Have renewable portfolio standards raised electricity rates? Evidence from u.s. electric utilities

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Using a panel dataset of U.S. electric utilities, we investigate the effect of a Renewable Portfolio Standards (RPS) on the rates of electric utilities affected by the mandate. Our findings are twofold. First, we find that, on average, electric utilities affected by an RPS mandate charged a higher electricity rate. This would suggest that an RPS mandate is a costly constraint on the utilities that have to comply with the requirement. The second finding of our analysis is that marginal increases in a utility's RPS requirement do not necessarily translate into higher electricity rates. This would imply that the costs imposed on utilities affected by the RPS mandate tend to be fixed costs rather than variable costs. We also find that controlling for time-varying unobserved factors at the state level is key to identifying the RPS effect on electricity retail rates. (JEL Q42, Q48, L98) © 2016 Western Economic Association International.

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