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Are renewable standards driving up utility rates?

When Minnesota passed one of the nation’s most aggressive renewable portfolio standards in 2007, Minnkota Power wasted no time in ramping up its wind capacity. Believing the cost of wind power would go up, the Grand Forks, N.D., generation and transmission co-op locked in long-term contracts to cover its needs for the next 25 years. Then the economy went south, dragging electricity demand and wholesale prices down with it. Minnkota, along with the 11 rural electric distributors it serves in North Dakota and northwestern Minnesota, suddenly found itself stuck with more wind power than it needed. It’s been selling the excess at a loss ever since, making up the difference with a half-cent per kilowatt-hour surcharge on its customers. The fees have helped fuel the perception, particularly among rural electric co-ops, that Minnesota’s renewable energy policy is driving up the price of electricity. Others, though, including state energy officials, point to the utility’s unusually large and early hedge on wind prices as a primary cause of its recent losses. The Minnkota case illustrates just how complicated it can be to calculate the impact of state renewable mandates on electricity rates. Variables such as fuel prices, wholesale rates and energy demand are in constant flux, and decisions about what and when to buy can affect the return on capital investments. With many states’ renewable targets ramping up right as their economies struggle to rebound from the recession, politicians are scrutinizing the costs of renewable policies and requesting information about how they affect electricity rates. They’re not likely to find a simple answer. However, the most comprehensive studies to date and the experience of utilities so far suggest that, by and large, renewable portfolio standards haven’t had a significant impact on customers’ bills. Still, there’s room for more study, and in some states, including Minnesota, there remains relatively little data about the ratepayer impact of renewable policies.

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