The High Cost of Free Energy

Guest Post by Willis Eschenbach

I will take as my departure point the following rather depressing chart from the US Energy Information Agency (EIA). It shows the rise in US electricity prices since 2001:

EIA average retail price of electricity monthlyFigure 1. Increase in energy costs for the industrial, commercial, and residential sectors, along with the average, from the EIA. SOURCE

That is a 50% increase in electricity costs in about a decade, and as you can see, we’re getting shafted. Now, it may be that the advent of “SmartMeters” is responsible for the decoupling of the different types of rates in 2009. I say that because residential has continued to increase post 2009, while commercial and industrial have stayed about level. But that’s just a guess, and coupled or not, prices are way up.

I got to thinking about that, and about the difference in the price of electricity from state to state, as shown in below in Figure 2. I wondered how much of the state-to-state differences in prices was due to the different mixes of fuel.

So I went and got the data, and as usual, there are some surprises in the mix.

us average residential retail price 2010Figure 2. State by state electricity pricing, 2010. SOURCE

To understand the relationship of price to fuel mix, I used the data from the same source as Figure 1, the EIA (I downloaded “All Tables” from the top section of that link, which simplifies the process). They have individual tables which contain state-by-state information on the various fuel sources used to generate electricity. They divide these up as Coal, Petroleum Liquids, Petroleum Coke, Natural Gas, Other Gas, Nuclear, Hydroelectric Conventional, Other Renewable Sources, Hydroelectric Pumped Storage, and Other Sources. “Other Renewable Sources” in turn is broken down into Wind, Biomass, Geothermal, and Solar.

So after looking at all of those various fuel sources for electric generation, it turns out that you can actually get a fairly good handle on the state-by-state price using just four of those variables, and that the rest of them make little difference to the result.

state electricity price Estimated from fuel mixFigure 3. Estimated state prices compared with actual prices, with the percentages of coal, hydro, nuclear, and biomass being the variables used to estimate state prices.

So what is the relationship between pricing and fuel? Here’s how Figure 3 was calculated.

You start with the average price, 13.25 cents per kWh. Then, you subtract five cents times the percentage of coal in the state’s mix.This drops the price by up to 4.6 cents, because as you might expect, coal plants are inexpensive. So if for example half your state’s power is from coal, on average that reduces the electricity price by 2.5 cents.

Next, you subtract five cents times the percentage of hydroelectric in the mix. Again, that reduces the average price, this time by up to 4.5 cents … hydro is cheap power as well.

So those two, coal and hydro, reduce the cost of electricity. Then you add three cents times the percentage of nuclear, which increases the price by up to 2.1 cents.

Finally, we have the other variable that increases the price, biofuel. Biofuel seems to be pretty deadly to a state’s electrical mix. It increases the cost of electricity by up to 5.3 cents per kWh, and is calculated by adding 34 cents times the percentage of biofuel.

The rest of the variables, wind and natural gas and all of the others, have only a very small effect on the state-by-state price. I suspect that the effect of natural gas in the mix will strengthen as the price drops and more plants are built … but for now, those are the variables that actually make a difference—coal and hydro drop the price, and nuclear and biomass increase the price.

Conclusions? … if you want cheap electricity, go with coal and hydro. And if you get desperate enough for renewables that you start messing with biomass and burning wood to make electricity? Well, you’re in deep trouble … and sadly, California, where I live, is a leader in that regard.

Which in part is why electrical prices here in California are through the roof. We have a draconian renewables target (33% renewables by 2020!!), and in a fit of chronic stupidity the lunatics in charge of the asylum decided NOT to count hydroelectric as a renewable. So we’re burning wood for electricity, and if the madness continues we’ll likely have to burn the furniture as well … and as a result of the 33% renewables target, plus the madness of denying that hydroelectric power is renewable, California ends up a “red state” in Figure 2, and my electric bill keeps rising.

That’s your electricity report on this fine morning, US Independence Day.

My best to everyone,


[UPDATE] In the comments someone asked about the correlation between a state’s voting habits and its energy prices. I actually had started in that direction, and prepared a graph, but then I decided to make the post about the fuel rather than about the politics. However, since someone asked … read’m and weep …

electric cost vs votes for obama by state


[UPDATE 2] USA Today sez …

WASHINGTON — As President Obama pushes an aggressive national climate-change plan, his administration’s non-profit advocacy arm is becoming active in clean-energy drives across the country.

Organizing for Action also has formed a partnership that steers its volunteers to purchase wind and solar power from a single company with ties to liberal groups.

“While we are doing all of this work to advance the president’s agenda in Congress, we also want to do everything we can locally to help switch to clean energy,” said Ivan Frishberg, Organizing for Action’s climate-change manager.

Organizing for Action, for instance, will recommend that its volunteers and activists who want to purchase renewable energy for their homes and businesses consider signing up with Ethical Electric, a firm that currently sells wind power in four Mid-Atlantic states and the District of Columbia and bills itself as a socially responsible energy supplier. It also has licenses that will allow it to expand to New York, Massachusetts, Illinois and Ohio.

Meredith McGehee, who examines government ethics at the Campaign Legal Center watchdog group, questions whether it’s appropriate for an organization so closely linked to a sitting president to develop ties with one business.

“You can say that developing clean energy is great, but do competitors feel the weight of the presidency being used to undermine their business model?” she said. “It raises questions about the ethical propriety of the use of the president’s bully pulpit.”

Putting all the money in your friends’ pockets raises ethical questions? Who knew?

So … as usual, the friends of Obama make bank, and everyone else says “How come the US government is favoring the President’s friends?”

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July 4, 2013 10:28 am

That is just one of the many, many ways we are screwed in California….

July 4, 2013 10:30 am

California is already a red state. There are reds all over the place, regulating and snooping and taxing with all their might.

Sweet Old Bob
July 4, 2013 10:32 am

And this shows the intent of the “greens” to change our lives. For the worse,IMO.
The question is ,will we do anything to resist?

July 4, 2013 10:34 am

on my last visit to CA I saw no one with solar geysers on their roofs.How stupid is that if you have so much sunshine?
we have a lot here.(south africa)
I have one.
solar geyser works like an inverse radiator
coal is bad, not for the CO2 but because of other poisons
nuclear is not safe
so better go with CH4 (fracking)

July 4, 2013 10:36 am

There is a more detailed analysis of these same questions available, including wind/solar and a discussion of externalized costs (, indicating that:

By tracing changes in electricity prices in states that changed their energy portfolios we show that using more coal does not actually make power less expensive. States that reduced their use of coal-fired generators have not seen electricity prices rise, and states that increased coal use have not seen prices drop. Also, the estimated “levelized cost” of constructing and operating a new coal plant today is more expensive than generating the same amount of power from a new hydro or natural gas plant, and is comparable to the cost of wind power. Finally, the cost estimates for coal-generated power fail to factor in the “externalized costs” of pollution cleanup, medical bills, and environmental damages borne by the taxpayers and the public. When these costs are included, coal-fired power is more expensive than all the other generation types we examined.

July 4, 2013 10:44 am

With San Onofre going out of service and California buying “Green” replacement power, expect even higher prices. I have lived in Anaheim and the Phoenix area and when the power company starts talking about how they are greening the power mix, expect your power bill to go from 11 cents to 14 cents a kilowatt. With a smart meter, expect them to start bribing you to turn off your air conditioner midday. It’s nice to know that your utility is thinking about the comfort of the ill senior who is living with you.

July 4, 2013 10:51 am

nuclear is not safe. Henry P
All solar, wind, hydro and biomass fuel is nuclear fuel (the Sun). Are you not going to use these fuels simply because the Sun is a dangerous nuclear source? (UV radiation, CMEs, radio disruption, electrical grid disruption, climate disruption etc, etc,)
We are not going to get to Mars with woodchips, or even with fracking. We need nuclear, and we need it now (or yesterday), and so the answer is not to reject it, but make it safe. You have all heard of the advantages of Thorium power, so why are our dumb legislators so ignorant of it?

July 4, 2013 10:52 am

California was voted “state that would most benefit from experiencing a zombie apocalypse” in 2013

Steve Crook
July 4, 2013 11:01 am

Actually, I think there may be a way to make money from bio-fuels. Sell your wood pellets to us Brits so we can burn it in converted coal plant (Drax in this case) and claim that it’s green. If in 20 years time you ever wonder where all your trees have gone, we’ve burnt them for you.
Ohh the insanity…

July 4, 2013 11:03 am

I’m somewhat surprised that nuclear increases the retail cost of electricity. Does anyone know the reason, or is it one of those cases where correlation doesn’t equal causation?

July 4, 2013 11:04 am

No wonder businesses are fleeing the sunshine state.

