NCPA - National Center for Policy Analysis


July 26, 2005

A congressional conference committee is reconciling differences between the Senate and House versions of the 2005 energy bill. One of the most important differences is a "Renewable Portfolio Standard" (RPS) that appears in the Senate version but was rejected by the House, says Bob Michaels, an adjunct scholar with the National Center for Policy Analysis.

The RPS would require all electric utilities selling more than 4 million kilowatt-hours (kwh) per year -- which would include all major and many minor electric power systems -- to obtain at least 10 percent of their power from "renewable" sources by 2020. Renewables are sources that are not fossil-fueled, nuclear or hydroelectric. Eligible renewables include windmills, solar power, waste burning, geothermal, landfill gas and exotic sources like the tides.

Superficially the RPS appears benign:

  • It will foster the construction of pollution-free electric power sources and lower the risks of continued dependence on fossil fuels.
  • In reality it is a new tax levied on electricity consumers, who will pay for these expensive resources through higher electric bills.
  • Few if any of the proceeds will accrue to developers of sources like solar energy, which will lose badly in most competitive electric utility resource procurements.
  • The greatest beneficiaries will be investors in windmills, who are already subsidized 1.8 cents for every kilowatt hour (kwh) they produce.

Supporters of renewables continue to claim that they are an "infant industry" that needs subsidies and protection from competition while it becomes economically viable. Most renewable technologies have been with us for decades, and so have the subsidies. There is little reason to expect that an RPS will finally make them competitive, says Michaels.

Source: Bob Michaels, "An Ill Wind for Consumers: The Energy Bill," National Center for Policy Analysis, Brief Analysis No. 522, July 26, 2005.


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