The Economic Impact of Pennsylvania's Alternative Energy Portfolio Standard

January 10, 2013

Pennsylvania has instituted an Alternative Energy Portfolio Standard (AEPS) in an effort to encourage a transition to renewable energy sources. Like a renewable portfolio standard (RPS), an AEPS requires that 8 percent of energy be produced from renewable sources such as solar power or biomass. But an AEPS has a second tier that requires that 10 percent of energy come from sources like waste coal, which is considered dirtier than most coal plants, say David G. Tuerck, Paul Bachman and Michael Head of the Beacon Hill Institute.

Tuerck, Bachman and Head look at the economic implications of the AEPS mandate by applying the Beacon Hill Institute's State Tax Analysis Modeling Program (STAMP) to estimates provided by the U.S. Energy Information Administration (EIA).

  • The AEPS law will increase the cost of electricity by $2.55 billion for the state's electricity consumers in 2021.
  • The state's electricity prices will increase by 11.9 percent by 2021.

Individuals and businesses will also be negatively impacted by the law.

  • There will be an average of 17,380 jobs lost as a result of the law.
  • Real disposable income will be reduced by $1.66 billion.
  • Investment will decrease by $205 million.
  • Finally, the average household electricity bill will increase by $170 a year while industrial businesses will see an average increase of $26,830.

The increased energy costs could be justified if there were clear environmental benefits to be gained. However, wind and solar require significant backup power because of their intermittency. Moreover, sources like wind increase pollution and greenhouse gas emissions, according to a recent study.

One provision that lawmakers have included to help offset some of the costs is to allow the banking of unused Renewable Energy Credits (RECs). In other words, if a company produced more green energy than required, they could bank the credits to reduce future requirements. However, EIA projections have shown it unlikely that producers can supply excess energy.

Source: David G. Tuerck, Paul Bachman and Michael Head, "The Economic Impact of Pennsylvania's Alternative Energy Portfolio Standard," Beacon Hill Institute, December 2012.

 

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