Discussion Paper

How Can Renewable Portfolio Standards Lower Electricity Prices?

May 5, 2006 | Carolyn Fischer

Abstract

Some studies of renewable portfolio standards find that regulations increase generation costs; others find that reduced demand for nonrenewable energy sources lowers natural gas prices and that electricity prices follow. This paper presents reasoning for why these predictions can vary in the direction as well as in the magnitude of their effects. The driving factors are the relative elasticities of electricity supply from both fossil and renewable energy sources. The availability of other baseload generation is another factor, whereas demand elasticity influences only the magnitude of the price effects, not the direction of those effects.