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Public Utility Commission of Ohio Finds State RPS Lowers Electricity Costs

by Benjamin Springer • Posted in General • August 26th, 2013

The Public Utilities Commission of Ohio (PUCO) recently released a study examining the costs expected to accompany renewable energy development. The report assessed the “changes in wholesale electricity prices and generator emissions that are likely to occur as a result of the state’s Alternative Energy Portfolio Standard (AEPS) requirements.”   Anecdotal reports from Ohio-based observers of the PUCO indicate that the Commission was surprised with the results: implementing the AEPS would save consumers money compared to the status quo.

The Commission analyzed the impact on electric rates of two unusually conservative renewable energy scenarios: the first considered only those renewable energy facilities currently in operation; the second added approved facilities that are not yet operational. Both scenarios were modeled only for calendar year 2014, meaning the study focused exclusively on the immediate rate impacts of increasing renewables.

Despite these conservative assumptions, the report found that currently operating renewable resources in Ohio alone would save the state’s investor-owned utilities – and by extension their millions of business and residential customers – $8.4 million in 2014. If currently approved facilities begin operating in 2014, Ohio utilities and their customers would save nearly $30 million in 2014. Additionally, the utilities would avoid over 500,000 million metric tons of carbon dioxide emissions in 2014 alone.

Where do the savings come from?   The wind and the sun.   The price of electricity at any power plant is set by the cost of fuel.  Because renewable “fuels” are free, wind farms and solar arrays  can displace traditional plants with higher fuel costs.  The more cheap, clean renewable energy utilities use, the more the wholesale price of electricity in the regional market (PJM, in this case) drops. In the second scenario studied by PUCO, the wholesale price dropped approximately 0.51%.

This phenomenon – known commonly as  “the price suppression effect” – should come as no surprise to those who have followed our work here at Americans for a Clean Energy Grid (ACEG).  ACEG has commissioned and released two studies, both performed by Synapse Energy Economics, Ltd., that anticipate major economic benefits in two market regions as a result of increasing renewable energy.  The most recent showed that the price suppression effect has the potential to save $7 billion a year in the PJM region in 2026. Our 2012 study in MISO showed similar benefits, with average households saving nearly $150 a year from renewable energy displacing higher-cost fossil generation. In both studies, the savings are net savingsafter paying for significant investments in high-voltage transmission to deliver renewable energy from strong resource regions to population centers.  The PUCO study assumed that the existing grid would be adequate to handle the increased renewable generation in both 2014 scenarios, so their results are also pure net savings to Ohio consumers.

For years, conventional wisdom has held that the capital investments needed to build renewable energy facilities would make their power too  expensive to compete with traditional power plants.  But that conventional wisdom overlooks two things.  First, the capital cost of renewable technologies has plummeted in the last decade.  Second, and perhaps even more important, the price of power in a modern competitive market is set by marginal cost (fuel), not fixed cost (capital).  In other words, the power plant with the cheapest fuel wins every time. When renewable energy and its free fuel wins, everyone wins, because renewable energy cuts the price of every unit of power sold in the market.  This powerful leveraging effect is why even very small percentages of renewable energy, such as those studied in the PUCO analysis, can have such an outsized impact on consumer electric rates.

The PUCO analysis further underscores that a clean energy future is an affordable energy future, and it can be realized starting as soon as 2014. By delaying further, we are not only playing a dangerous game with climate change, but also wasting money. Now let’s see whether Ohio’s policymakers will draw the obvious lesson from the PUCO’s analysis, and stop attacking the renewable portfolio standard that is saving consumers money while delivering increasing their access to clean energy.

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