The price of residential electricity has risen in lockstep with growth in renewable capacity in Europe but not in the US, and because of this European residential electricity rates are now roughly twice US rates. The reasons for the difference are a) that renewables surcharges are added to residential electricity bills in Europe but not in the US and b) that residential electricity bills in Europe have increased roughly in proportion to the amount of money spent on renewables growth. Residential rates in US states are set by state Public Utility Commissions that are legally obliged to set prices at levels that are fair to both consumers and providers. As a result the European bill payer pays for new wind, solar etc. while US renewables expenditures are offset by adjustments to the federal budget that are not itemized but which ultimately get paid by the US taxpayer.
A note before proceeding. Electricity bills in Europe typically contain renewable energy levies, fees, surcharges etc. that are paid to the electricity provider. How much of this ends up in the hands of the government is unknown, so in this post I classify these added costs as “charges” rather than “taxes”.
We begin with a map of the US “Lower 48” showing average state retail electricity rates in US cents/kWh in 2016. The map is dominated by blue colors, i.e. less than 15c/kWh. The data are from the US Energy Information Administration:
Figure 1: Average retail electricity prices in the US Lower 48 in 2016, US cents/kWh
And follow up with a map that covers roughly the same area showing average retail electricity rates by country in Europe in 2016. The color coding is the same, and rates are converted into US cents/kWh using the exchange rate at the time of converion (1 euro = 1.22 USD) so that they can be compared directly with the Figure 1 results. The data are from Eurostat.
Figure 2: Average retail electricity prices in Europe in 2016, US cents/kWh
The dominant blues of Figure 1 are seen only in the Balkans, Hungary and Estonia. Western Europe is now plastered with yellows and oranges. Residential electricity rates are clearly much higher in Europe than in the US – more that twice as high in fact. In 2016 they averaged 26.6 c/kWh in the Euro area and 12.7 c/kWh in the US.
To complete the picture Figure 3 shows the percentage of “new” renewables (wind, solar, biomass etc. but excluding hydro) in the US, the EU and selected European countries. In 2016 renewables contributed 18.5% of EU generation but only 8.8% of US generation, indicating that renewables development to date will have cost the EU proportionately about twice as much as the US. As discussed later, however, this is not the cause of the differences in residential electricity rates.
Figure 3: Percent “new” renewables (wind, solar, biomass etc. but excluding hydro) in European and US generation mixes. Data from BP.
Residential electricity rates in Europe
Why are rates so much higher in Europe? Euan Mearns’ compelling graphic, first published in his 2015 green mythology and the high price of European electricity post, shows that residential electricity rates in Europe are closely correlated (r2=0.85) with installed wind + solar capacity per capita, leaving no doubt that the percentage of renewables in a country’s energy mix is a key factor when it comes to setting residential electricity rates:
Figure 4: Residential electricity price vs. Installed wind and solar capacity per capita by country, Europe. Graphic from Euan Mearn’s post.
The second question is why does such a correlation exist? An exhaustive review of data from all the countries shown in Figure 3 is not possible, but this graphic from the German Energy Transition provides some insights. The ”items that more closely reflect (the) price tag for the Energiewende” add 43% (12.46 eurocents) to Germany’s residential rates. Note also that effectively all of the increase in Germany’s residential electricity rates between 2006 and 2013 was a result of Energiewende charges:
Figure 5: Items contributing to Germany’s retail electricity rate, 2006-2016
How much money is involved in the “items that more closely reflect (the) price tag for the Energiewende”? According to BP, Germany’s total electricity generation in 2016 was 648.4 TWh, according to Eurostat its residential consumption amounted to 19.6% of that, and according to Figure 5 Energiewende charges in 2016 were 12.46 eurocents/kWh. These numbers add up to €15.8 billion ($US19.3 billion) paid by residential electricity consumers in 2016 alone. Adding the data going back to 2006 assuming 20% residential consumption increases the total to €150 billion (~$US180 billion), and adding pre-2006 tax receipts could well raise the total to more than $US200 billion. Not exactly peanuts.
An interesting question here is whether these billions of euros/dollars cover the costs of the Energiewende? No one knows. According to this recent audit:
Based on the recent audit report by the Bundesrechnungshof, the total governmental costs of Energiewende are not entirely clear even for the leading Ministries and the delineation of the expenditure items corresponding to Energiewende is not conducted in a fully coherent manner ….
