Renewable fuel mandates are raising electricity prices in the states.
Politicians keep promising to reduce energy prices, but they keep ignoring one easy step: repeal renewal energy standards. Twenty-nine states have these rules requiring local utilities to purchase between 20% and 33% of their electric power from renewable sources. They were enacted over the past decade when lawmakers bought into the fad about cheap "clean energy." Their real effect has been to force utilities to pay above-market prices for electricity, which means higher electric bills for consumers.
No state has learned that lesson the hard way more than Minnesota. In 2007 the legislature mandated that utilities ramp up their renewables to 12% this year and 25% by 2025.
The Minnesota Rural Electric Association, which represents about 50 small utilities serving about 650,000 rural residents, reports that its members lost more than $70 million in 2011 because of the high cost of wind power. "Right now we're paying for wind power we don't need, we can't use and can't sell," says association executive director Mark Glaess.
Utilities absorb some of the cost, but Mr. Glaess estimates that annual residential utility bills are between $50 and $100 higher per household due to the renewable mandate. That may be nothing to a $10,000 donor to the Sierra Club, but tell that to family of four living on $25,000 a year in Fergus Falls.
The costs will rise as the mandates tighten. An analysis by the Freedom Foundation of Minnesota found that Green River Energy utility had $22 million in losses in 2010, $35 million in 2011, and this year it is projecting another $35 million loss. A 2011 study by the Beacon Hill Institute, a think tank focusing on state polices, found that from 2016-25 the Minnesota mandate will raise electric costs for businesses and households by $15 billion. By 2025 the average family will pay $265 a year in higher utility bills.
And what are consumers getting in return? The environmental benefit is almost zero since no state can do much to alter the global volume of carbon emissions. The renewable mandate was also sold as a way to gain "green jobs" and, as the Environmental Protection Agency puts it, "stimulate market and technology development" in states. But the mandate fails that test too, because Minnesota imports much of its wind power from North Dakota.
A 2012 study by the Manhattan Institute compares states with renewable mandates to those that allow utilities to purchase the cheapest electricity available. The states with mandates paid 31.9% more for electricity than states without them. Residents of North Dakota, a state without a mandate, pay $7.63 per kilowatt hour for electricity. Neighboring Minnesota pays $10.76.
Minnesota's politicians could bring relief to rural residents, because the 2007 law stipulates that the rules can be eased if economic conditions aren't favorable. But no one wants to take on the not-so-jolly giant green lobby. The state's Division of Natural Resources is in denial, arguing that "compliance is generally cost effective for the utilities" subject to the mandate.
With natural gas prices not far from $2 per million BTU, the competitiveness of wind power is highly suspect. If Congress allows a tax subsidy for renewables to expire this year, as it should for the sake of taxpayers, even the wind lobby in Washington admits that many turbine farms will be bankrupt.
The renewable mandate "is a regressive tax," concludes Mr. Glaess. "It's one reason our customers are having a hard time paying their electric bills." And to think this policy is supported by people who claim to want a fairer tax system.