How you'll pay for renewable power

In an effort to spur the industry, the Feds may be requiring the purchase of clean power. The good news is, it might not be that pricey.

By Steve Hargreaves, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Many have wondered if and when renewable energy will be cost-effective.

But when it comes down to your electric bill, the short answer may be: Who cares? The government may make you buy it anyway.

Almost half the states require utilities to get a certain percentage of their power from renewable sources.

Known as renewable portfolio standards, they vary in scope. California has one of the most ambitious in the nation, requiring its utilities to get 20 percent of their power from renewable sources by 2010.

Now the federal government is getting in on the act, with a couple of proposals in Congress for a nationwide standard - something along the lines of 15 percent by 2020. Currently about 2 to 3 percent of electricity in the U.S. comes from renewable sources, not including big hydro dams.

The idea is to stimulate the development of clean power, which nearly everyone agrees is needed to provide energy security and counter global warming.

"It's considered a way to jumpstart the market," said Dave Hamilton, director of global warming and energy projects at the Sierra Club, which supports a federal standard. "Utilities had proven resistant to doing it themselves."

In addition to providing clean power, Hamilton said a federal standard would create jobs and a local energy source in places that have traditionally relied on electricity being shipped in from far-flung areas.

The heavily populated Northeast, for example, could take advantage of its abundant offshore wind potential and rely less on coal generated-power from the Midwest.

Also, Hamilton said a federal standard would be more fair. It would eliminate the idea of one state being able to attract jobs and industry with rock bottom electricity rates obtained from burning cheap, dirty coal, while the state next door tries to clean up the environment using more expensive renewable power.

Hamilton said opposition to a national standard is fading across the country, but that opinions at old, regulated monopolies have been hard to change.

"Utilities are some of the most conservative, even stodgy, businesses in America," he said. "The idea that any entity can come in and tell them how to do their business is anathema."

But the utility industry said their concerns over a national standard go beyond an old mindset.

Jim Owen, a spokesman for the utility association Edison Electric Institute, said a national standard would penalize states that are short on resources to power renewables, like those in the Southeast.

Those states would then be forced to buy renewable credits from other producers.

"Some of those states may have to pass along higher rates to their customers" said Owens. "We have serious concerns over the idea of a one-size-fits-all policy."

Owens said the industry isn't opposed to increasing renewable power, or even state mandates, but said those decisions are better left to local officials.

"They are in a better position to know what makes sense for those markets," he said.

Exactly how much a a national standard would cost consumers is hard to say. Owens said his group didn't yet have numbers to back up their claim that it might be more expensive.

But one recent study done by the Energy Information Administration, the independent statistical arm of the Energy Department, said the burden on consumers would be quite small.

EIA said utility bills might be at most 1 percent higher under a national standard previously considered in Congress.

The comparison isn't exact. The previous proposal allowed one-third of the renewable power to come from nuclear generation, a provision the Sierra Club's Hamilton said the group would oppose in any new bill.

Still, the report's author said the costs for renewables are minimal because the extra burden is spread out over the entire rate-paying public.

One utility operating under a mandatory system said complying with the requirement has been difficult, but doable.

"To the extent that we're picking up resources that are more expensive, yes, we're passing that cost along to our customers," said Pedro Pizarro, an executive at Southern California Edison, a subsidiary of Edison International (Charts).

Citing competitive concerns, Pizarro wouldn't say how much more its costing his customers.

He did say that SCE will have signed contracts by 2010 that, when fully operational, will deliver 20 percent of the utility's power from sources such as wind, biomass, small hydro, geothermal and solar.

And in addition to providing clean power, diversifying the company's power base has provided a hedge against volatile natural gas prices, which have stung California rate payers in the past.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.