Renewable Premiums in Ohio’s Retail Electricity Market, 2014–2023: Matched‑Offer Evidence and Explainable ML Insights

• In Event: Issues in Renewable Energy Policies: Assessing Benefits, Effects, and Corruption

Abstract

Renewable energy is frequently promoted to consumers not only for its environmental benefits but also for its potential economic savings. In recent decades, the restructuring and deregulation of electricity markets across various U.S. states and international regions have paved the way for competitive retail choice markets. Unlike traditional regulated markets where electricity rates are established by utilities under regulatory oversight, deregulated markets allow multiple retail electricity suppliers to compete by offering diverse electricity plans directly to consumers. This competitive environment encourages retailers to differentiate their offerings, often presenting renewable energy options alongside traditional, fossil-fuel-based plans. As a result, consumers are empowered to select energy contracts based on individual preferences regarding cost, sustainability, and other value-added services. In this study, we develop a matching algorithm to estimate the historical markup of renewable energy in Ohio’s deregulated electricity market from 2014 to 2023. The algorithm pairs electricity offers issued by the same supplier, in the same territory, and on the same day, with identical contract terms, early termination fees, and monthly fees—but differing in renewable energy content: 0 % vs. >0 %. Across 123,184 such pairs, it is found that renewable energy offers, on average, are priced 0.55 cents/kWh higher than their non-renewable counterparts. Using a gradient‑boosting model coupled with SHAP (Shapley Additive Explanations), we quantify how the market-based determinants and contract characteristics shape renewable markups. The results show that longer contract terms or higher early‑termination fees reduce the premium, while a larger renewable share widens the price gap between green and conventional offers. Importantly, we uncover an interaction between Renewable Energy Certificates (RECs) and forward wholesale prices in shaping markups. When forward prices are low, the markup closely tracks the wholesale price. However, as forward prices rise, the markup becomes more dependent on REC values. This suggests that suppliers use wholesale prices to set renewable premiums when base prices are low, but shift to REC-based pricing when higher wholesale prices make it harder to pass additional costs directly to consumers. These findings provide critical insights into how suppliers price renewable energy in competitive markets, offering valuable guidance for regulators aiming to ensure transparent pricing and for policymakers seeking to promote equitable access to clean energy.

Author

• Yufan Ji, The Ohio State University
  Presenting Author