The Effects of Renewable Portfolio Standards and the Deregulation of Energy Markets on Electricity Prices

Renewable Portfolio Standards (RPS) are public policies put into effect to help alleviate the harmful consequences of air pollution. Every state has a unique form of standards corresponding to their natural resources. More states have implemented the policy to increase the generation of renewable energy; however, many stand opposed to the policy in fear that it will increase electricity prices. The influence that RPS has on the price of electricity is not entirely understood. Previous literature confirms that RPS, on average, increases prices by three percent. This paper focuses on analyzing the effect of RPS on electricity rates over a longer period. Furthermore, it incorporates the effect of various forms of energy deregulation across state energy markets. Results confirm that RPS does increase electricity rates in states with regulated energy markets; however, the implementation of retail choice and wholesale market access reverses these findings and decreases electricity prices overall. Individuals across the country will be able to make a more informed decision on public policies related renewable energy with this analysis.