Remember the theory that deregulation in the late 1990s would waive the need for energy efficiency programs? If not, you can read up on the Great Depression in Energy Efficiency, the origins of which began with the 1992 Energy Policy Act. I believe the theory at the time was that electricity prices would be so low that energy efficiency couldn’t possibly compete. Or maybe the theory was, “We’re deregulating; efficiency programs are a regulatory thing, so we no longer need them.”
I’ve written this blog for over 15 years, producing roughly 700 posts. I can’t say that I’ve written a thousand times, but I’ll bet at least 100 times that renewable subsidies and “free” markets do not work as advertised to lower electricity prices. Most recently, I made that case just a few weeks ago in Electricity Price Drivers. Here’s another good one on Faulty Power Markets.
Meanwhile, loads are growing rapidly, policymakers and lawmakers are still betting on unicorn flatulence, and utilities are being blamed, as shown below. Utility commissions have never experienced soaring loads and zero tolerance for thermal power plants before.
The best solution to the three-legged stool on the supply side is nuclear for baseload generation and natural gas for variable loads above that. I did the math a year ago and repasted the results in Figure 1. That combination reduces carbon emissions by 88% compared to the generation mix of 1996. This does not even account for efficiency and load management, which smooth the edges and curb the need for natural-gas-fired power generation.
Figure 1 The Solution: Nuclear and Natural Gas
That is the solution. Now let’s look at more soaring prices from sea to sea.
California
On October 30, Governor Gavin Newsom signed an executive order to investigate soaring electricity costs in California. The Wall Street Journal reported that electricity prices have risen 57% in the state over five years. That’s a compounded average escalation of 9.4%, compared to the consumer price index rising 4.2% over the same period.
The executive order:
- “asks the California Public Utilities Commission (CPUC) to identify underperforming programs and return any unused energy program funds to customers. “
- “directs the California Air Resources Board (CARB) to work with the CPUC to determine ways to maximize the California Climate Credit,” – a wealth transfer, like the $6.5 billion transfer from the solar have-nots to the solar haves in the state.
- “asks the CPUC to evaluate electric ratepayer-supported programs and costs of regulations and make recommendations on additional ways to save consumers money.”
The result is bureaucratic entropy and lost time. Programs that bridge periods of power shortages and grid stress, like the Distributed Energy Backup Asset program, are kicked to the penalty box while the clock burns.
Oregon
Oregon is far behind California in electricity prices (58% less), but the pricing acceleration is comparable. RTO Insider recently reported Portland General Electric’s electricity rates have increased 40% in four years (compounded annual rate of 8.8%). PGE’s CEO, Maria Pope, states that soaring prices are “driven by the rising costs of purchasing necessary power from the open energy market to serve customers.” She said, “power costs [electrons]… have nearly tripled in the past five years.”
Nine years ago, I shared a Forbes article in a post, Stability vs Instability. There was already excessive wind generation in Bonneville Power’s Northwestern footprint, but the excessive supply does not translate to price suppression on the open market, as Maria Pope states.
Oregon’s U.S. Senator Ron Wyden is quoted in the article, “For folks that are walking an economic tightrope, balancing food and medicine bills with electricity prices, the rising prices are unsustainable.” Yessir.
Sales of electrons have increased at a compounded rate of only 2.2% from 2019 to 2023. Data centers and semiconductor manufacturing are blamed for the load growth. However, their massive steady loads combined with wise ratemaking should push down prices as load factors increase. Data centers and semiconductor manufacturing are not the problems; insufficient supply is the problem.
New England and the Mid-Atlantic
The leading region of electrification in the country – the Northeast, from the Mid-Atlantic north – is experiencing the fastest price increases experienced by anyone reading this blog. The snarky ZeroHedge reported that Google searches for cords of wood (a neat stack 4×4 feet in cross section, 8 feet long = 128 cubic feet) hit an all-time high during the early cold blast on Thanksgiving week. Like the windmills that pumped water on the plains back in the day, folks are regressing to frontier technology to stay warm. Will sod houses make a comeback?
ZeroHedge reports, “this is the first time in a generation that electricity prices have seen a three-year rate of change greater than any period since the inflation storm of the 1970s and early 1980s, even outpacing the commodity price surge leading up to 2008.”
Figure 2 Electricity Consumer Price Index
Finally, the most recent PJM capacity auction hauled in record pricing at the price cap of $466 per MW-day, or $170 per kW-yr, which is likely their assumed cost of new entry (CONE). That is barely enough to build a gas peaker plant. I suggest increasing the cost to bring more investor interest in supply and demand side resources.
Two Questions
Maria Pope notes that the market cost of electricity and capacity is soaring at an accelerating rate, breaking status quo models.
- Will stakeholders increase, or better yet, lose price caps on capacity auctions to lure sufficient long-term (power plants) and short-term (load management) resources into the market to keep the lights on?
- Will energy efficiency program administrators acknowledge that the cost of everything, including energy savings and the cost of labor and equipment to acquire it, need to increase like electricity prices?
If the answers are no and no, well, I guess it’s time to chop wood and get a generator.