July 4, 2013 11:04 am

KR says:
“…coal-fired power is more expensive than all the other generation types we examined.”
Who let KR out of the asylum?

July 4, 2013 11:04 am

HenryP says:
on my last visit to CA I saw no one with solar geysers on their roofs.How stupid is that if you have so much sunshine?
If you have natural gas, heating water and your house cost very little. The costal regions of California receive less sun than you might think because of high level fog blocking the sun. California did experiment with first generation modern solar heat and most people were unhappy with the results. Much new construction included pipes for latter solar devices but for the above reasons, most remain unused and I even saw some ripped out when they redid the roof.
Now in Arizona I have a all electric house and have seen much higher cost because of the lack of natural gas. I would consider solar but my roof faces the wrong way, HOA restrictions and no back yard to speak of. Besides that, a tile roof is something you don’t want to play with if you want to stay dry.

July 4, 2013 11:05 am

coal is bad, not for the CO2 but because of other poisons. Henry P
Actually, coal is good. Coal took us from the pre-industrial age, to the technological age, and into an era of unprecedented health, wealth and luxury.
Of course you could counter that the Romans achieved the same levels of health, wealth and luxury back in the 1st to 4th centuries AD. But I would be forced to remind you that they did so on the back of hard, forced labour – slavery. Perhaps you would prefer slavery to coal? Your choice.

July 4, 2013 11:09 am

Generation cost isn’t the whole story on electricity cost, at least here in Connecticut. We pay 6.3 cents per kwh just for transmission; cost of generation is added to that. To analyze fuel type vs electricity cost it would make some sense to first remove transmission cost, even though wind and solar may inflate this too. In fact it would also be interesting to see how transmission costs are impacted by renewables.

Henry Galt
July 4, 2013 11:12 am

Most of your country has ‘leccy prices to die for. I currently pay @ 21 cents after ‘shopping around’ the UK for the ‘best available’ price.

July 4, 2013 11:12 am

In CA, the Renewables Portfolio Standard doesn’t include big hydro, so it won’t be part of the 33%. Hydro suffers from variability of rainfall, consequently the percentage of hydropower per year has large swings. Nuclear power has an advantage of very high capacity factor, and these plants produce power over 90% of time. There are many stupid things we do with nuclear, largely because of military and industry decisions. It could be done much better, and would give us a solid basis for an economy over several centuries. Short answer, build integral fast reactors.
Wind and solar are still mostly negligible. Texas had cheap power until it because the leader in wind generation capacity after which power prices went up by 50%. Wind and solar do have a huge impact on land usage. San Onofre produced about 4% of CA power needs on a small land area. 24 of them could produce 100% of our power needs on a total of 3 square miles of land. Producing 10% of our power with wind generators would require 2500 square miles of ocean, because we don’t have that amount of land with class 5 wind speeds.
We would need 20,000 1.5 MW generators and cabling built to withstand salt corrosion, from the Oregon border to Santa Barbara from just off shore to 5 miles out to sea. Each wind turbine requires about 60 acres of space for separation. Spacing prevents multiple failures if one sends its blades flying up to 1/2 of a mile.
Solar is beginning to use up farmland and water because of the RPS. Water is needed to clean the solar panels. Again, a horrible opportunity cost.
By the way, Anthony, I hate the tiny typing window we get now.

July 4, 2013 11:16 am

Hi Willis
Decline of US$ is partially to blame.
This is not an exact calculation but simple superimposition of two graphs is informative.

July 4, 2013 11:16 am

Oh, yes, and expect time-of-use metering shortly thanks to that smartmeter. If we just had a whole-house UPS, we could grab power when it was cheap, and use it when it was expensive. We hardly use the generation capacity we have from 10pm to 6am. We use roughly half of our capacity during 24 hours.

July 4, 2013 11:18 am

Thanks for cheering me up Willis!
Like Henry, I pay about 21 cents here in the UK. This is actually cheap (!) compared to the green wonderland in Germany, where their prices are 68% higher still!!

July 4, 2013 11:20 am

not sure why Texas is so high, since the supply is here, but there’s almost no hydro (we missed out on the mountain ranges) and a limited amount of coal. Plus, there’s a whole lot of fairly remote areas that have high cost service which gets averaged in.

July 4, 2013 11:21 am

Trend looks flat since 2008

July 4, 2013 11:28 am

Quick question Willis, it’s not clear to me whether the breakdown by fuel type refers to generation within the state or fuel consumed within the state regardless of where it is generated, any idea? I suspect for NJ these would likely be quite different.

July 4, 2013 11:34 am

A) California is crazy. What happens to your formula if you omit CA?
B) Is the high cost of “nuclear involvement” related to plants closed prematurely because of anti-nuclear protests? These states might still be paying down the bills for these plants. I was looking for such data but couldn’t find it.

Chad Wozniak
July 4, 2013 11:34 am

As a soon-to-retire division manager for a municipal electric utility here in California, I have had plenty of exposure to the madness of renewables. Many of my colleagues are rabid warmists, as unwilling as any of their stripe to listen to evidence contradicting their dogma.
Willis, I don’t see in your post any reference to the fact that as it is, at least half of the costs of renewables installations and operations are paid by various kinds of taxpayer subsidies. Electric rates would be somewhere between 80 cents and $1.10 per kilowatt-hour (depending on the kind and location of the installation) for renewable power if the entire cost were paid for directly by ratepayers. What you would have is a rate of about 8 cents for the 2/3 of the power that comes from fossil fuels, and up to $1.10 for the other 1/3 – which, using the $1.10 figure, gives an average rate of about 42 cents/kWh. The difference between this and the published rate is effectively paid by the taxpayer.
As for “free” power, the huge swaths of land needed for renewables are not free, nor are the extra transmission lines, switchyards and buses that have to be built – and not to mention the cost of the turbines and panels and the extraordinarily high costs of maintaining them. Those costs add up very fast.
And of course this doesn’t take into account the environmental wreckage wrought by wind turbines and solar panels. What cost do we assign to despoiled landscapes, poisoned habitats, dead California condors (at least five killed by the turbines at Tehachapi), whooping cranes (population reduced by half by turbines along their migration route), and English swifts (on the brink of extinction because of wind installations in the UK)?
Let a duck drown in an oilwell sump, and the fines run to the millions – while the green murderers of endangered species get a free pass from the EPA and its UK equivalent.

July 4, 2013 11:34 am

It would be interesting too to see what the cost impact of all the subsidies for improving energy efficiency is. A lot of cash is handed out for replacing perfectly good water heaters with newer perfectly good water heaters, for example, and additional subsidies are handed out for installing multi-pane glass to home owners. Since the cost of generation is not a linear function of how much is generated (how much can it cost, for example, to open the penstocks?) these subsidized efficiencies result in lower use (fewer billable KWH) which means the rate has to go up to keep the books balanced. There’s no free lunch.
The same rate increase happened here in Washington State where hydropower is not considered a renewable energy source (else we would not get government handouts from the puppet masters in the other Washington) so when city water conservation mandates came out years ago our water usage dropped more than anyone predicted and the water providers were losing money (in the form of smaller profits – they were still profitable). So the rates were increased to maintain profitability. There’s something perverted about that – the expectation was we’d all share the booty our compliance promised.

Mike McMillan
July 4, 2013 11:36 am

Here in Houston, we have provider competition, which has lowered rates a good bit.
Texas has a lot of wind power, so some of the providers offer 100% green juice, wherein you pay about 0.3 cents more per kWh to alleviate your guilt. Best to compare the fixed term rates, which lock in a price. My fixed price today is about a penny less than my provider’s current price on the chart.

July 4, 2013 11:38 am

Skyrocketing electricity and fuel prices is their unhidden explicitly stated goal.
That is what they want. Because they want people to move less, produce less, do less. “Stay local.” It’s really the modern equivalent of a medieval hair shirt, of a kind of perverted Puritan ethic of “waste not, want not” that survives in the secular liberal mind.
How can they say out of one side of their mouth, as O’s Science Czar John Holdren, that they want to “de-develop the United States… and create a low-consumption economy,” or O’s past Secretary of (anti)-Energy Steven Chu that he wants gas prices to be like Europe (~$10+ a gallon), and out of the other side of their mouth, like during elections, say they are all for low energy prices and an “all of the above” energy policy.
Honestly, we failed big time during the 2012 elections to call them out of their obvious bs and deception. Now we get another chance in 2014 as Obama embarks on a perilous course intended to get energy prices to skyrocket. We need someone to found a new PAC and run an anti-agw campaign. The arguments on AGW are on our side, the public doesn’t know these arguments, and now a warmist study implies that indeed pubic opinion can be changed dramatically with an effective and saturation level ad campaign:
An anti-AGW ad campaign campaign could be self-supporting as conservatives would give huge $ to any campaign seen as effective. And the campaign would impact elections across the board (helping Republicans). So, somebody(s), just do it!
P.S. We need to attack AGW theory specifically, not that they want to raise fuel prices. Because if it’s for a good and noble and perhaps world saving goal, most people will excuse it. We have to show that AGW is bs. And we can. Yes we can!

