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?”
@chris 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..
KR says:
July 5, 2013 at 6:12 am
Yes. And what the analysis totally ignores is that closing existing coal plants as Obama proposes removes the cheapest fossil fuel from the mix, and removes it after all of the capital costs have been paid …
It also ignores the fact that of all the fuels, coal and hydro have the strongest correlation with fuel prices, and the correlation in both cases is strongly negative … KR, it is your claim that that relationship of coal and price is just happenstance? Because if so, I encourage you to calculate the p-value and report it back to all of us …
As to “accounting for externals”, that’s just a con game. KR, you say you can’t think of an external from coal … and given your point of view, that’s no surprise. You say:
Everything has both costs and benefits, and yes, those benefits include jobs. We know external benefits exist, so whether you are smart enough to recognize them isn’t the question. The question is whether they were considered at all by your cited analysis, which they weren’t. That’s the sign of a fanatic.
In “Monetizing the Effects of Carbon” I showed that the CO2 alone from fossil fuels is worth around $300 billion per year in increased plant growth … gosh, somehow I don’t see that in your cited analysis, KR, nor any analysis of any other external benefit—jobs, local sourcing, not one … and that is the sure mark of a zealot like yourself. They give you the costs but they ignore the benefits.
And that’s why any discussion of the “external costs” and pricing them is a waste of time unless you talk about the external benefits as well. And even then, of course, the alarmists don’t want to admit the true benefits …
Finally, I greatly dislike the entire calculation of externalities, because there is no way to answer the question “costs and benefits compared to what?” For example, suppose someone follows the lead of your citation showing coal is teh eevil, and decides to power their state with nuclear, and winds up with a big pile of nuclear waste … is avoiding the cost of nuclear cleanup an external benefit of choosing coal?
The folks like you who claim we should consider “externalities” somehow never get around to the fundamental question, which is “external costs compared to what”? Are avoided nuclear fuel charges a benefit of choosing coal? Indeed they might be … but I don’t see that in the calculations.
Instead, they always want to compare something like “having coal generation” with “not having any generation” as your citation is doing, when “not having any generation” is not an option. Now, you can argue that we shouldn’t include avoided nuclear costs in a coal calculation … but that’s my point. Depending on what alternative imaginary future you compare it to you get different results, and there is no agreed upon method. So the externalities discussion has no end, just endless arguments about what should or shouldn’t be included. Health effects on the workers? Health effects on the people who lost their jobs because of some changeover? Loss of income to local businesses? Foreign exchange costs if the alternative is sourced overseas? The list of possible “externalities” is endless, and also meaningless—by picking and choosing what to count, you can make the “externalities” figure as large or as small as you want.
But that’s just the details, you don’t need them to separate wheat from chaff. Like I said, any analysis which only considers external costs and doesn’t mention external benefits is an exercise in fanaticism, including your citation.
w.
PS: KR, as far as I can see your claim that the Federal Government paid $44B for black lung benefits is not true. The Black Lung Benefit Act (BLBA) works like this, info from the US Gov’t:
SOURCE
So contrary to your claim, the costs of Government-paid black lung compensation are ALREADY INCLUDED IN THE COST OF THE COAL.
And why am I the one doing your research for you? …
Andyj says:
July 5, 2013 at 8:35 am
While argumentation by assertion is always amusing, a citation for your claimed “fact” would be more useful …
w.
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.
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).
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.
http://wattsupwiththat.com/2011/04/06/whoa-windfarms-in-uk-operate-well-below-advertised-efficiency/
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?
***
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…
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!