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Americans are experiencing large increases in the cost of electricity, which is essential for lighting, cleaning, preparing and storing food and increasingly, heating (heat pumps) and transportation (plug-in electric vehicles). During the last year, electricity prices climbed 6.9%, more than twice the rise in the cost of living. The pain has not been distributed evenly: some states over the last five years have seen price increases of nearly 40%, while others have seen decreased costs of about 10%.
What is leading to this spike in electricity cost? This important question has been addressed in a recent study by the Lawrence Berkeley National Laboratory and the results have been summarized by the New York Times. Their finding is that transmission and distribution costs (power lines) have significantly contributed to the rise in electricity costs, while generation costs (power plants) have actually declined. The decline in electricity generation is likely due to lower cost renewable sources such as solar PV and wind, particularly their low operating costs. The figure above shows a comparison of spending on generation and transmission and distribution.
The study finds three main factors leading to the increased cost of transmission and distribution; 1) aging infrastructure that needs to be replaced, 2) making lines more robust to reduce the risks posed by climate change and 3) increases in equipment costs due to supply chain problems. Other factors influencing increases in the cost of electricity include dramatic increases in the cost of natural gas. Surprisingly, at the state level load growth has not increased electricity costs, nor has market based renewable energy growth. Both of these can lead to lower costs.
It is unclear how future demand growth will affect prices. State level renewable portfolio standards have only led to small cost increases so far. The results of this study suggests that capital equipment expenditures associated with transmission and distribution are the main drivers for the increase in your electricity bills. These costs get embedded in the utility's costs and consumers pay the increases year after year.
How can our electrical system be managed to keep costs low? Modern approaches will be needed. As a nation we have become complacent with slow or negative growth in electricity over the last 20 years and we will need to change incentives and processes to keep costs low as demand expands. Building large, expensive, transmission and distribution systems or expensive power generation cannot be the only answer. Smart microgrids, virtual power plants and control of peak power use are approaches that can be used. In addition, at a personal level there are steps that the consumer can take to reduce their electricity costs, some that are easy and inexpensive. In Colorado, Climate CitiSuns can take action to influence the Public Utilities Commission, which ultimately approves rate hikes in electricity and other utilities. Follow our newsletter for the next few months as we explore these options and let you know how to take action.
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