“Americans used to spend little energy worrying about whether the lights would come on at the flick of a switch, or how much that electricity cost. For a growing number of people, those days are over.”
Those are the first two sentences of an article published in The Wall Street Journal last week, Get Ready to Pay More for Less-Reliable Electricity. Other nuggets from the article:
- Customers of the largest 17 utilities in the country are bound to see electricity prices outpace the consumer price index through 2030.
- Over the ten years ending in 2022, outages increased by 20%.
- The duration of outages over that period increased by 46%.
- Electricity prices rose 4.4% over the past year compared to the broader inflation rate of 3% – while the price of natural gas, by far the largest source of electricity in the United States, has plummeted.
- The Mid-Atlantic, Midwest (gulp), and California will see the highest rate pressure.
- Utilities are behind on tree trimming, while storm intensity due to climate change is blamed for the outage scenario. 🙄
- Electrification, particularly for transportation, and growing data center loads are reducing reserve margins. Storms?
Downer for the Energy Transition?
Uh-oh. Legs on the three-legged stool of decarbonization are bowing and beginning to crack under the weight of rising prices and frequent and longer outages, but maybe not yet on renewable electricity generation.
Redundancy Costs
As more than half of The Wall Street Journal readers note, not mentioned is the fact that all utility-scale wind and solar need a dispatchable thermal resource as a backup. For example, while I attended the Mid-America Regulatory Conference (MARC) last month, Kristie Fiegen with the South Dakota Public Utility Commission said wind generation provides as much as 88% of electricity in the state over 24 hours but as little as 0.3% on June 6, 2023.
This gets to my point that wind electricity needs to be cheaper than natural gas as a fuel cost because the NG generating assets and hardware are still required.
This also reminds me of a LinkedIn post from Ahmad Faruqui describing how California has already lost the energy transition to soaring electricity prices. “It failed to rein in rising electricity rates, which rose at a much faster pace than charges in the rest of the country and way faster than the inflation rate.” To that, I would accentuate the excessive annual $6.5 billion wealth transfer to rooftop solar owners from all other ratepayers, including nearly all the impoverished in the state. He notes the off-peak charging rate for electric vehicles has doubled since 2019 to 35 cents per kWh!
Replacing Thermal Assets
My theory of the case is there was excess thermal generating capacity on the grid twenty years ago. Those plants were fully depreciated, which is to say, paid for, while utility-scale renewables took their place. The depreciated thermal plants have been closing and must be + be replaced: redundancy and rising prices.
Cost Shifting
People talk and write about the shifted and hidden cost of carbon emissions from utilities onto society, but what about tax subsidies and other reliability needs? I demonstrated a year ago that the cost of an outage is 1,100 times the cost of electricity. The Journal article notes that in some regions of the country, the penetration of backup home generators – hardwired with utility-grade interconnections and switchgear is 25%, at a cost of $12,000 per installation.
Data Centers
As recently as seven months ago, “large companies from Starbucks to eBay [and Apple, Google, Microsoft, Meta, etc.] have pledged 100% renewable energy targets to offset greenhouse gas emissions from their electricity use. Recently, several large companies, including Google, Microsoft, and others, have started procuring “carbon-free energy” that more closely matches their corporate electricity load on a 24/7 hourly basis.”
Well, Midwestern utilities have already revealed that the penta of Apple, Google, Microsoft, Meta, and Amazon favor cheap electricity over 24/7/365 carbon-free energy. To their credit, Investor’s Business Daily reports that Microsoft, Amazon, and Alphabet/Google “have made bets on nuclear power supply.” They say Microsoft began to see the light 18 months ago.
One theory is to install small modular reactors on-site with hyper-scale data centers and “eliminate or reduce transmission and distribution charges. Such fees represent as much as half of a typical electric bill.” That’s wonderful, Jeff, Bill, Sam, and Sundar, but what will you do every 18 months when the reactor needs refueling? Like I always say, there is a reason we have an interconnected web of transmission and distribution electrified by giant scalable thermal power generators.
It’s rich that Jeff Bezos, who crushed Main Street and small-town businesses, mega department stores, bookstores, and a dozen other retail and entertainment centers with hyper-scale centralization, thinks distributed power generation is the way to go. Square that circle.
I have more to say about this topic next week!
