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Does Electricity Deregulation Hurt Renewable Energy Policy?

deregulation

Over the past three decades, the governance of electricity generation has undergone a number of important reforms. In many countries, governments have moved away from the traditional state monopoly of generation, transmission, and distribution of power. In restructured electricity sectors, independent regulators and competitive markets play a much greater role than in the post.

These power sector reforms have provoked heated debates, not least about their effects on renewable energy policy. From Navroz Dubash to Naomi Klein, various authors have expressed concern about the possibility that deregulation may undermine environmental policy. Others, however, have noted that deregulation may create opportunities for clean electricity generation because “green” customers can choose their supplier.

In a recent article published in The Review of Policy Research, we examine the relationship between deregulation and renewable energy policy in U.S. states. During the past three decades, several U.S. states have deregulated their electricity sectors. At the same time, renewable energy policies have also mushroomed.

We begin by showing that state governments’ propensity to adopt renewable energy policies does not depend on past decisions to deregulate the power sector. Across a wide range of statistical models, we find that past decisions to deregulate are not at all associated with renewable energy policy. States decide on investments into renewable energy on other grounds, and the arguments of neither the proponents nor the detractors of deregulation are supported by the data.

However, electricity deregulation does shape renewable energy policy through a different channel. In statistical analysis and case studies of Texas and California, we find that when state governments enact legislation for electricity deregulation, they use renewable energy policy as a strategy to expand the advocacy coalition in favor of the reform. In both Texas and California, state governments enacted policies such as renewable energy funds and portfolio standards to create enough support for electricity deregulation.

These findings show that electricity deregulation, which I see as vital for improving power supply in the developing world, are not a threat to renewables. Quite to the contrary, the need to enact legislative reforms creates a window of opportunity for renewable energy policy. Environmentalists and other proponents of renewable energy should embrace these opportunities and participate in policy debates to realize the dual benefits of power sector reform and ambitious renewable energy policy.

Photo Credit: Martin Nikolaj Bech via Flickr

Johannes Urpelainen's picture

Thank Johannes for the Post!

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Nathan Wilson's picture
Nathan Wilson on Feb 7, 2016 8:27 pm GMT

To understand how deregulation effects clean energy deployment, it is important to separate low-penetration renewables from high penetration clean energy.  Low-penetration renewables are often used as a green-veneer on top of the real energy policy by countries that are deeply committed to fossil fuel use.  In fact, the only countries that have ever succeeded in ridding their grid of most fossil fuel are those which have embraced nuclear and big hydro (e.g. France, Sweden, Switzerland).

Electricity market deregulation inherently tends to support fossil fuel, since fossil fuel power plants present the free market with the lowest up-front cost (long-term fuel costs are defered into the future).  In the US, we have seen that deregulated markets can no longer build new nuclear power plants: they choose fossil fuel instead (often accompanied by a few token solar roof-tops as a distraction).

This is not to defend government ownership of power plants (old nuclear plants provide very cheap electricity in the US, but France is reputed to make power from old nuclear plants that costs just as much as from imported fossil fuel).  

In the US, we still have many utilities which are privately owned, but publicly regulated.  In my opinion, this model is the only way for the public to benefit from the cheap power produced by old hydro, nuclear, and solar power plants (if wind farms ever last over 30 years, then they will be on this list too).

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