It’s nothing short of amazing that Germany, having staked its future on the success of its Energiewende, and having spent vast sums of money on it, doesn’t know how much it has spent.
Little data are available, or at least not readily available, for other European countries. The best data I was able to come up with are shown in Figure 6. There is a wide range of variation between countries in RES (renewable energy sources, complicated by the addition of combined heat & power) charges, with some listing no charges at all. According to the results these items also added only about 7 eurocents to Germany’s 2015 rate, barely more than half the 13.19 eurocents shown in Figure 5:
Figure 6: Taxes and levies in European residential electricity prices in 2015 by country. Data from the EC Prices and costs of EU energy final report.
There is a reasonable supposition here that the Figure 6 data are not reliable, so I went to a shotgun approach using XY-plots. One would expect a correlation between European residential electricity rates and added charges for renewables, but is there a correlation between these added charges and the percentage of renewables in a country’s energy mix? To check this out I constructed an XY plot of percentage renewables (from Figure 4) against residential electricity charges assuming that the charges would be proportional to the percentage of renewables in the country’s generation mix. The results are shown in the two graphics in Figure 7:
Figure 7: Percent renewables in energy mix vs. percent charges on residential electricity, Europe. Data from Euan Mearns and Eurostat
The first graphic contains two outliers – Ireland and Spain. I have assumed that these are a result of accounting procedures in these two countries being different to those elsewhere, so I took the liberty of deleting them in the second graphic. The R2 value increases from 0.42 to 0.76, indicating that the charges levied on residential electricity in the 18 countries that remain are quite strongly correlated with level of renewables development in that country.
Now we shift attention from Europe to the United States of America, which is a different ball game.
Residential electricity rates in the US
Figure 8 reproduces Figure 1 for reference:
Figure 8: Average retail electricity prices in the US Lower 48 in 2016, US cents/kW (reproduction of Figure 1)
As noted earlier the map divides itself into two – dominant blues over most of the lower 48, and greens plus one yellow in the Northeast US states (New Jersey, New York, Connecticut, Rhode Island, Massachusetts, New Hampshire, Vermont and Maine) plus a green in, inevitably, California.
The question here is whether these colors represent two statistically-different populations. I looked into this first by constructing an XY plot of the percentage of coal in each state’s generation mix versus its retail electricity rate and came up with the results shown in Figure 9:
Figure 9: Percent coal in generation mix vs. retail electricity rate by state, US lower 48, 2016. Data from EIA
The nine green and yellow states are highlighted in red. They are clearly an “outlier” population. I confirmed this by calculating the Smith-Satterthwaite t-statistic for the two populations defined by the red and black points. A t-stat value of two or more is considered indicative of two populations that are significantly different. I obtained a value of 10.7. (The reasons for this difference are discussed briefly in the Appendix at the end.)
Based on these results I discarded the data from the nine outlier states as non-representative and continued with the remaining 39. This yielded the results shown in Figure 10. There is now no relationship between the percentage of coal in the generation mix and retail electricity prices (R2 = 0.00):
Figure 10: Figure 9 with the nine outlier states deleted
There is also little or no relationship for the other main sources of dispatchable generation – gas, nuclear and hydro:
Figure 11: Percent gas, nuclear and hydro in generation mix vs. retail electricity rate by state, 39 of US lower 48 states, 2016
The trend lines show residential rates increasing slightly with increasing gas and nuclear penetration, but R2 values are very low (0.03 for gas and 0.12 for nuclear). As would be expected the hydro trend line shows rates decreasing with increasing hydro penetration, but again with an R2 value of only 0.10. (The five states with more than 30% hydro that generate this trend are, from left to right, Montana, South Dakota, Oregon, Idaho and Washington).
There is also no significant relationship for “new” renewables (wind, solar, biomass etc.) State residential electricity rates remain substantially the same regardless of the percentage of renewables in the state generation mix:
Figure 12: Percent renewables (wind, solar, biomass etc.) in generation mix vs. retail electricity rate by state, 39 of US lower 48 states, 2016
The bottom line seems to be that state generation mixes in the US have little if any impact on residential electricity prices.