July 4, 2013 11:42 am

Last year I was in California. Took a stroll one morning and stopped in a small place for breakfast. Had a hard time reading the menu and asked the waitress to turn a light on. “She said the owner growls when she does it…electric bill is killing him.”
Natural light….yeah that’s the ticket….

The Ghost Of Big Jim Cooley
July 4, 2013 11:44 am

You think YOU are getting shafted!?! Come and let us (Britland) take you you back under our control (a fitting date to make the invite), then you’ll know what shafting really is. Even we, here in Britland, call it ‘rip-off Britain’. We’re being shafted on electric, gas AND water. Our water companies were sold off to the private sector (I think still the only country in the world to do it) and are now partly FOREIGN-owned!!! We HAVE to pay the water company, there is no alternative. We’re an island, and one of the wettest countries in Europe, but last year we had drought orders imposed. The water companies lose half of it before it even gets to our homes through leakage! If it weren’t true it would be funny. We’ve now decided not to burn coal anymore, and to let wind turbines be financially subsidised. We’re importing millions of tonnes of woodchips from the US even though we have massive coal reserves – which we’re leaving there. The government haven’t any money to build nuclear power stations, so we’re pleading with French and German companies to do it – but they will only do so if they are given cast-iron rights to rip us off in the future. We’ve been paying almost the highest world petrol prices for years because of taxation – which is 150% of the actual cost. Seriously, you couldn’t make it up.
USA, you’ve got it easy!

July 4, 2013 11:47 am

Looks like the northwest states do the best job maintaining more reasonable costs––all the way to the Mississippi! I’m in California, and the way I avoid the high prices of electric is I burn wood in the cold months.

July 4, 2013 11:50 am

henry@rafelis, philip, dena
sunshine for heating water is good & cheap. once only investment. count the no. of hours per annum. I think CA is high. Use electricity for heating the water in the geyser if there is no sun, like I do. Nuclear is facing new extra safety regulations, increasing the price,
thorium: I don’t know since I have not yet seen such a reactor…
The waste of coal is radio active (radium) never mind the cost of removing the SO2 to prevent acid rain.
hydro is no. 1, CH4 is no.2
proven stuff
no arguments there…

July 4, 2013 11:51 am

There seems to be a claim that natural gas is not significant source of power. Nothing could be less true – for the current year up to today, the percentage of electricity accounted for by various fuels is as follows : coal (39%), gas (26%), nuclear (20%), hydro (7%), all others (8%).
Nuclear folks claim their reactors provide he cheapest power, and have since 1999, when nuclear became cheaper than coal (less than 4 cents per kWhr). For sure nuclear fuel is the cheapest, at less than a penny per kWhr. There are also errors introduced when trying to determine cost of
power source using retail prices. The biggest errors occur with solar – a large portion of a rooftop
solar system is paid by the Fed govt – $6,000 for a 6 kW system which basically covers the cost of the panels. That cost needs to be included, but it is paid by taxpayers, not by customers on
their electric bill. Therefore the true effect of solar cannot be determined by looking at
electric rates, since a part of those costs occur elsewhere.

July 4, 2013 11:58 am

Reblogged this on Power To The People and commented:
The weather was more extreme in 1913.
There is no consensus among scientists about CO2 Climate Change Theory. Cook fasely identified climate scientists as believing in the theory when in point of fact they did not
Professor Salby’s analysis that CO2 is not the primary driver of Climate Change has been replicated and proved correct by “Swedish climate scientist Pehr Björnbom who confirms that temperature, not man-made CO2, drives CO2 concentration in the atmosphere. Dr. Björnbom confirms Salby’s hypothesis that the rate of change in carbon dioxide concentration in the air follows an equation that only depends on temperature change, detailed in his report Reconstruction of Murry Salby’s theory that carbon dioxide increase is temperature driven [Google translation].”
We need to do everything (legally) in our power to stop the authoritarian mad men in the UN and President Obama from controlling our energy resources by government fiat and driving people into poverty for no reason. The main people who have a “vested interest” in destroying America’s fossil fuel resources are the corrupt green crony capitalists who donated heavily to Obama and the mainly white false prophets of doom and gloom in Acacemia and Green Activist conclaves.

July 4, 2013 11:59 am

Headline CPI from 2001 to 2013, which probably understates somewhat the inflation seen by the average person, is up 31.52%, which includes food and energy. Leaving out food and energy, costs are up 25.86%. So at least half of the increases you are looking are due to a dollar that buys less now than then.

July 4, 2013 12:03 pm

I should point out that a .65 correlation coefficient is not particularly high – it means that less than 40% of the variance of retail rates can be accounted for by using the power source information.
It also may take into account the fact that states often import electricity from sources that I don’t believe can be determined from the stats available from the EIA.

M Courtney
July 4, 2013 12:05 pm

Hawaii baffles me; why is its electricity so expensive?
Reliable renewables are great near where they are available. Hydro in mountainous river systems, tidal barrages in areas with high tidal ranges (with impact assessment for wildlife, of course) and geothermal on the sides of volcanoes.
Geothermal works in Japan and Iceland.
So why does Hawaii have high electricity costs?

July 4, 2013 12:06 pm

I probably should have sited my source: the BLM CPI tables: Interestingly just leaving out energy, costs are up 27.46% from May, 2001, to May, 2013.

Chad Wozniak
July 4, 2013 12:09 pm

@Eric Simpson –
Funny how Holdren and Chu and of course der Fuehrer (with his $100 million family vacation to long-suffering Africa, relying on its bounteous resources of shit – uh, biomass – for cooking) sure aren’t in any hurry to reduce THEIR consumption and downsize THEIR lifestyles.
The hypocrisy, the effrontery, the in-your-face middle digit of these people defies belief. Why can’t more people see this?

M Courtney
July 4, 2013 12:12 pm

The Ghost Of Big Jim Cooley says at July 4, 2013 at 11:44 am…
Everyone note this.
He is absolutely right. Price is not the only issue here. Sovereignty is important. You can’t be independent if your resources are drained as a tribute just to drink water, turn on a light or not freeze at night.
And if you were the foreign power with a tributary state, wouldn’t you want a little extra right now… just when times are hard, you know.. of course just now….
Every other state should look on our works and despair, at our stupidity in the UK.

Chad Wozniak
July 4, 2013 12:16 pm

Yes, the rebates for solar panels and such are a part of the cost of renewables paid by taxpayers, and even the new water heaters might be considered a part of that too.

Tim Crome
July 4, 2013 12:17 pm

And now the US is to export vast amounts of woodchips to power a converted coal power station on the east coast of the UK, following a massivly expensive conversion. Subsidised transatlantic madness, financed by British consumers (luckily I live in Norway).

July 4, 2013 12:25 pm

Paul Homewood says:
July 4, 2013 at 11:18 am
“Like Henry, I pay about 21 cents here in the UK. This is actually cheap (!) compared to the green wonderland in Germany, where their prices are 68% higher still!!”
Give us some time. We’ll have a 5 to 10% increase next year in Germany (building more transmission lines to get solar/win power from here to there and back turns out to be a little bit more costly than expected.)

July 4, 2013 12:42 pm

Nuclear not safe? Show some hard data. Nuclear is safer than most everything else, a pretty sure sign that it’s over-regulated. Buckets kill more people than power-generating reactors. Perhaps what you mean is that nuclear power requires significant safety measures. We can do that, and we are. But you have to put engineers in charge instead of bureaucrats, politicians, marxists, and environmentalists.
So, Willis, the next step is to show the correlation between energy costs and standard of living. When Obama says, “Electricity prices will necessarily skyrocket” he is implying that our standard of living will plummet. Why doesn’t everybody get that? A declining economy is difficult to manage to prevent it from going into free-fall. You know all those unemployed white-collar workers who are sitting on their hands and collecting benefits? They need to move back to the farms and orchards whence their ancestors came a generation or two ago. If they don’t, everything will implode. (Of course, we could also elect people who understand economics and would like to grow the economy instead of shrinking it, but that seems to be a long shot at this point in history.)

Leonard Weinstein
July 4, 2013 12:50 pm

Did you adjust for inflation? That would probably not change the distribution of maximum price (and not help states with increases far beyond inflation), but would probably show a much smaller (if any) adjusted national increase. An average compounded inflation rate of about 2.5% would cause the 13 year increase of near 40%.

