This article was originally published in the July/August 1993 issue of Home Energy Magazine. Some formatting inconsistencies may be evident in older archive content.



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Home Energy Magazine Online July/August 1993




Cheap Electricity


A minor revolution is occurring in the electricity supply industry. A flood of cheap natural gas, combined with high-efficiency, low-cost combined-cycle gas turbine generation units, has made it possible to supply electricity at very low prices. This is a new technology which has been promoted by private firms and, to a much lesser extent, investor-owned utilities. Utilities across the United States are suddenly discovering that private companies can sell them electricity for far less than it costs the utilities to generate it in their existing, large nuclear and coal facilities. What does this have to do with conservation? Lots.

The incremental cost of new power determines how much conservation is cost-effective and establishes the scale of utility demand-side management programs. If low-cost power is available, then the more expensive conservation programs will be jettisoned in favor of electricity purchases. Even in the Pacific Northwest, which is known for its historically low electricity prices, the competition from the new gas-fired sources is forcing a major reassessment of conservation programs. Some of the marginal residential weatherization programs will be the first to disappear.

Cheap electricity has other impacts. Utilities are facing the fact that they will probably not be building any new power plants; instead, they will meet increased demand by purchasing power from these new, low-cost generators. As a result, utilities from California to Ontario are downsizing, first to rid themselves of the construction departments, then to lower their overall costs by shrinking every facet of their organization. The utility company of the future will be a leaner organization, but less capable of building both power plants and conservation programs.

Should this cheap electricity be encouraged? The good news is that electricity rates will drop. The bad news is that we are substituting a valuable resource--natural gas--for higher efficiency. Cheap energy encourages low efficiency and creates future hardships when those cheap supplies are depleted. There are reasonable arguments supporting the imposition of a carbon tax, or perhaps even a special efficiency tax, to keep efficiency investments attractive. But there are also compelling reasons for exploiting cheap electricity whenever it is available. These are policy decisions that must be made in state regulatory commission offices and in Washington, D.C.

Most experts believed that electricity prices would gradually rise, but didn't recognize the implications of these new electricity sources or their impacts on the electricity supply industry. Now we should prepare ourselves for a long-term drop in electricity prices. Some utilities' electricity rates will not fall immediately or rapidly because they are still financing facilities brought on during the high-interest rate period in the 1980s, and because of the recently proposed Btu tax, but a structural adjustment is clearly underway. Cheap electricity means that conservation technologies will soon need to pass much stricter tests in order to pay for themselves. The result is that there will be a shakedown in the conservation industry, too.

    Alan Meier


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