What are the reasons for this? One might be that the generation data I use does not account for interstate transfers (I have no consumption data). Another is the impact of spot pricing market mechanisms that may tend to average prices out over large areas with diverse generation mixes, although I’m not sure about that either. Yet another is competition between states to attract new business, which in the case of energy-intensive businesses such as metal refineries and data processing centers is influenced by electricity prices.
The key determinant, however, is how US state residential electricity rates are established. In most states this done by Public Utility Commissions, or their equivalent, whose commissioners are usually elected by popular vote and therefore disinclined to raise electricity rates any more than they have to. They are aided by state regulations that commonly do not allow “large, sudden rate increases”. They are, however, required to set rates so that a state utility – which is treated as a monopoly – earns an adequate return on its investment. There’s even a formula for calculating it:
R = O + (V − D)r, where
R is the utility’s total revenue requirement or rate level. This is the total amount of money a regulator allows a utility to earn.
O is the utility’s operating expenses.
V is the gross value of the utility’s tangible and intangible property.
D is the utility’s accrued depreciation. Combined (V − D) constitute the utility’s rate base, also known as its capital investment.
r is the rate of return a utility is allowed to earn on its capital investment or on its rate base.
So far this system has served the US well. Consumers complain about their electricity bills and utilities complain that they are not earning the rate of return they are entitled to. A sign of balance, I think.
There is also a national regulator – the Federal Energy Regulatory Commission, which among other things Regulates the transmission and wholesale sales of electricity in interstate commerce. FERC’s regulation of interstate wholesale electricity sales is another reason why most US states have comparable residential rates, and may indeed be a major contributor.
Summing up:
This post addresses the question of the causes of the differences between European and US retail electricity rates. The answer is clear – the costs of Europe’s transition to renewables are borne at least in part by the consumer while in the US it is not, or at least not directly.
And when this cost burden is removed Europe’s residential electricity rates fall much more closely into line with US rates. Without the Energiewende charges shown in Figure 4 the residential electricity rate in Germany in 2016 would have been 16.23 eurocents/kWh, or about 19.8 US cents/kWh, the same as Massachusetts and less than Vermont. And if government-imposed taxes and fees indeed amount to 52 percent of the monthly power bill for German retail consumers, as Deutsche Welle claims, the rate drops to 13.78 eurocents/kWh, or about 16.8 US cents/kWh, on a par with California.
The US electricity consumer, however, does not get off scot-free. The money the US has spent on renewables in the form of subsidies and tax credits is offset by adjustments elsewhere in the federal budget that will ultimately be paid for in one form or another by the US taxpayer. But the taxpayer does not get to see the impacts in his or her electricity bill.
And US utilities don’t get off scot-free either. They are absorbing the costs of balancing ever-increasing levels of intermittent renewables generation without adequate compensation. But that’s another story.
Appendix: Generation mixes in the nine “outlier” states vs. the rest of the US
As discussed above, retail electricity rates are significantly higher in California and in eight contiguous states in the northeast US (New Jersey, New York, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire and Maine) than they are in the other 39 states that make up the intervening “Lower 48”. What is the cause?
Table 1 compares the generation mixes in the nine states with generation mixes in the other 39 states and in the US as a whole. The largest difference is in coal (35% for the 39 states vs. only 1% for the nine), and the nine make up the shortfall by generating more from gas, nuclear, hydro and renewables (wind + solar + biomass etc.) Could this difference in generation mixes account for the differences in residential electricity rates? Based on the results of text Figures 10 and 11, which show no significant relationship between rates and the source of generation, it seems unlikely.
But the nine states generate a much larger fraction of their electricity from renewables (13.7% vs. 7.3%) than the other 39. Could this have had resulted in higher residential rates? Text Figure 12 says no. So does Figure A1 below, which plots the data for the nine states independently. The trend line in fact shows a tendency for rates to decrease rather than increase with increasing levels of renewables penetration:
Figure A1: Percent renewables (wind, solar, biomass etc.) in generation mix vs. retail electricity rate, nine “outlier” US states, 2016
I can only conclude that the differences occur because the people who live in the nine states tend to have a “greener” perspective than those who live in the other 39.