Leonard Weinstein
July 4, 2013 12:53 pm

The rate is cyclical over years, so you have to take mid cycle levels. This means the rise is about 40%, not 50%

J B Williamson
July 4, 2013 12:54 pm

From the UK – You can calculate just how much you will be paying under current plans using the Taxpayers’ Aliiance’s new energy calculator.
Enter your latest bills below to find out how much is tax, and how much your bills will be by 2020 and 2030 if politicians do not change their plans

July 4, 2013 1:03 pm

The High Cost of Free Energy

July 4, 2013 1:15 pm

They just want you to live Amish-style and praise the Goreacle….

Lon Hocker
July 4, 2013 2:21 pm

On the Big Island of Hawaii we pay 40 cents per kWh. The EPA decided that the power plants needed to burn lower sulfur fuel (adding another penny per kWh) because the sulfur was reducing the visibility at the Volcanos National Park. Never mind that the volcanic vents at that national park produce about 100 times the sulfur that the all the power plants together produce.

July 4, 2013 2:21 pm

Willis: Interesting post, but not up to your usual standard. You have compared actual prices to prices calculated with your formula. If your formula were perfect, all the points would lie on a line of UNIT SLOPE running from the lower left to the upper right. The inaccuracy in your formula is the distance from THIS line to each point. The line and R2 appears to be for a least-squares fit to the actual and estimated prices and the R2 for this line isn’t the variance explained by your formula alone. For example, the suffering citizens of Connecticut pay $18.67/kWh, you estimate they should pay about $13.50/kWh, but the line says they should pay about $16/kWh.
It would have been nice if you had fit your data to more meaningful equation. Then linear regression would give you the average cost of all major energy sources with a confidence interval. Then we would have some idea of how significant the differences in prices you reported above really are. (For minor sources of electricity, the confidence intervals will be so wide the prices are meaningless.) Did you post a spreadsheet with the data you used?
Total cost = %_source1 * average_cost_source_1
+ %_source2 * average_cost_source_2
+ same for other sources
+ average transmission cost
+ optional factor for population density
As usual, the outliers are the most informative points. For example, among those states with high electricity costs, citizens of Alaska pay relatively less ($15.12) than expected given their mix of sources. Why is that, especially when its low population density makes transmission costs higher than average and its location makes transportation and construction costs high. A possible answer to this dilemma lies in the tremendous revenue the state gets from oil, which results in every citizen getting a check for $1000+ per year. A state with that kind of money to kick around can subsidize the costs of electricity by a variety of methods. So the cost of electricity that you have obtained for each state may not represent the total cost actually paid. According to Wikipedia, seven states – including California – now have feed-in tariffs whereby taxpayers pay the suppliers of renewable power a second time for the electricity they provide. Government subsidies can make the price of renewable energy passed on to customers appear to be whatever the government wants it to be.

July 4, 2013 2:32 pm

One thing to consider about the cost of coal power is the billions that have been spent to retrofit SO2 scrubbers and SCRs to reduce nitrogen oxides. That has driven up the cost of coal power. And all of the smaller, older (and usually cheaper) coal plants are going away by 2015 due to the cost of complying with the new mercury rules. The remaining coal plants will have the highest operation and maintenance costs.

Goode 'nuff
July 4, 2013 2:42 pm

CH4 gets a boost by demand for ethylene, Henry P
Drillers have gotten well costs some lower than George Mitchell who fathered fracking. Drillers will make more money when petrochemical industry takes the ethane and drilling cost is low, that’s a plus for cheap CH4. Lots of good paying jobs, maybe amateurish leader knew this something before War on Coal ‘tm’?
It will create a lot more good paying jobs as a bonus. Certainly many more than the ‘trickle down’ decade did which created not much more than a poverty draft to a deceitful war for some heartless dastard. ‘trickle down’ (as in Bush/Cheney: so Republican flopping guppies understand 🙂

July 4, 2013 3:13 pm

Goode ’nuff says:
July 4, 2013 at 2:42 pm
“It will create a lot more good paying jobs as a bonus. Certainly many more than the ‘trickle down’ decade did which created not much more than a poverty draft to a deceitful war for some heartless dastard. ‘trickle down’ (as in Bush/Cheney: so Republican flopping guppies understand :-)”
You still have trickle down; only government trickle down now. (as witness I call Keynesian mastermind Kurgman who will happily admit that any decrease in government spending is “a drag on the economy”.)
BTW, how are the wars going?

Gunga Din
July 4, 2013 3:13 pm

Kaboom says:
July 4, 2013 at 10:52 am
California was voted “state that would most benefit from experiencing a zombie apocalypse” in 2013

And here I thought that the dead only voted in Chicago.

July 4, 2013 3:27 pm

Another great post from Willis.
(Hoser just hosed him\herself.)
But, that is just my opinion. LMAO

July 4, 2013 3:27 pm

What about reducing it to two variables: The amount of hydroelectric power and the percent who voted for 0bama in each state?

richard verney
July 4, 2013 3:44 pm

You forgot to point out how much CO2 is emitted per Kwh for biomass, and for coal.
If I am not mistaken, due to the low calorific value of biomass (its precise value varies in accordance with the nature of the biomass), it produces considerably more CO2 per Kwh produced, than does coal.
So using biomass not only greatly increases the price of electricity, it emits far more CO2. This is good for plants, but is the complete opposite of what the administators are trying to achieve (namely a reduction in CO2 emissions by the use of green/renewable alternatives).

July 4, 2013 3:48 pm

oeman makes the case for throwing out the dimmers (democrats shutting down power plants).
oeman50 says:
July 4, 2013 at 2:32 pm
One thing to consider about the cost of coal power is the billions that have been spent to retrofit SO2 scrubbers and SCRs to reduce nitrogen oxides. That has driven up the cost of coal power. And all of the smaller, older (and usually cheaper) coal plants are going away by 2015 due to the cost of complying with the new mercury rules. The remaining coal plants will have the highest operation and maintenance costs.

July 4, 2013 3:53 pm

Conclusions? … if you want cheap electricity, go with coal and hydro. And if you get desperate enough for renewables that you start messing with biomass and burning wood to make electricity? Well, you’re in deep trouble … and sadly, California, where I live, is a leader in that regard. Which in part is why electrical prices here in California are through the roof.

Business Week: “Why Are California’s Businesses Disappearing?”

Kevin Kilty
July 4, 2013 4:01 pm

Very nice big picture analysis, Willis. I’m going to bookmark this because I think we’ll need it in many places soon. Thanks.

Jarryd Beck
July 4, 2013 4:16 pm

We’re still paying more than California over here in Australia. Our prices recently went up to 29c/kWh

July 4, 2013 4:23 pm

Nah come to Aussieland for real stupidity where despite our massive reserves of coal and gas the per kWh price has risen from 19 cents to 31 in two years and as the lunacy is ongoing can be expected to rise more. Add that those with solar panels are being threatened with a supplementary charge because we are disadvantaging those who don’t! Can you believe it? Meantime Korea which has just about zip natural fuels (they buy from us) pays less than 10 cents. Then our politicians are puzzled as to why jobs are going overseas and pensioners cannot afford their power bills. God help us for our leaders are driving us into bankruptcy.

July 4, 2013 4:26 pm

geran says:
July 4, 2013 at 3:48 pm
oeman makes the case for throwing out the dimmers (democrats shutting down power plants).

Someone here once suggested calling them Dimocrats. It would make extra sense in this context.

July 4, 2013 4:57 pm

rogerknights says:
July 4, 2013 at 4:26 pm
Yes, it is true, all over the country.
Small power plants forced to shut down.
Remember the line from SNL, in the seventies, “Jane you ignorant slut”.
Now it is “Obummer, you ignorant slut.”

July 4, 2013 5:09 pm

Your nuclear power plant factor caught my interest. In general, price per KWH of nuclear generated power is relatively low compared to the prices you show. The question then is why does having nuclear power in a state indicate an increase in price as compared to states without it? The factors listed by some folks about accumulating reserves for decommissioning and costs of ongoing legal fights are already included in the actual KWH price. All I can do is speculate that since no significant nuclear power plant construction has occurred for decades, those that exist are in states that previously had very strong economies. Those plants now reside in states with less economic strength but still are burdened with regulations from more lucrative times.

