California has been a leader in renewable energy production, in part due to federal and state level policies that provide incentives for producers of renewable power. However, a new report found that California’s energy policies will raise state power rates and associated costs by nearly 33 percent.
The report by the free-market Pacific Research Institute specifically focuses on the additional costs imposed by a state mandate that requires 33 percent of its power come from renewable sources, like wind, solar and geothermal by 2020. PRI estimates that the California renewable portfolio standard will be an additional $5 billion in 2020.
The mandate represents an implicit 27 percent tax on power generation in the state due to the “the forced substitution of expensive power in place of cheaper electricity, particularly in terms of transmission, backup, and generation costs.”
“Moreover, this implicit tax to be imposed upon the California economy will grow each year as the size of the electricity market expands and the RPS requirement forces ever-greater amounts of high-cost power onto the market,” writes PRI senior fellow and report author Benjamin Zycher.
“This perverse effect inexorably will be reflected fully in rising rates paid by consumers, whether directly or indirectly,” Zycher continues.
The costs to California consumers in 2020 will rise by more than 13 percent as a result of the renewable fuel mandate. However, the report notes that even without the mandate, state power rates would rise by nearly 20 percent due to “various capital investments driven by both economic and regulatory factors,” and because of the state’s cap-and-trade program.
All of these policies taken together will cause power rates and costs to rise nearly 33 percent between now and 2020, according to the report.
California already suffers from high retail electricity rates relative to the rest of the country. PRI reports that retail rates in the Golden State are up to 131 percent higher than rates in the Pacific Northwest and 70 percent higher than rates in the Mountain region. In fact, California rates are 53 percent higher than the U.S. as a whole.
“This adverse effect is certain to worsen the other important disadvantages that various California public policies have created in terms of competitive dynamics with other states,” writes Zycher.
State residents are already being hit hard if they do not install solar devices onto their rooftops. The San Francisco Chronicle reports that Californians who don’t have solar rooftop installations paid an extra $1.3 billion in yearly power bills.
“The higher costs to be borne by the California economy will not be offset even in part by economic benefits,” concludes Zycher. “That the rising costs to be imposed upon the private sector might engender greater political opposition to the RPS requirements may be a source of hope for policy reform.”
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