From EuroStat:
Electricity prices for household consumers by country, first half 2017 (EUR per kWh):
http://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Electricity_prices_for_household_consumers,_first_half_2017_(EUR_per_kWh).png
Source: Electricity price statistics & explanations etc
http://ec.europa.eu/eurostat/statistics-explained/index.php/Electricity_price_statistics
” according to Figure 4 Energiewende charges in 2016 were 12.46 eurocents/kWh.”
(Should be fig. 5)
That 12.46 seems to combine the energy provision bar with the renewable surcharge. Energy provision is like the cost of generation over all sources, so why combine the two?
Note that the cost of energy provision has been going down. This makes sense if fuel costs are decreasing or if renewables are pushing prices down.
But we’ve seen in the previous thread comments that the cost of electricity is not really driven by the generation cost because other factors are much more important.
Note also that consumers in the US use twice as much electricity on average due perhaps to lax efficiency standards and lower prices, so they don’t really gain relative to Germany.
To me, the prices of domestic, commercial and indutrial supply are so heavily influenced by non-economic considerations that little can be learned from them.
Really doubt due to lax efficiency standards. Different lifestyle choices maybe. Larger homes? And so forth. Flip side is homes get rebuilt much more often especially outside of rural areas, mostly. In addition the US increased population by over 50% since 1970, just before the oil embargo.
Look up what uses most of the electricity in an average residence. Here is a place to start.
https://www.eia.gov/consumption/residential/
More of a bunch of links. There is a more recent survey but quick look failed to find it.
T2M
Air conditioning is probably the biggest factor driving differences in per capita electricity consumption between Germany and the US.
Willam,
the context of figure 5 in the original article was the following: As increased renewables production depresses wholesale prices and decreasing wholesale prices in turn increase the renewables surcharge the true ‘costs’ of the Energiewende in the electricity sector are is not given by the renewables surcharge alone but one has to take into account also the development on the wholesale market. That’s why both values (energy provision and renewables surcharge) were combined.
However, in the context of the present blog post it would make more sense to use the values from figure 6.
Figure number corrected. Thanks for picking up on it.
That 12.46 seems to combine the energy provision bar with the renewable surcharge. Energy provision is like the cost of generation over all sources, so why combine the two?
Ask the people at the “German Energy Transition” website. They’re the ones who came up with the number.
Roger,
The numbers shown for Germany on the European map are much higher than on the BDEW graphic
“An interesting question here is whether these billions of euros/dollars cover the costs of the Energiewende?”
https://www.economist.com/news/briefing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euros)
Between 2008 and 2016, Europe’s electricity utilities saw their market capitalisation fall from €1 trillion to €0.5 trillion. I think that fall has continued.
The main reason is subsidised renewables destroying the wholesale price of electricity.
So I think that half trillion could be put down as another cost.
Not that the utilities deserve sympathy – but they do have poor investors and Governments relying on their dividends.
Alex,
I suspect that the real reason for the destruction of asset value is the fact that electricity production in the European Union is now about 500 TWh lower than you would expect from extrapolating rising consumption during the 15 years before the 2008 crisis.
See here: http://ec.europa.eu/eurostat/statistics-explained/images/f/fd/Net_electricity_generation%2C_EU-28%2C_1990-2015_%28million_GWh%29_YB17.png
That might have explained an early drop in asset value, but we’re now a decade further on, during which time you might expect a quarter of capacity to be replaced assuming a 40 year average plant life and a regular investment profile through time. 500TWh is only about a sixth of consumption, so you only need a slowdown of the investment programme to catch up with the EU’s economic stagnation, which is just a quarter of capacity in 2007 over the decade instead of 5/12ths had growth been maintained. Bad news for the capital industry, but manageable for generators. No, it is now clear that the damage is coming from over-investment in privileged (grid priority, subsidised connection and backup), expensive renewables.
In 2016 I have UK Onshore wind at 10,924 MW, Offshore 5,294, Solar 11,899, and Biomass 2,877, totalling 30,994 MW of new renewables out of a total installed capacity of 97.42 MW. That puts the UK at ~32 % new renewables.
UK generation was 37.5TWh wind, 10.3 TWh solar, 29.6 TWh biomass out of 338.6 total generation, or 22.9%.