Chad Wozniak
July 4, 2013 5:19 pm

@Poems of the Climate –
Do you live in a county where there is “check before you light”? Here in Butte County, wood burning is always prohibited on the coldest days, sometimes half the time for the entire winter.
Of course, it’s really about bossing people around in every detail of their daily lives and demonstrating power over them by making them suffer, not about the environment – many types of gas heaters produce microparticles and NO2 and other nor so pleasant pollutants, probably worse on balance than wood smoke.
But then, when were greens ever deterred from acting on destructive impulses by the environmental damage they do?
Kill them condors! Knock down them whooping cranes! Wipe out them swifts! Spread them microparticles that, unlike wood smoke particles, are all but impossible to cough up and get rid of! Let ’em suffer so I can feel warm and fuzzy. /sarc

Chad Wozniak
July 4, 2013 5:21 pm

P.S. I thought wood was renewable, b ut they want you to burn gas which isn’t.

Duncan MacKenzie
July 4, 2013 5:32 pm

I read your chart a bit differently – this is a chart of the devaluation of the dollar during the Bush years.
OK, that’s both true and silly. This is a chart of the devalutaion of the dollar in the modern era, showing the impact of dramatically falling methane (dirty, dangerous “natural” gas) prices since 2008. Obama hasn’t done anything for energy policy in the past 5 years except to drive a stake through the heart of the nuclear renaissance.
Prices have stabilized solely because improvements in fracking technology have flooded the market with temporarily cheap natural (dirty dangerous) gas. Luckily all of us on this site believe the threat from CO2 to be overblown, or we would all be up in arms over the expansion of another fossil fuel to provide our societal energy needs.

richard verney
July 4, 2013 5:40 pm

Willis Eschenbach says:
July 4, 2013 at 5:09 pm
Thats the answer the green zealots would give, but it is a disengenuous one. In the real world, for every kWh produced by burning biomass, you get more CO2 emissions than would arise if coal had been used.
The simple answer is to not chop down the forest and/or to manage regeneration of the natural forest and one would enjoy all the CO2 sequestration that having forested land gives.
Better still, burn coal and plant some new forests. In this way, you retain the forest that would have been chopped down (to meet biomass needs), and you gain a new forest 9the planted forest). In this manner, there is even more CO2 sequestration, and less CO2 emissions in energy production (since coal emits less CO2 than biomass). A double win.
Going green should be to burn coal AND plant trees. Heck there is a lot of land out there that could be forested, or perhaps as a novel alternative, why not instead of foresting the land, use the land to grow some crops for food production. In this way we can have some cheap energy, we can not needlessly escalate CO2 emissions, and we can have some food to feed the world. Who could have thought that a green solution could have so many benefits.
The green zealots should be called out on the biomass fraud, for that is what it is.

Theo Goodwin
July 4, 2013 5:54 pm

Henry Galt says:
July 4, 2013 at 11:12 am
“Most of your country has ‘leccy prices to die for. I currently pay @ 21 cents after ‘shopping around’ the UK for the ‘best available’ price.”
I shed a tear for the Brits daily. No kidding. With the exception of London, Britain has roughly the economy of Mississippi. I do not mean to put down Brits. I just mean to say that their lives are difficult. except for the elites.

July 4, 2013 6:02 pm

Theo Goodwin says:
July 4, 2013 at 5:54 pm
Yeah, I lived in England for a summer or two. Good people, voting for corrupt politicians, much like the US….

July 4, 2013 6:24 pm

In bleeding-heart socialist green Quebec, families pay 5.5c/kWh. Our power is about 95% hydro.

Chad Wozniak
July 4, 2013 6:44 pm

@willis, richard verney –
What do you suppose the CO2 emissions per watt-hour of energy from burning shit (a kind of biomass) are?

Chad Wozniak
July 4, 2013 6:47 pm

@numerobis –
Don’t the greenies demonize hydro in Quebec, like they do here in the Democratic Peoples’ Republic of Kalifornia? (Note who else the initials stand for – we’re getting close to matching them).

July 4, 2013 6:48 pm

A word for coal. How easily forgotten that New England had deforested itself. Houses required 4-6 coards over the winter. an acre produces about a coard of biomass. The reforested states owe much of the recovery to coal and more recently in the last 50 years to oil. Come to think about it the whales must really appreciate the substitution of petroleum lubricant and electric lighting.
Might I point out that coal was less expensive alternative. We seem to be making a more expensive switch. Go figure!

July 4, 2013 7:15 pm

Willis, It looks to me that if a state voted for Obama, they are being screwed exponentially rather than linearly as your regression assumes.

July 4, 2013 7:30 pm

Liked your graph of rates vs. Obama %. In all fairness though the biases could be purely regional. Perhaps, if you have historical data, the vertical access should be the % increase since 2008. I live in an “Obama” province and our rate increases are about double inflation. If it passes the eyeball test, you could also show the polynomial trendline.

July 4, 2013 7:49 pm

Putting all the money in your friends’ pockets raises ethical questions? Who knew?
So … as usual, the friends of Obama make bank, and everyone else says “How come the US government is favoring the President’s friends?”

Quite a rigged system we have tolerated, eh?
And to think the pompous leftists historians still insist on propagandizing that the Louisiana Purchase and Alaska ( Seward’s Folly ) were some kind of political mistake or even corruption. They have elevated some of the most trivial things during random (R) administrations to legendary status while routinely ignoring stuff like (D) cronyism, which is exactly what this is.
For example, one of their favorite criticisms of Harding just might come back and bite them in the @ass. Wikipedia: Teapot Dome

The Teapot Dome scandal was a bribery incident that took place in the United States from 1920 to 1923, during the administration of President Warren G. Harding. Secretary of the Interior Albert B. Fall leased Navy petroleum reserves at Teapot Dome in Wyoming and two other locations in California to private oil companies at low rates without competitive bidding. In 1922 and 1923, the leases became the subject of a sensational investigation by Senator Thomas J. Walsh. Fall was later convicted of accepting bribes from the oil companies.

The (D)emocratic-Socialist swine and their (R)epublicrat enablers have seen that scandal and raised it an order of magnitude by just renaming the bribes “campaign donations”, skipping the middlemen and handing out taxpayer money directly into the hands of their fraudster cronies.
America is gonna need a new Independence Day.

July 4, 2013 7:59 pm

There are several reasons why nuclear seems expensive.
1. Reinvestment of profit to increase capacity – money goes to future generations, not today’s. “In 1980, nuclear plants produced 251 billion kWh, accounting for 11% of the country’s electricity generation. In 2008, that output had risen to 809 billion kWh and nearly 20% of electricity, providing more than 30% of the electricity generated from nuclear power worldwide”–Nuclear-Power/#.UdYtWb5–Uk
2. From the same source, upgrading of older plant, which is more expensive that building new plant. “Capacity factor has risen from 50% in the early 1970s, to 70% in 1991, and it passed 90% in 2002, remaining at around this level since. The industry invests about $7.5 billion per year in maintenance and upgrades of these.”
3. Political incompetence led to waste of money. Example, shelving the Yucca Mountain proposed waste disposal. “The total cost of constructing and operating the repository is divided between utility ratepayers and taxpayers, with ratepayers estimated to pay just over 80%, or $77.3 billion.”
In general, the nuclear industry has seen costing move from traditional, verifiable figures to include semi-abstract figures, mainly ‘social’; costs, like fiddling with how much insurance has to be paid and how far in advance of claims – if any. The regulatory regime has been way too expensive in view of the very good safety record and it continues to grow disproportionately. The cost of checking USA reactors after Fukushima was high and resulted, IIRC, in practically no engineering changes from existing. “In the United States, nuclear operators will be expected to spend an additional $1 million per reactor to account for additional post-Fukushima safety arrangements, said John Ritch, director general of the World Nuclear Association based in London” ( an estimate one year after Fukushima).
There are other reasons, but these are long enough. The bottom line is that “There are currently 432 operable civil nuclear power nuclear reactors around the world, with a further 68 under construction.”–Uk The people building these have a vision of the future that is not stupid.
Finally, is carbon capture and storage is made mandatory in the future, nuclear costs will easily fall below fossil fuel costs and will be higher than only large scale hydro.

Doug Badgero
July 4, 2013 8:12 pm

Electricity costs are largely driven by the levelized capital costs of the assets. This means it depends in large part on how old these assets are. Nuclear is the perfect example. The plant I work at cost just over 1 billion for 2200 MWe. The two units were completed in the mid and late seventies. Plants completed in the 80s could easily cost 4 times as much for half the capacity.
This same levelized capital cost issues apply to installed scrubbers and any other large capital improvements that had to be made over the last decade or so. Nuclear will be looking at significant new capital expenditures for upcoming license renewal periods also. Similarly they apply to any transmission upgrades that may have been made in your area that are included in the rate structure.
One key point to understand is that electricity rates, in regulated states, are based on the cost to build and operate the assets. The older the assets are the cheaper your electricity is likely to be. However, when something major needs replaced the rates will make a step change. You could NEVER build a plant/transmission line as cheaply today as those that were built 60 years ago.
The cost to operate power plants has also gone up since this is driven by fuel costs for most plants (notable exceptions are hydro and nuclear). They have gone up along with the secular bull market in commodities.

