Unless you live in one of the only 4 states that didn’t experience an electricity rate increase over the last year (New Mexico, No. Dakota, So. Dakota, Wyoming), you might be wondering why electric bills are going up. And why does it seem that there is no end in sight?
It may seem logical that the cost of electricity would go up along with everything else because of the dramatic rise in inflation. That is partially to blame. But there are many other factors that come into play, making relief from rising electricity costs something that we may not see for some time to come.
To understand why electric bills are going up so dramatically we need to start with how electricity is produced. Electricity is a secondary energy source. Electricity is produced by converting primary energy sources such as coal and natural gas into electricity. We are now only starting to produce electricity in other ways using solar, nuclear, and wind technology. But coal and gas are the main sources for producing electricity. So, it stands to reason that if the price of procuring coal and natural gas goes up, so will your electric bill.
The Use of Coal is Declining
Burning coal is the most climate-damaging form of power generation. It is therefore widely accepted by experts that to achieve climate goals by 2050, 50% of the planned construction of new coal-burning plants will be canceled. Production of power from coal plants has declined every year in the US since 2011.
Because of the rising cost and environmental impact of burning coal, and the cost of upgrading existing plants, 54 coal-burning plants were either shut down or converted to other fuels in 2021 and 2022. Further, 138 plants are scheduled to follow from 2023-2030 and even more through 2040.
Coal as a primary energy source is being phased out, which is good news for the environment. But there is a cost associated with shutting or converting these plants to a new energy source.
The Price of Natural Gas has Skyrocketed
Beginning around 2007 when hydraulic fracturing (fracking) began, the use of natural gas to produce electricity became a cleaner and more economical way to produce electricity. However, the cost of natural gas has skyrocketed to unprecedented levels causing higher electric bills for two primary reasons.
The war in Ukraine has all but eliminated natural gas coming from Russia to Europe and exports to Europe from the US are way up and commanding a very high price. This is an example of how global politics can put pressure on our own energy sources here in the US.
Another factor is that although we need to produce more natural gas to keep up with the demand in the US and Europe, production is lagging. US producers of oil and natural gas are spending more on buybacks and dividends to their investors than on expensive new drilling projects.
All you need to do is Google your own utility company and you’ll probably see an announcement of an increase in electric bills due to the higher price of natural gas they must pay to produce it.
The Cost of Maintaining the Grid
The electric grid in the US is old and needs to be upgraded. 60% of US electricity distribution lines have passed their 50-year life expectancy. $1.5 to $2 trillion will be spent by 2030 to modernize the grid just to maintain reliability. Large distant electricity generation sources will be replaced by smaller, more local sources. However, protecting these new sources from entities that would look to harm our country creates a major security issue.
According to a study by the American Society for Civil Engineers, there is a funding gap of over $136 billion for the transmission and distribution of electricity by 2025 which is right around the corner. Investment in our country’s energy grid will cost us dearly leading to higher and higher electricity costs.
A Cost of Electricity that We Can’t Control - Mother Nature
According to ScienceDirect, weather events are a major source of disruptions to the electrical power grid. In fact, weather accounts for 50% of all power disruptions. Thunderstorms account for 47% of the weather-related power outages. And winter storms and hurricanes account for 31.5% and 19.5% respectively. The median cost of restoring power from these events is $12 million.
In February of 2021 when the Texas Freeze hit, electricity prices soared as much as 10,000%. The Texas utility grid is isolated from the rest of the US by choice. Therefore, they could not import electricity from neighboring states.
This past fall in Florida after Hurricane Ian hit the Florida Gulf Coast, Florida Power and Light (FPL) immediately sought approval to recoup $1.1 billion from its customer to cover the costs leading to higher electric bills for citizens of southwest Florida.
Review - What You Can Do About Rising Electricity Costs
Americans will see fluctuations in energy costs in the near future. It appears that the cost of closing and converting coal plants, global political pressure on the production and supply of natural gas, the cost of repairing the aging grid, and mother nature's intermittent destructive forces will serve to create an upward movement on electricity prices.
There is only one sure way for homeowners to insulate themselves from this economic burden. And that is to install a solar system that comes with a production guarantee from the installation company.
For further information on going solar and getting a guaranteed production each year, schedule a free solar consultation via Zoom.