This points to an elementary logical error.
Capell compared generating capacities. That is nonsense.
The true comparison, when it comes to energy cost, is the cost of energy. Funny, that!
IDAU’s comment is entirely appropriate… it compares generation; i.e, energy metered.
“IDAU’s comment is entirely appropriate… it compares generation; i.e, energy metered.”
Yes, that’s a good starting point, which should be refined by taking into account the production profile time- and season-wise of the different technologies. 1 MWh generated only during the day (PV) cannot be considered equivalent to 1 MWh generated 24h/day, on demand.
I agree with your conclusion that the nine outlier states are “greener”. NY and the New England states are in the Regional Greenhouse Gas Initiative and California in a similar West Coast initiative. All of the states have demonized coal and have more or less hounded it out. New York rates are impacted by New York City issues which require the use of as low sulfur as possible fuels and New England has natural gas fuel supply issues. All nine states are bound and determined to become “clean” energy leaders and somehow think that their experience with costs will be different. If I were not a resident of New York I would laugh.
They haven’t stopped at demonizing coal, they’ve eliminated it (1% coal in the nine states, 35% in the other 39). Yet Figure 10 shows that the percentage of coal in a state’s generation mix has no significant impact on electricity rates.
I might look into the question of why in more detail later, but right now our “greener” hypothesis fits the facts.
That’s because you have arbitrarily eliminated the 9 states that have near zero coal and high electricity prices (Figure 9). There are 7 other states with low coal (<10%) and low prices (<14c). Which States are these and can we explain why they have low coal and low prices?
The states are Colorado, Delaware, Idaho, Mississippi, Nevada, Oregon and Washington. Idaho, Oregon and Washington are >50% hydro. I’ll look into the others as time permits.
Colorado imports from coal burners to the north, west and southwest. There are large natural gas burners instate.
Greener states may have older and more expensive renewable energy installations paid by local utilities. Other states with large amount of renewables ex hydro likely have recently built 3 cent wind and 4 cent solar.
Roger,
I think there is an error here. Wrong line perhaps.
Colorado generated over half its electricity from coal 29,949 GWH of 54,418 in 2016. Though it is decreasing with time. ~4% from conventional hydro.
https://www.eia.gov/electricity/data/browser/#/topic/0?agg=0,1&fuel=vtvv&geo=0000000000g&linechart=ELEC.GEN.ALL-CO-99.A~ELEC.GEN.COW-CO-99.A~ELEC.GEN.HYC-CO-99.A&columnchart=ELEC.GEN.ALL-CO-99.A&map=ELEC.GEN.ALL-CO-99.A&freq=A&start=2001&end=2017&ctype=linechart<ype=sourcekey&rtype=s&pin=&rse=0&maptype=0
David,
Total retail sales were 54,802 for the same year. So what it generates it pretty much uses. over the course of a year.
https://www.eia.gov/electricity/data/browser/#/topic/5?agg=0,1&geo=0000000000g&freq=A&start=2001&end=2017&ctype=linechart<ype=sourcekey&rtype=s&maptype=0&rse=0&pin=
One other function of the EIA site I meant to put in Earlier was the ability to track things over time. At the top if map is selected it will graphically track things from 2001 until now. Map function and play. Or select the slider and arrow keys to observe more closely.
For example Residential Price by year. 2001-17 by state.
https://www.eia.gov/electricity/data/browser/#/topic/7?agg=0,1&geo=g&endsec=vg&freq=A&start=2001&end=2017&ctype=map<ype=sourcekey&rtype=s&maptype=0&rse=0&pin=
T2M
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Fig 7 is wrong, norway can not have17% renewable. If you count hydro it’s 97%, if not it’s 2%
(95% hydro, 2%wind, 3% other)
Good point. But the 17% number came from Euan’s Figure 4.
Euan?
Not Euan but probably relates to the definitions used. Ask CA. Large Hydro (>50 MW) isn’t renewable(sorry Norway). Smaller is renewable for some reason. 😉
Also that is going to cause you to re-figure a whole bunch a ton of stuff. CA would then add another for 2017 42 TWH to the 52 TWH of CA’s definition of renewable. Hopefully I kept my thousands of MWH straight, no promises.