July 4, 2013 8:14 pm

richard verney says:
July 4, 2013 at 5:40 pm
“Better still, burn coal and plant some new forests. …”
Dude! You gotta be careful about these things. If you plant more and more forests, you get more and more photosynthesis, and more and more oxygen in the atmosphere. Pretty soon, some asshole in New Jersey will light a cigarette, and then, BOOM!

Ian H
July 4, 2013 8:30 pm

Sounds like a lovely business opportunity is opening up – buying electricity at the industrial price and selling at a markup to residential users.

July 4, 2013 8:41 pm

Willis writes “Anthony Watts is paying 92¢/kWh, and that’s not a typo, ninety-two cents.”
What is an “Event day” from that graph?
Cost of any commodity is usually determined by supply vs demand. I would think the first order comparison to be made would be increases in supply vs demand for each state rather than their mix of energy types.
I also note that supply for the US in total hasn’t moved much over the last decade. Perhaps its simply not increasing fast enough in some States.

July 4, 2013 8:46 pm

Ian H: “Sounds like a lovely business opportunity is opening up – buying electricity at the industrial price and selling at a markup to residential users.”
California tried that back around 1998/1999. It worked great. Just ask Enron.
(Moral: Never let an agriculture and resource futures market company re-design your utility industry.)

david moon
July 4, 2013 9:10 pm

There seems to be an outlier at around 18% and 40+percent Obama voters. Which state is that?

Chad Wozniak
July 4, 2013 9:39 pm

Willis, your regression sure shows how people have it bassackwards – the greater the harm done to them by der Fuehrer, the more they voted for him. Go figure.
(The one high price-low vote outlier was, one would assume, Alaska.)

Jarryd Beck
July 4, 2013 9:45 pm

Well of course your 95c is an abomination. But I was going by your average California price, which you said was 14–24c. Neither did I take into account the exchange rate, but it’s not that different right now.

Tom J
July 4, 2013 9:54 pm

KR, I came across this little gem at the website ( you provided concerning a discussion of externalized costs:
‘There are inevitable uncertainties and inaccuracies in the externality calculations, both in the original data and in the assumptions we made to combine them. However, the resulting numbers represent our best estimate– far better than assuming that externalities are in all cases 0.’
Maybe it’s just me, but I think those two sentences state the sordid game. First: The ‘uncertainties’ are ‘inevitable.’ Another-words, they’re guaranteed. Second: Apparently when any uncertainty problem in the original data is perhaps not quite so uncertain one still contends with ‘inaccuracies.’ Third: The ‘uncertainties’ and ‘inaccuracies’ are not just present in the final calculations, no, they’re present in the ‘original data.’ An uncertain and inaccurate (Am I using those words a lot?) calculation from uncertain and inaccurate original data. Well, of course! Fourth: Now we get to ‘assumptions’ which is inevitable (this time my descriptive word) since that must be the outcome from uncertainties and inaccuracies. Oh, and it’s all ‘combined.’ Fifth: ‘However, the resulting numbers represent our best estimate-‘ Ok, where to begin? Well, the only interpretation I can get is that the authors are saying, ‘We know we really had no genuine stats to work with, so we made assumptions, so all we could really end up with was an estimate, but c’mon, it was our “best estimate.” Don’t good intentions mean something? We’re good people. Sixth and finally: ‘…far better than assuming that externalities are in all cases 0.’ Why is that better? Better for their cause?
Do they conduct their real lives and finances this way? Sorry, it’s not better than 0. In fact this research is 0. And, don’t dare let us base policy on this kind of crap.

July 4, 2013 10:07 pm

Philip bradley asked why nuclear increases electric rates.
Nuclear is expensive compared to coal and isnt widely deployed. comparatively coal is 5c/kwhr and nuclear runs about 10c/kwhr for levelized costs, deregulation would improve this value to about 8.4c/kwhr according to an MIT study but it is still more expensive than coal, nat gas hydro and geothermal. It is substantially cheaper than solar and comparable to wind but is far more reliable. If cheap power is your goal aim for coal hydro and nat gas, if people want to argue emissions free nuclear is your go to.
Fluidic reactors are alot cheaper but they are also heavily restricted through both R&D and regulatory burdens. but that is another matter all together.
Anthony I believe an exponential fit for your politics vs power costs would be a better fit. It may also make me cry more heartily.

July 4, 2013 10:52 pm

geran says:
July 4, 2013 at 3:27 pm

No, the only thing I did wrong is not read what I wrote carefully enough. As in TX “because” vs. “became”. Sometimes the fingers type by habit rather than what I actually wanted to say, or more likely autocorrect.
So Dude, in your great wisdom, what do you disagree with? Yes, I failed to provide refs, but I’ve did the work years ago, based on the EIA where Willis got his information. The problem with CA is it tries to make everyone live with laboratory-scale solutions that don’t actually work on the scale we need them to work. Did you not know about the 35 MW limit for big hydro? It’s easy to snipe, but what have you actually contributed, O wise one?
And I’d rather be me than you, the Hosee.

July 4, 2013 10:54 pm

Ha! More lack of editing. Oh well, I have better things to do (peristalsis active now) than worry about people like geran picking on typos as if they have real meaning.

Leo Smith
July 4, 2013 11:25 pm

Information for those interested
Energy mix on UK grid:
Why renewables cant actually work:
The damage already done in Germany:
You want a real axis of cost?
Plot electricity prices against how much government MEDDLING there is.
The post modern view of government is that its primary use is as a lobby-able legislative entity that can create profit and stamp on your competitors by regulating an otherwise free market.

July 5, 2013 1:15 am

Willis: Suppose your formula resulted in estimated prices that were exactly 10-fold the actual prices. The points on your graphs would lie exactly on a line (slope 10, R2 = 1), but the differences in energy production costs used in your formula would be absurdly large.
Suppose your formula resulted in estimated prices that were exactly one-tenth the actual prices. The points on your graphs would lie exactly on a line (slope 0.1, R2 = 1), but the differences in energy production costs used in your formula would be absurdly small.
Suppose the actual price were the same in every state. Again the points on your graph would all lie exactly on a line (vertical in this case), but your formula would be adsurd.
Suppose every estimated price were exactly $1.00/kWh higher than the actual price ….
The only line on your plot that can tell readers how well your formula predicts actual prices is a line of unit slope that goes through the origin – not the least squares fit you show.
It is possible to do multiple linear regressions so as to obtain confidence intervals for each coefficient. When you tell readers that coal is $0.05/kWh cheaper than average, readers need to know whether this is $0.05 +/- $0,01 or $0.05 +/- $0.10. How reliably does your analysis tell us that coal is cheaper?

richard verney
July 5, 2013 1:17 am

Theo Goodwin says:
July 4, 2013 at 5:54 pm
Thanks, you are right to shed a tear.
There is a huge north south divide in the UK. Probably 85% or more of the wealth of the country is situated in the South East. It is an area wider than London (London like most capitals has a wide range of wealth, and there are many poor areas).
The UK has been anti wealth creation for generations, perhaps with the exception of the Thatcher era. It is a country of high taxation, huge state intervention and payments, and poorly delivered public services. The government has for generations been inept.
The current energy policy is a case in hand. The lunacy of this policy has been set out many times on this blog. The goal of government is good management. Its task as far as energy is concerned is twofold. First to ensure reliable, stable and abundant supply of energy that meets the needs of the citizen and of industry. Second, this reliable and abundant supply of energy is to be delivered at the cheapest price possible.
Unfortunately, in the UK, we have the very opposite goals. Government policy is hell bent on making energy as expensive as possible (and thereby cutting consumption). As a by product, it is making the energy supply unreliable and intermittent. This is leading to industrial uncompetiveness (putting jobs at risk) and forcing people in to fuel poverty (leading in extreme cases to a greatly increased winter mortality rate in the old and vulnerable). It is inflicting much missery on an already depressed nation.

July 5, 2013 2:32 am

This may seem like a niggle, but energy prices and energy costs are not the same. The price may be treated by the user as a cost of living. But the price can be higher or lower than factor costs.
Is that the point of the blog that in some states like California the price of electricity is higher than the factor costs? (Factor cost = Land + Labor + Capital.)
I accept Willis’s conclusion that state governments can and do distort electricity prices by poor policy choices, but his methodology makes no sense either as financial cost analysis or economic analysis.
For a start, electricity prices are regulated by state commissions. The IRS allows Investors in some states to pay reduce tax on dividends because the regulator does not allow a fair return on capital. Part of the dividend is treated as a return on capital, the assumption being that the state is forcing the utility to dis-invest. For example, depreciation allowance is too low for assets to be replaced.
As for California, anyone who knows the history of the power industry in California knows that state policies were determined by apes, hyenas and people the gods had made mad.

