Rising Price of Electricity

Although rates vary from region to region, the cost of electricity is generally increasing.

Prior to the current global financial crisis, analysts generally accepted that the price of electricity would double in the USA by around 2015. There is no question that electricity prices will continue to rise, however there are market forces that could slow down or accelerate the rate that prices increase. However a look at the market forces that are affecting electricity demand imply that electricity price increases will accelerate over the long term.

Off the top of my head, market forces that could slow down electricity price increases:

  • Downturn in manufacturing and lower industrial electricity consumption due to the financial slow down.
  • Consumer demand for certain high electricity consumption will likely decrease (plasma TVs especially).
  • Restricted household budgets could increase uptake of energy efficiency or reduced consumption.
  • Higher per home occupancy.
  • Tax credits being proposed or passed for home improvements, especially energy efficiency improvements.
  • Increasing use of high efficiency lighting.

Market forces that could accelerate electricity price increases:

  • Subsidies for coal and natural gas are being reconsidered by several governments, especially the Obama administration and the Government of California.
  • Increased public opposition to carbon fuel sources in general, especially coal.
  • Increased “Not in my back yard” (NIMBY) activism opposing coal, natural gas, nuclear and even wind developments is restricting new electricity supply.
  • Pressure and incentives to re-introduce electric cars which could massively increase demand.
  • Energy efficient versions of appliances tend to be higher priced, resulting in less efficient options being selected more often.
  • Increased public and political will to add a cost to emitting CO2, and the current cap and trade system that the Obama administration is looking at would dramatically affect electricity supply, both by increasing costs, and in some cases, putting certain electrical supplies out of business.

These lists are far from comprehensive and likely oversimplify market forces, but in general, the things that could decelerate cost increases in electricity tend to be more temporary with less long term consequences, where as the market forces aligning to increase the cost of electricity seem to be things that will continue to effect electricity costs long term.

All of which means that the moving target of grid parity could be coming up faster than many people think.

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