Costs and Benefits of a Renewable Portfolio Standard in Florida
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Date
2017-05
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The Ohio State University
Abstract
The purpose of this study is to assess the costs and benefits of issuing a renewable portfolio standard in Florida. A renewable portfolio standard (RPS) is a regulatory mandate that forces state utilities to sell a percentage of their electricity that comes from renewable energy. This results in an immediate to medium term increase in energy prices. Currently, only 29 states and Washington D.C. have adopted RPS’. A complex financial model was created to test different scenarios of a base case (assuming no RPS), 15%, 25%, and 50% RPS levels. For example, by year 2050, 15% of energy consumption will come from renewables and so on. The methodology to calculate cost was to find the incremental costs in electricity up to year 2050. For every one percent increase in renewable energy, leads to a .06-cent increase in electricity rates. The benefits in this study are associated with the reduction in carbon dioxide emissions. This study finds the amount of carbon dioxide emitted multiplied by the social cost of carbon derived by the EPA. Then, in the 15%, 25%, and 50% scenarios, we subtract each carbon dioxide emissions from the base case to find the reduction. The results show that the benefits outweigh the costs in all scenarios. In 15%, 25%, and 50% respectively, the costs associated are roughly USD 11B, USD 16B, and USD 28B, while the benefits are USD 21B, USD 24B, and USD 31B. Lastly, the financial model also includes the possible revenue stream of a Renewable Energy Certificate (REC). For every one mega-watt hour of renewable energy that is produced equals one REC. The results show that it is possible to completely hedge away costs in all scenarios if a REC is priced anywhere between USD 55 and USD 58. In conclusion, this study is to show implementing an RPS is cost effective and policymakers can use the methodology across the nation.
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Keywords
Renewable portfolio standard, electricity costs, carbon dioxide emissions