Silver Ralph
July 5, 2013 3:33 am

richard verney says: July 4, 2013 at 5:40 pm
The simple answer is to not chop down the forest and/or to manage regeneration of the natural forest and one would enjoy all the CO2 sequestration that having forested land gives.
Not true Richard, forests do NOT sequestrate CO2. Let’s look at the life-cycle of a forest tree.
Grows for many years.
Burned in forest fire.
CO2 in Atmosphere.
Grows for many years.
Dies, falls, and is consumed by fungi and bugs.
CO2 in Atmosphere.
Grows for many years.
Harvested and used as building material.
House eventually demolished and wood burned or rots away.
CO2 in Atmosphere.
Grows for many years.
Harvested for bio-fuel in Drax power station.
CO2 in Atmosphere.
Growing forests is NOT a form of CO2 sequestration. I did try to take companies offering such a service to court, but my attempt was thwarted by officialdom.

July 5, 2013 3:42 am

What has happened to Anthony Watt’s Solar roof and electric buggy?
Why are so many of you denying the viability of “renewables” when life itself is… and has worked well for a billion years?
Leo, your comment on Gov’t meddling is spot on!
If I roofed my house with panels today, the price per watt of a good quality electric solar panel is approx $0.6. When contractors see easy grant money the price easily triples. More so when the actual electricity generated is paid for at top dollar too!
Sadly, your pdf’s hold no truck with me. My Solar hot water heating system has more than doubled its pay back date from a £500 outlay. Other forms of energy “creation” are cost-plus.

July 5, 2013 4:09 am

Silver Ralph.
Make your mind up, lol.
Growing trees is sequestration of C02. Nobody argues with that.
Burning or letting them rot away is the opposite word —- restoration! 😉
Wood fires are considered to be “carbon neutral” so no “carbon tax” is imposed. But wait, there’s more!
Mankind has cut tree’s down like Billy-Ho over the past 6~8K years But places like central America have been subsumed under forest where massive civilisations once lived.
So, cutting down the Amazon is restoration who’s fires create acid rain over the sea and the Sahel (Southern Sahara) naturally returning to its former loveliness from extra C02 is sequestration.

Eric Barnes
July 5, 2013 4:28 am

A rather large driver of price is the amount or lack of regulation per state.
California did it badly and is at the mercy of power generators/delivery system. Power is essential for a high standard of living and should never have been deregulated. Power at cost plus a reasonable profit is how it should be and the genie needs to be put back in the bottle. Giving bankers and businessmen a free hand with something so essential was a disastrous idea.

Gary Pearse
July 5, 2013 4:45 am

Willis, re your graph on price and percentage votes, I think the distribution is more likely a polynomial in this case. After 50%, energy prices jump up markedly. Please send this to influential Republican congressmen and senators.

Don K
July 5, 2013 4:54 am

Willis. I’m not sure why entirely, but your methodology doesn’t seem to be giving you very good answers. For example, Vermont has high electricity rates, but the price paid to the suppliers — e.g. Vermont Yankee nuclear, Hydro Quebec and local sources — is about 6 cents a kw/hr The remaining 8 cents is distribution cost. Why so much? I’m not sure. Dispersed population. High grid maintenance costs due to heavy Winter snows, Summer thunderstorms, and an awful lot of big trees with inadequate root systems growing in shallow soil in proximity to power lines?
Would we be better off with coal? Environmental concerns aside, and ignoring some high ash content anthracite coal in Rhode Island that was never very aggressively exploited even in the 19th century, the nearest sources of coal are 600-800 kilometers away. The coal might be cheap, the cost of transporting it isn’t. California has a similar situation BTW
Burning wood? Vermont actually has a 50mw wood powered electric facility (google Burlington Electric — McNeil). It’s one of the few in the world. The economics look OK (5 cents a kw/hr), but not spectacular, and it goes through a prodigious amount of wood. (The operator has said that it would have made more sense to locate it near the primary sources of wood instead of near the customers). One suspects that it mostly works because Vermont has very few people and a lot of trees. There are no serious proposals that I’m aware of to build 12 more such plants to replace Vermont Yankee which the local enviroenthusiasts are determined to close. (In fairness, even though I support nuclear power in general, I don’t think the current owner of Vermont Yankee ought to be operating nuclear power plants … or much of anything else).
But I digress. Look man, I’m pleased to see you digging into energy costs, and I’m confident that eventually you’ll do a first rate job. But I don’t think you’re getting good answers yet. Why not take the obvious route and simply total the costs of raw material production, generation, transportation, distribution, amortized infrastructure costs, etc? Some of those (e.g. the true cost of decomissioning power plants) are a bit hazy and somewhat suspect. But most of the murky stuff probably is deferred costs not included in your analysis either.

July 5, 2013 5:14 am

Willis Eschenbach says:
July 4, 2013 at 5:06 pm
(chart of energy price vs. Obama votes)
Willis, this graph is the key to the current pricing policy: It’s crystal clear that, the higher the energy price in a state is, the more people vote for Obama. Raise the energy prices = raise the voters’ approval for Obama – simple, isn’t it?

July 5, 2013 6:12 am

Tom J – What that analysis (using the same EIA data source that Willis has used) shows is that without any external costs whatsoever moving to coal power does not drop prices, and moving away from coal does not raise prices. With any realistic accounting for externals, coal becomes one of the most expensive future options.
Of course, there _are_ external costs – the US government has spent $44B on black lung benefits since the 70’s, for just one example. And according to Willis there may be some external benefits (although being from a coal mining and coal burning region, I can’t think of anything except West Virginia employment figures). A static look at current prices without considering externals both +/-, without considering the costs of future electrical supplies, let alone without considering all possible sources as in the opening post, is not a very useful analysis.

Chris R.
July 5, 2013 6:14 am

To Philip Bradley:
You asked why nuclear increased the cost. The answer is 2-fold: green idiocy
driving fear, and Jimmy Carter.
With respect to green idiocy driving fear, nuclear is so wildly over-regulated
that this adds significant cost. To take a single example, in the U.S.A.,
a nuclear power plant needs sixty-three separate permits
before it can even break ground! Surely, there must be a way to adequately
regulate the industry with some more rational process, that might require,
oh, 4 or 5 such permits?
The second reason is that previous U.S. president, Jimmy Carter,
decreed that nuclear fuel not be reprocessed. This was driven by
fears about nuclear proliferation, etc. France, for example, derives
approx. 77% of their electricity from nuclear, aggressively reprocesses
fuel, and their total radioactive waste storage is one large building.
The U.S., on the contrary, doesn’t reprocess, and the large overhead
for storing radiation waste discourages new plants.
Actually, the U.S. Federal government started a plant for
processing radioactive wastes, but it has not been finished.
It’s also, like many government projects, wildly over initial
budget. To add insult to injury, the Obama administration
has announced they will scale back plans to do commercial-
scale reprocessing to a “scientific scale”.

July 5, 2013 6:27 am

Thank you so much for that. I have said a couple times that wind doesn’t really affect the price of electricity that much, and according to your results the average price in the US is basically equal to the price of wind and natural gas based electricity. That is, swapping natural gas generated electricity for wind doesn’t change the price paid at all.
While there are plenty of evidence based objections to wind, I hope that people stop claiming absurd things about its price since you showed it doesn’t make a difference.

July 5, 2013 6:30 am

HydroQuebec’s “dam them all” policy is not that demonized by the greens (who have other priorities), but rather by the First Nations peoples who get forcibly relocated to make way for the reservoirs. They get a few jobs in return, but they seem to prefer to keep their lands.

July 5, 2013 8:10 am

Andyj says: July 5, 2013 at 4:09 am
Make your mind up, lol.
Growing trees is sequestration of C02. Nobody argues with that.
If I buy a tree to offset my air-travel, as you can do in the UK, the CO2 fixed within that tree will be back in the atmosphere within 50 years or so. That is not sequestration for the CO2 burned in aviation fuel, becaue someone in 50 years time will be saying that burning the tree was ‘carbon neutral’. You cannot count the tree twice in these calculations.

Reply to  ralfellis
July 5, 2013 8:20 am

I’m not party to nut cases who think trees are anything but “carbon neutral” – unless buried & fossilised.Trees grow while nicking the C out of C02 then get burned, releasing it.. That’s “carbon neutral”.
My electric car is one. Nissan talks of my economy as “saving trees” which is a nonsense because no new C02 starves them.

