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:
Figure 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.
Figure 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.
Figure 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,
w.
[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 …
[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?”
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.)
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.)
Willis,
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%.
Willis,
The rate is cyclical over years, so you have to take mid cycle levels. This means the rise is about 40%, not 50%
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
http://energyswindle.org
The High Cost of Free Energy
Precisely.
They just want you to live Amish-style and praise the Goreacle….
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.
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.
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.
CH4 gets a boost by demand for ethylene, Henry P
http://www.icis.com/Articles/2013/03/22/9652683/afpm+2013+us+ramps+up+cracker+project+slate+on+shale.html
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 🙂
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?
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And here I thought that the dead only voted in Chicago.
Another great post from Willis.
(Hoser just hosed him\herself.)
But, that is just my opinion. LMAO
What about reducing it to two variables: The amount of hydroelectric power and the percent who voted for 0bama in each state?
Willis
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).
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.
Business Week: “Why Are California’s Businesses Disappearing?”
http://www.google.com/url?q=http://www.businessweek.com/articles/2013-07-03/why-are-californias-businesses-disappearing&sa=U&ei=PvzVUbGdMM3ligKi2IGgDQ&ved=0CBgQFjAA&sig2=GFGJBMjHBeGFktSMzDhtAw&usg=AFQjCNEyZXcQy7oH-4nVoL7rKGrz3z1M1w
Pops says:
July 4, 2013 at 12:42 pm
Already done, see my post called “Jim Hansen’s Policies Are Shafting the Poor“.
w.
Very nice big picture analysis, Willis. I’m going to bookmark this because I think we’ll need it in many places soon. Thanks.
We’re still paying more than California over here in Australia. Our prices recently went up to 29c/kWh
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.
Someone here once suggested calling them Dimocrats. It would make extra sense in this context.
Frank says:
July 4, 2013 at 2:21 pm
Frank, that comment is not even interesting, it’s far, far below your usual standard …
I hope that example above in bold typeface opens your eyes to how gratuitous insults like that don’t improve communication. If you disagree on the science, say so. If you have nasty comments, stuff them where the sun don’t shine. I almost didn’t answer your post because of your unnecessary insult.
Yes, if my formula were perfect all the points would lie on a unit slope line at 45° … so what? It’s not perfect, so they don’t.
You seem to be upset that a simple, first cut equation isn’t perfect … or if not, I don’t know why you’re upset. I’m not understanding your objection.
I truly don’t get your point. The line is the best fit to the data points predicted by the equation. I don’t understand your objection.
If I calculate the R^2 the way you propose, that is the same as a linear fit that is forced through the zero point … but it’s still a linear fit, just a different fit.
But the problem with your theory (that the trend line should go through the zero point) is that that implies that if the state got all of its energy from natural gas, the price would be zero. Why? Because all four variables would be zero, and you’ve insisted the trend line go through zero. As a result the constant drops out and the formula becomes a*x +b*y + c*z + d*w = estimated price, and if the four variables are zero, then the price becomes zero … not good.
But that’s not what would happen in the real world. Instead, following the trend line I showed and NOT your trend line, if all four variables are zero, it says that the price will be about 13¢ per KWH … and that’s much closer to reality than your trend line …
w.
PS—The R^2 figured your way is about 0.5, rather than 0.65 … so sue me.
rogerknights says:
July 4, 2013 at 4:26 pm
Yes, it is true, all over the country.
Small power plants forced to shut down.
http://billingsgazette.com/news/local/ppl-montana-to-mothball-corette-power-plant-in/article_41fa3a1b-a9b7-51d5-b4dd-93fbfb1796ca.html
Remember the line from SNL, in the seventies, “Jane you ignorant slut”.
Now it is “Obummer, you ignorant slut.”