wind by 40 percent, and battery storage by 49 percent.

That’s why building new solar and wind is often cheaper than running existing coal-fired plants.

It is precisely because of these falling costs that many states have decided to strengthen their standards in the last three years (and why hundreds of businesses and several utilities have voluntarily announced they will go 100 percent clean in the coming years). Being green is now the economic option. And one reason it has become economic is that many states had the foresight to adopt these renewable energy mandates years ago. Helping along a nascent technology continues to pay dividends today.

Casting False Blame

The research ignores other factors and inappropriately blames renewables for other cost increases. The authors of this working paper allude to a number of “costs” renewable energy plants come with, beyond the standard compliance cost.

For example, they argue that renewable energy imposes serious costs on the electricity system—taxing our system and requiring a lot more power plants to be at the ready to ensure reliable power because the sun isn’t always shining and the wind isn’t always blowing. But, studies have found time after time this just isn’t true. The American Wind Energy Association even notes that ERCOT (the grid operator in Texas) has found that the cost of reserves needed to back up conventional power plants is far larger than the cost to back up wind generation. Solar and wind even provide grid reliability services, like “reactive power”, which is necessary to deliver high quality power.

Moreover, no plant is available 100 percent of the time—coal and gas plants have to take planned outages for maintenance work, nuclear plants need to refuel, and in extreme weather all of these plants can face problems that prevent them from running (like frozen or waterlogged coal piles, natural gas pipeline delivery issues, or frazil ice).   

The authors also point to transmission spending, linking it to renewable energy projects. Transmission and distribution spending (or T&D) has increased over the last decade—but it’s not driven by renewable energy needs. As the U.S. Energy Information Administration notes, upgrades are conducted to allow “utilities to repair faults on transmission lines remotely, to read meters remotely, and to more quickly find, repair, and communicate with customers about neighborhood reliability problems and outages.”

Our grid is aging and in need of repair and modernization. Integrating renewable energy is one reason to do these upgrades—but it’s not the only, or the main, reason.  

What Other Research Found

The U.S. national labs have been releasing annual reports on the status of renewable energy standards and recently published a paper analyzing and compiling a wide range of studies on the retail rate impacts from renewable energy and these standards. The annual status reports look at the actual impact of RPS policies every year—and found them to be an economic way to spread renewable energy.

These RPS policies have driven 45 percent of all renewable energy projects built in the U.S. since 2000. By 2030, these standards will require even more renewable energy in the ground: another 180 TWh, at least, or almost a 50 percent increase in U.S. renewable generation from current levels. The average RPS compliance cost in 2017 was two percent of a customer’s bill, or $2.30 a month for the average U.S. household. (This is also in line with most other studies and with RPS costs in earlier years.)

It’s Not Just the Carbon

The authors conclude with an argument that these standards are a costly way of cutting carbon. But these policies aren’t just about cutting carbon. An RPS shouldn’t and can’t be the only policy to decarbonize our economy (NRDC’s analysis on how the U.S. could meet its’ climate goals relied on many different measures).

These standards have brought a lot of different benefits: less soot and smog, reduced water consumption, lower wholesale electricity prices, new clean energy jobs, and stronger local green economies. The U.S. Department of Energy has estimated that these public health, climate, and water savings totaled more than $5.2 billion by the end of 2013. By 2030, these benefits could climb to $1.16 trillion. At the same time, these policies have also created over 200,000 new clean energy jobs and could boost total renewable energy employment by almost 50 percent over the next decade.

While this working paper has made a splash, it’s light on facts. Luckily, Americans are demanding more clean energy and state leaders are responding: since the start of 2019, policymakers in Nevada, New Mexico, Washington, and Maryland have all passed new RPS policies—with many more actively considering their own bills at the moment.