Chris R.
July 5, 2013 8:19 am

To Chad:
You’re being a bit short-sighted when you claim “wind doesn’t affect the
price of electricity that much”. That may be true in a narrow sense, as
far as the rate-payer is concerned. However, the wind energy industry
is VERY heavily subsidized. So we all pay through higher taxes. If
wind energy weren’t heavily subsidized, no electricity utility would use it.
Wind subsidies are not just the 2.2 cents per kilowatt-hour that was supposed
to be temporary in 1992, but which is still being paid. . No, there are a whole
array of them. In 2011, the estimated amount of all non-hydro renewable
energy production in the U.S. was 909,000 barrels of oil equivalent per day.
The Congressional Budget Office (CBO) put out figures on this. According
to the CBO, tax preferences (subsidies) for renewable-electricity production
totaled $1.4 billion in 2011. The vast majority of that money went to the wind-energy
sector. (Note that the $1.4 billion does not include any of the $3.25 billion in tax-free
grants that were given to the wind-energy sector by the Treasury Department under
section 1603 of the American Recovery and Reinvestment Act between 2009 and 2011.)
Using that CBO data, we find that the tax preferences for wind energy total
$1,540 per barrel of oil equivalent per day.
Oil and gas also get heavily subsidized, as does nuclear. But the amount
is quite a bit less. Oil/gas get about 8.2% of the subsidies that wind does.
Nuclear gets subsidized 6.5 times less than wind.
Without being kept afloat on a sea of taxpayer bucks, wind energy
would sink like a rock.

Reply to  Chris R.
July 5, 2013 8:35 am

Chris R.
Nuclear is 100% subsidised for construction. Non-subsidised in use, 100% subsidised for de-commissioning which removes all viability as an energy source. It’s only pay-backs are anti-flutter counterweights, DU tipped munitions and atomic bombs.. All bought and paid for by the taxpayer.
Wind on the other hand, is subsidised by the Gov’t to private firms who get extra tax money for every KWH they produce. Which is silly.
ATM here in the UK were are producing 1.07 GW from wind with over 4 thousand turbines. At the cost of the end users electric bill they are making £380/hour each.
You may not like them but you’re a fool not to invest in them. 😉

July 5, 2013 8:22 am

geran says:
July 4, 2013 at 3:27 pm
No, the only thing I did wrong is not read what I wrote carefully enough. As in TX “because” vs. “became”. Sometimes the fingers type by habit rather than what I actually wanted to say, or more likely autocorrect.
Hoser, please forgive me. I was only trying to be funny. I did not object to what you said. My comment was wrong if it offended you in anyway.

Chris R.
July 5, 2013 9:14 am

To Andyj:
Don’t argue with me, argue with the CBO. Their figures were what I used.

Reply to  Chris R.
July 6, 2013 4:02 am

Chris & Willis… About who pays for what and the total generation and end user costs ….. Keeping it very simple; speaking of the UK.
You don’t need “a body”, “NGO” or any vested interest to find out.

Chad Wozniak
July 5, 2013 10:15 am

R. and “Chad”
Just so readers don’t confuse “Chad” with me, “Chad Wozniak,” my take on wind power subsidies is as I explained in earlier posts on this thread, and Chris R., you have correctly filled in some of the details behind the general statements I made.
The effect of wind and solar on rates, per se, is figured simply by subtracting 8 cents from current electric rates (averaging somewhere around 17 cents; but as I indicated above, if there were no taxpayer subsidies average rates would be something like 42 cents/kWh. And so even the subsidized rate is significantly affected – more than doubled – but the actual cost is 5.25 times as much, at a 33 percent renewables standard..

July 5, 2013 10:59 am

Hey, this is the Chad from earlier (not Chad Wozniak). I will post as Chad B. in the future to remove any confusion. Willis’ results fairly neatly show that wind does not change the ratepayer contribution. If we are going to add in subsidies, fine then fill the subsidies at $22/MWh. However, the overall cost to society can be measured as subsidies+billed cost. Willis’ results show that the billed cost is the same for Nat Gas and Wind, but lower for Coal and Hydro and higher for everything else. You want to nit-pick over that subsidy then we should really consider the other costs from coal like superfund cleanup. Do all coal power plants turn into hazardous wast sites? No, but some do, and I would be willing to wager the amount of tax dollars that goes to cleaning up those sites is somewhere in the same ballpark as the tax dollars for wind. If we are going to include hidden costs there really needs to be some standard set other than “Lets consider them for wind, but ignore them for coal.”
Should we be subsidizing wind? No. Should they be exempt from prosecution for killing endangered animals? No. Should we accept the common assertions on this site that the “true” cost of wind is $180/MWh or more? No. Willis has shown that the cost is similar to that of Nat Gas with the exception of the subsidy. (I agree that subsidy should be phased out along with the preferential treatment given to every other electricity production method. Really who other than our government would decide that every player in the industry is disadvantaged?)
As for $1,540 per barrel of oil equivalent, you have got to be joking, right? In 2012 there were ~140,000 GWh of electricity produced from wind. If $4.6Billion for that 140TWh is $1,540 per BOE, then you are asserting that each barrel of oil could produce ~47 MWh. I would love to see the plant that can extract 47 MWh from a single barrel of oil, especially since the energy content of a barrel of oil is much closer to 1.7 MWh.

Chad B.
July 5, 2013 11:15 am

As far as subsidies go, a robust free market shouldn’t need subsidies for wind, hydro, nuclear, or any one else. Since rivers are a public good then dams should be state owned and bid into the electric market. Contract out the operation of the dams and since they should be money makers (seeing as how they are the cheapest energy production method), use the proceeds to reduce the overall tax burden.
Other than that states should be fairly ambivalent about energy sources. Stop taxing everybody and stop subsidizing everybody. Set fair rules for the market (hazardous waste standards, OSHA standards, etc) and back off. No special treatment for anyone, and certainly no special treatment for everyone. Somebody somewhere has to pay the price and all the subsidies do is hide who pays. Willis is 100% correct that the externalities can’t be properly measured, but what he did is probably about the best way to truly price each of the components (although some sort of normalization based on the miles of HV line per resident may be appropriate).

Chris R.
July 5, 2013 3:18 pm

To Chad B.:
Please cite your source for your claim that ” In 2012 there were ~140,000 GWh
of electricity produced from wind.” Is that in the U.S.A. alone? I find it very
hard to believe that a country that had, at the END of 2012, an installed capacity
of only 60,007 MW, could have generated 140 TW-hours. That requires ALL
the wind capacity of the country to be running at 27% efficiency for the entire
8760 hours of the year. Considering the John Muir Trust put out a study
claiming that the wind turbines in the UK were below 20% more than half
the time and below 10% more than a third of the time, I find this claim
to be a little suspect.

July 6, 2013 4:12 am

In the UK having your own Solar panels on your own roof by a contractor brings a monetary payback of 20%. There are very few investments with that kind of return.
Even IF you do everything yourself, variability is high, depending on personal need and electric usage and circumstances payback works around 10~20%.
Watts happened to Watt’s panels?

July 6, 2013 9:28 am

Doug Badgero says:
July 4, 2013 at 8:12 pm
Electricity costs are largely driven by the levelized capital costs of the assets. This means it depends in large part on how old these assets are. Nuclear is the perfect example. The plant I work at cost just over 1 billion for 2200 MWe.
Hmm. Hazard a guess that’s Cook Plant. Very reliable producer…

July 8, 2013 7:42 pm

I just browsed through 136 comments and some interesting points were made. I saw where Willis called Maine and NY outliers. Well I am in Connecticut and at 18.67 cents per KWH only Hawaii is higher. I would imagine distribution in the Hawaian Islands are a major factor but Connecticut is number 2 in the US because of rediculously ignorant choices by the state legislature. The first dart in our hearts was divesting the power generation from the power companies that now only distribute the power. The state PUC approves every rate hike that comes along. Then add the New England Governors plan where they are trying to fight global warming that will result in CO2 emissions 17% of 1990’s level by 2050. That is really going to cost as well as limit availability. New Hampshire and New Jersey have backed out of the agreement but the socialists in Hartford will ride this AGW scam until Connecticut is a barren wasteland with the entire shoreline owned by The Nature Conservancy for the benefit of their officers and large doners. They have done it through legislation. The actual goal is to make power unaffordable for the majority of users and eliminate private ownership of the shoreline. We have taken California’s idiocy to an entirely new high level. But what the heck, we should all just grin and bare it and accept this as the new world we live in. Yeah, I guess that works for me. Not!

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