A state mandate that requires electric providers to use more renewable and alternative sources in coming years will drive up the cost of electricity for all Pennsylvanians by $16 billion over the next eight years, according to a new study.
Worse, the costs will fall hardest on the state’s lowest income residents, making the alternative fuel requirement similar to a regressive tax.
“A small increase in electricity prices is really going to hit them, as a share of their spendable income, much harder than the upper income groups,” said Michael Head, a research economist for the Beacon Hill Institute at Suffolk University, a free-market think tank that conducted the study.
The state mandates were created by the Alternative Energy Portfolio Standards Act of 2004, which requires utility companies to include increasing amounts of alternative energy in their overall production totals. The law requires that 18 percent of all energy sales in Pennsylvania come from alternative sources by 2021.
It requires that 8 percent come from renewable energy resources – like solar and wind – and another 10 percent come from alternative energy sources, including waste coal and large-scale hydroelectric power.
The problem for consumers is that those types of energy are more expensive to produce than such traditional types as natural gas or coal.
“The law mandates that you use a more costly form of energy production, which will drive up costs,” Head said.
All told, the energy mandates will cost Pennsylvania consumers and businesses about $16 billion over the next eight years, the study concludes.
That means more than just pricier electric bills for residents of the state. The study projects a loss of about 17,000 jobs as companies either leave the state or are prevented from hiring because they have to spend more money on electricity.
That net loss includes an estimate of employment growth that would result from the state’s mandatory investment in alternative energy, Head said.
State Rep. Chris Ross, R-Chester, one of the sponsors of the Alternative Energy Portfolio Standards legislation back in 2004, said the rules allow residents to actually offset their energy costs by producing small-scale solar energy which can be sold back to the power grid.
That helps not only low-income electric users, but all residents of the state, he said.
“It can actually reduce the cost for lower-income houses,” Ross said. “So I think energy conservation is not at all regressive. It can be quite the reverse.”
But Ross’ solution comes with its own cost to the taxpayer: the state has run several grant and loan programs to incentivize people to install such solar power devices.
And a 2007 report from the state’s Public Utility Commission found that the cost of solar energy in Pennsylvania was seven times higher than getting the same energy from a coal-fired generation plant. The same study reported that solar power was about four times as expensive as wind energy, making it one of the most expensive forms of alternative or renewable energy.
Jennifer Kocher, spokeswoman for the PUC, said the commission believes meeting the targets in the legislation will have “an impact on consumers in terms of rates,” though they do not have specific figures.
Ross said the cost of generating electricity from alternative sources is on the decline. He said the Beacon Hill Institute report did not accurately account for that fact.
George Jugovic, CEO of PennFuture, a environmental group based in Harrisburg, said tradition fuels come with other costs that go beyond the price of producing electricity. He specifically pointed to costs the state incurs for cleaning up old mines, dependency on foreign oil and public health issues created by pollution.
Are higher costs a necessary trade-off to protect the environment by using renewable energy?
“The answer is yes,” Jugovic said.
Head disagreed. While there is validity to wanting to reduce pollution, the higher prices in Pennsylvania will have no effect on worldwide emissions, he said.
“A state-level policy itself will have very minor, if any effects on emissions. It will just cause those jobs to go to other places,” Head said.