Good luck keeping all that straight,
T2M
T2M. Haakon is right. Norway’s renewables generation is either close to 100% if you count hydro and close to zero if you don’t.
My US renewables percentages don’t include hydro, so there is no California-style classification problem. If you have a few days to spare you can wade through the humongous EIA data base I extracted them from and let me know if I made any mistakes. 😉
I haven’t seen any errors and I am sort of looking. Case by case basis. As always you make me contemplate things from a different angle.
I know it is a huge data set. I have looked at it in the past. I just am not as good at it as you are.
One thing you might want to look(to turn huge into huger) at to determine imports and exports by state is the retail sales ( all sectors) report on the EIA Electricity Data Browser. Generation shows that last year WA generated 115,474 GWH (82,825 from conventional hydro, 8,185 from nuclear) and Retail Sales were only 90,575).
Notice those separated numbers. I cheated a little bit last year was a good hydro year. Yet CA is best at fighting CO2 according to the press and their governor. IF that is the goal. Which apparently it isn’t.
T2M
T2M. I wasn’t serious when I suggested you spend a few days looking through the EIA data base. That’s why I put the 😉 in. But thanks anyway.
Regarding Colorado, I checked and found that I had the numbers right but had put them in the wrong column. Colorado’s coal generation is indeed >50% and not near-zero. But shifting Colorado around makes no significant difference to the XY plot results.
Might be something like that. Off course big hydro utilizes that other kind of water, the one with all the co2-emissions. My bad
Are we discussing renewables including Hydro, or only, as the author stated several times, “new renewables, excluding hydro”.
Hence, Norway’s low figure. But Norway was going to be odd in any case, because of its role in wheeling surplus from Germany and Denmark when the wind is blowing and resupplying it, at a profit, when the wind is not.
Arbitrage can be a wondrous tool, provided always that you are on the right side of the bargain.
I merely point to the fact that the nine outlier states generally represent the wealthiest ones, maybe not Maine. So highest incomes, highest housing prices, taxes, etc. So possibly an economist would explain the residential electricity rates by this?
David: Quite possibly. But wealthier states tend to be “greener” too (e.g. Massachusetts vs. Mississippi).
The purpose of the post was to identify the reasons for the differences between European and US retail electricity rates, not to carry out a detailed evaluation of why US rates vary from state to state. This would take a long time and probably wouldn’t tell us much. A lot of what we see on the XY-plots is random scatter caused by in-state differences that would be hard if not impossible to isolate.
The major reasons for lower electricity cost for final consumers in US, and in compairison with EU, arises from:
• The advantaged economics of natural gas-fired generation, the biggest contributor to coal and nuclear retirements – shale gas revolution (see link below);
• The renewables investment subsidies (PTC – Production Tax Credits and ITC – Investment Tax Credits), paid by the tax payers, and not included in Feed In Tariffs as in EU; beginning in 23$/MWh it is in phasing out, ending in 2020 for wind and reducing to 10% in 2022 for solar.
https://www.energy.gov/downloads/download-staff-report-secretary-electricity-markets-and-reliability
Of course there are other details, as the moderate artificial price to domestic consumers in Spain and Portugal due to accumulated tariff deficits assumed by debt increase in the utilities and that are being paid slowly (or through securitisation to the financial market). These two countries were the champions in postponing costs due to much subsidies to renewables and other reasons, reaching almost the equivalent of one year of total system costs (link below).
http://ec.europa.eu/economy_finance/publications/economic_paper/2014/pdf/ecp534_en.pdf
The EU environment and energy political evolution caused a dramatic loss of value in most of the utilities. They were not beaten by competition in the electricity market, but by the nonmarket initiatives of the European Commission and Governments with the support to wind and PV generation!
Two thought – most of the low cost states are also net energy producers (coal, gas, oil), versus new England and California , where they are energy consumers. Interesting, other countries with lower costs also often produce primary energy resources.
Also, what is the driver for the higher costs for wind and solar penetration? I would say, specifically, it is non-dispatcability of the power. At low levels of market penetration this cost is covered by the ability of the existing system to deal with swings in demand. Above 10% of so the system starts needing reliable back up – either going to the spot market and paying up, or having reliable back-up generation. That is where your costs really start soaring.
