Five Signs Electricity Prices Will RisePosted on August 3rd, 2020
Historically, the supply of low-cost electricity was a way to grow economies, increase populations and improve the quality of life. That philosophy is rapidly disappearing. The traditional electrical supply system is under unprecedented social, technological and political pressures that have and will continue to increase the future price of electricity due to higher costs. Following is an explanation of five signs that the cost of supplying and the resulting price of electricity are going higher.
Power and Policy
It is good news that consumers today have more choice and control when it comes to their electricity, including whether to buy or produce it, choosing energy sources, selling it, storing it, participating in demand response, etc. The not-so-good news is that the once conservatively managed electricity supply system is being challenged by new technologies, new competition and new regulations that threaten its reliability.
According to the North American Electric Reliability Corporation (NERC):
“The shift away from conventional synchronous [60 hertz AC] central-station generators [large coal and nuclear plants] toward a new mix of resources continues to challenge generation and grid planners and operators. This new paradigm of the resource mix includes natural-gas-fired generation; unprecedented proportions of non-synchronous resources, including renewables and battery storage; demand response; smart- and micro-grids; and other emerging technologies.”
NERC points to the consumers’ desire to eliminate greenhouse gas emissions, individual states’ legislative and regulatory initiatives, expected lower production costs of new resources and the aging of existing generation infrastructure as the cause of the new challenges.
Tenets of Electricity Supply
To understand what drives electricity costs and prices, we need to recognize a few tenets of electricity and electricity supply.
First and foremost is the reality that the supply of electricity must always exactly meet the demand for electricity. While it is possible to store excess electricity, such storage comes with a round trip efficiency penalty that often consumes more than ten percent of the electricity stored.
Second is the fact that electric (and natural gas) utilities are typically obligated to plan for, build and provide sufficient facilities to deliver electricity (generation, transmission or both) to any and all customers, at any time or season and in any quantity demanded. This makes them operationally and financially responsible for all variations in electricity demand day-by-day and year-after-year.
The Five Signs Concerning Electricity Costs
As the electricity supply system undergoes complex and evolving challenges, there are five signs that strongly suggest the costs and price of electricity are or soon will be increasing more than usual.
Sign #1: Delayed shutdown of fossil and nuclear plants. Utilities and public utility commissions plan years in advance for the decommissioning of a power plant. The sudden reversal of an impending shutdown is evidence something is not going well in electricity land. Whether the problem is a shortage of generating capacity, declining system stability or something else, there is no doubt that the consumer will be paying to keep plants scheduled for decommissioning in operation.
Sign #2: Limited natural gas supply. Natural gas is used for heating and generating electricity. However, when the natural gas supply is limited during the peak winter heating season, utilities often must switch to more expensive alternate fuels for electricity generation. As the natural gas supply limitation becomes more pronounced, electricity demand and prices tend to rise, as do natural gas and other fuel prices.
Sign #3: Forced electrification. The call to replace all fossil fuel usage with electricity comes with a huge challenge: it essentially requires a very expensive tripling, or more, of the current electrical generating capacity along with a corresponding expansion of transmission and distribution capacity. Even electrification on a small scale requires that many necessary infrastructure upgrades be made the conversions can be implemented.
Sign #4: High percentage of digital power. California, Denmark, Spain, Germany, and Australia have all experienced significant upturns in electricity prices that correspond with substantial increases in the percentage of digital electricity generation sources, including wind and solar. The promised broad deployment of large-scale energy storage that fixes the reliability and intermittency issues associated with wind and solar generation has yet to materialize and does not even seem to be on the horizon. The lack of storage capability, low capacity factors and the need for 100% back up by fossil or nuclear generation means an increasing percentage of electricity generated from renewable energy sources may result in more expensive electricity for consumers.
Sign #5: Political timetables. Today, many states have established timetables to eliminate all greenhouse gas emissions associated with electricity production without providing concrete plans, detailed technological solutions or costs. While the goal is admirable, the path to a carbon-neutral electrical system is fraught with social, environmental and technology challenges the cost of which are cannot be accurately defined…but, will inevitably lead to higher electricity costs.
When the Signs Appear
For building or business owners, addressing the uncertainty of electricity costs is a complex process: reduce usage, increase efficiency, self-generate or co-generate, load shift, install thermal storage, add renewables plus storage, develop a microgrid, etc.
ENGIE MEP Services’ team of professionals can evaluate the complete energy, comfort and safety situation of your building or facility including central plant systems, efficiencies, indoor air quality, balancing, controls, loads, load profile, upgrade potential and energy options. When you see any of the signs above, let the experts at Trystate help you develop a flexible, long-term strategy to minimize the impact of future electricity price increases.