News Story

Renewable Energy Standard Driving Prices Higher in States, Europe

'Green energy' groups push for 25 percent mandate in Michigan

Those backing the Michigan Energy, Michigan Jobs Initiative say states that have mandated of 25 percent renewable energy by 2025 are doing just fine.

Opponents of higher green energy mandates point to studies showing that claim to be disingenuous.

Assuming its backers turn in enough valid petition signatures, the MEMJI, better known as the 25/25 proposal, will be on the statewide ballot in November. If passed, it would require that 25 percent of Michigan's energy be produced by renewable sources by 2025.

Those who tout the 25/25 proposal say that the higher requirement, called a Renewable Portfolio Standard, would create jobs and result in only minimal rate increases.

European nations aggressively pursued higher renewable mandates nearly a decade earlier than most U.S. states. Most did not suffer economically in the first few years after the mandates were put in place.

However, as the amount of mandated renewable sources (particularly wind and solar) increased, the European quotas began running headlong into economic realities.

Recent headlines have referred to these mandates as "destroying” the economy and "turning into a real horror story.”

Closer to home, less than five years since passing its own 25/25 mandate, Minnesota, is seeing negative effects. According to the Minnesota Rural Electric Association, the forced use of renewable energy cost rural electric ratepayers more than $70 million last year.

The MREA represents about 50 mostly small, rural electric co-ops and utilities that serve more than 625,000 Minnesota homes and businesses.

“Some of the co-ops, one in particular, made some bad investment decisions,” said Peter Nelson, director of public policy for the Minnesota-based Center of the American Experiment. “They invested too much in wind power. However, it's unlikely they would have been purchasing any wind power if it hadn't been for the RPS.”

Minnesota is not considered part of Michigan's energy region. The other states in Minnesota's region are Wisconsin, Iowa, North Dakota and South Dakota. Overall, Minnesota's ranking in regard to rates has generally remained unchanged. Wisconsin tends to have the highest rates in the region; Minnesota has the second highest.

But what about the future?

“What's interesting is that Iowa has also made investments in wind power,” Nelson said. “In fact, Iowa and Minnesota sort of compete regarding wind power. But here's the difference: Iowa has a pretty small RPS. That means that if wind power becomes more expensive in the future, Iowa would be able to adjust — they won't be locked in.”

Nelson said there is good reason to believe that wind power will become more expensive fairly quickly.

“Wind power has remained somewhat competitive regarding price only because of the huge federal tax credit,” Nelson said. “That will end this year, and I don't expect a Republican-controlled House to vote in favor of continuing it.

“Right now, if you ask the bigger utilities in Minnesota about wind power, they'll tell you it's not having very much effect on their rates. But what will happen when their contracts have to be renewed in the future, such as around 2020? The cost of wind power could be much higher — especially without the federal subsidy — but the utilities will have to keep purchasing the wind power because of the state RPS.”

A study to estimate the economic effects of Minnesota's high renewable energy quota was commissioned by the American Tradition Institute and the Minnesota Free Market Institute. The Beacon Hill Institute performed the study using its State Tax Analysis Modeling Program.

According to the study, Minnesota can expect the following:

• Electricity consumers will pay $2.29 billion more for power in 2025; 

• Electricity prices will increase by an average of 24 percent;

• The state will lose an average of 11,271 jobs;

• The RPS mandate will reduce annual wages by an average of $736 per worker;

• Due to higher home energy costs, annual real disposable income will fall by $1.36


• Net investment will fall by $109 million; and

• The policy will cost families on average $265 per year; commercial businesses on

average $2,257 per year and industrial businesses on average $70,681 per year.

Minnesota's overall renewable mandate is structured differently than Michigan's would be, even if the 25/25 were to be enacted here. For instance, Minnesota required a 12 percent renewable quota by this year while Michigan would have to hit 10 percent by 2015.

The Beacon Hill study serves as a reality check against the claims of “more jobs” and only moderate rate increases that supporters of Michigan's 25/25 proposal are making and the end of the federal wind power tax credit is a significant when examining the prospects for Michigan's 25/25 proposal. 

Additionally, a growing list of “green energy” company failures and falling natural gas prices can be added to the headaches facing the green energy industry.

Robert Bryce of the Manhattan Institute released a study showing that states with renewable standards had residential electricity rates that are already more than 30 percent higher than states without a renewable standard. According to the study, the impact is even more clear when comparing coal-dependent states with renewable standards to coal-dependent states without the standards. Michigan is a coal-dependent.

Bryce's study showed that of these coal-dependent states with a renewable mandate, the study revealed that residential electricity prices rose at double the rate for coal-dependent states with an RPS than in coal-dependent states without the mandate between 2001 and 2010.

Green energy advocates dispute this and other studies that claim renewable quotas add to ratepayer costs.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.