So, as long as the % wind and solar stays low (<10%), it doesn't impact residential rates much. Above 10% we see a very close relationship between costs and RE penetration.
A lot of it is a reflection of timing. Jump into renewables too fast and you not only have to fund all of that generation and distribution development you also can’t get proper returns out of (mostly) stranded assets. Jump into renewables too early and you pay a lot more/kwh. I feel like Germany did both.
ERCOT in Texas has been able to add vast amounts of wind while improving economics because:
A) They needed additional generation and transmission capacity anyway
B) The wind power provided is cheap and transmission development is reasonably affordable given low land costs and reduced NIMBYism
C) They trade previous blackout issues regarding large source outages for intermittency resiliency issues
They’ll need to continue adding capacity in the shale play areas but the next low hanging fruit IMO is to add solar to reduce the summer peaks. In any case, it’s clear that ERCOT is being driven by practical (medium term) fundamentals which is generally how US energy works. In modern times, only CA closes plants needlessly early although there are plenty of lesser errors like Southern Company’s commitment to new (“clean”) coal and nuclear over the last two decades and now suddenly deciding natural gas is the future while pushing forward with the Vogtle expansion.
The SW has access to cheap solar and tornado alley has cheap wind. The NE doesn’t have access to either but wants to be “green” and NIMBYism prevents the middle road (new NG pipelines) which is the worst position to be in.
Regarding the legacy cost of renewables and future effect of dropping its investment cost, I call your attention for the following example.
Suppose you rent a car with an annual fix cost of $3,000 and a variable cost (or marginal cost) of 0.1$/mile. If you use it 15,000 miles per year the average cost is
(3,000+0.1*15,000)/15,000 = 0.3 $/mile.
But suppose there is a new “PV – Photovoltaic driven car” with zero variable cost. It can provide you an equivalent service, when there is enough sunshine, at an annual renting cost of $6,000. According to your forecast you are able to use it 6,000 miles per year. So, you need both doing 9,000 miles per year with the traditional car. The cost of both is:
(3,000+0.1*9,000+6,000)/15,000 = 0.66 $/mile.
To be indifferent, you may ask a state subsidy of 0.36 $/mile, for your contribution to the environment, or just wait for a significant drop in the “PV car” annual rent. In fact, if the “PV car” annual rent is below $600 using both becomes cheaper:
(3,000+0,1*9,000+600)/15,000 = 0.3$/mile.
This is part of the story regarding only the backup costs, which do not disappear even if the “PV car” costs zero ($0.26/mile is the minimum average cost in this example).
It is important to think about the coordination problems for using both cars and the bad effects of sunshine forecast errors. But you may consider that being stopped in the highway with the “PV car” can be solved by the available rescue support system. In Europe it is common to be free of charge part of this support (insurance included in the motorway toll collection), but not the towing or alternative taxi cost. It means that you or all the system users have to pay those “ancillary services”. Nowadays it is rare to find a traditional car stopped due to failure or lack of fuel, but what about a high penetration of “PV Cars” and the huge increase in these “ancillary services”? (Of course, you now may be thinking in including battery storage in the “PV car”, but this is another cost for the evaluation).
In conclusion: renewable intermittency always implies a backup need (using traditional generation, storage or both); the increase in renewables penetration implies higher ancillary service costs; the drop in renewable investment cost might be insufficient to compensate the increase in the cost of ancillary services.
Are fossil fuel exports restricted in the US? If so, this would act as a indirect subsidy to US energy consumers.
Not directly. However, coal export terminals are limited on the West Coast. Here in the Pacific Northwest we are rather adamate about not having more.
However, this has no discernable effect on coal prices. Similarly the new liquified natural gas terminals appear to have no effect on the price of natural gas in North America.
It’s my understanding that restrictions on the export of oil and gas were only recently lifted, so changes in domestic prices might not yet make themselves apparent.
But in theory they will. So watch this space.
By the way, this export restriction was a very clever policy in my opinion. Like a tax without imposing it.
I hope the US now does impose a tax on fossil fuel extraction for the sake of its citizens
This is pretty handy:
http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=nrg_pc_204&lang=en
In my native Finland, retail electricity costs 6 eurocents, grid fees are about 4.5 eurocents and the taxes are about 5 eurocents.