Going Up: The Causes of Rising Energy Costs

Going Up: The Causes of Rising Energy Costs

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As we move toward a grid system with a growing share of renewables, the entire business model for electricity is changing. The U.S. power mix includes 12.5% of its power from true renewables (wind, solar, hydrothermal and biomass, and 19.8% from renewables when including hydro. For comparison, WA state gets 2/3 of its power from hydro and only 3% from solar, wind and biomass. Since 2008, the global average price for a solar panel has fallen more than 90 percent, helping to build a case that the world could switch to clean energy and save money. 

Utility districts could take advantage of the huge reductions in costs for Solar and Wind power generation – so, why is adoption slow and energy costs on the rise? 

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The major variables are:

Weather

In hot weather, there is a loss of water resources affecting hydro-power production.  WA state relies on hydro for 2/3 of its electricity yet hotter temperatures and less rain/snow is reducing the total output of hydro in the state. If hydro is reduced, utilities are forced to purchase more expensive forms of energy. 

Power PlantCosts and Distribution

All power plants have financial demands from construction, maintenance, and operating costs. These prices are passed on to the consumer. In the same way, transmitting and distributing electricity to the consumer comes at a cost. The system or “grid” needs to be constructed, kept running, and upgraded; these costs are passed onto ratepayers. 

Fuel Prices

When supply is disrupted due to extreme weather conditions, any damage to the delivery infrastructure of fuel can affect prices. An increase in fuel costs directly correlates to rising electricity costs and because our grid infrastructure is shared by the western half of the US, even incidences in other states affect WA energy costs. 

Residential and Commercial Clients pay more

Residential and commercial customers pay a higher price compared to industrial and transportation clients. Industrial clients often demand a lot of electricity at a high voltage, which is cheaper for utilities to provide. 

Storage and Distribution

Our power demand as a society does not perfectly mirror the time of day that solar and wind can contribute the most to the grid. With wind turbines, you need consistent wind to generate power and that can vary. With solar, you are generating the most energy midday, whereas the afternoon and evening are when homeowners consume the most power. The solution is utility-scale storage and while research and development are happening in this area, there are not widely available or adopted utility storage solutions. 

Availability of power plants, fuels, local fuel costs, pricing, and regulation, also influences the amount you will pay. For example, prices in Hawaii are about 28.33¢ per kWh, and in Louisiana, they are at 7.65¢ per kWh. 

Due to factors like inexpensive natural gas and reduced cost of renewables, the cost of producing energy has actually declined or stayed flat in recent years. As a result, energy charges can trend down, while the cost to deliver that energy has stayed the same or even increased. Due to aging infrastructure and capacity constraints, energy providers must increase demand rates to make up for lost revenue and cover fixed costs. 

Image Source: We Energy

How are utilities dealing with the above issues? 

Time of Use Billing 

Many utilities are adopting a billing style called time of use (TOU) billing, which is what it sounds like. The utility will charge a different rate depending on the time of day that the electricity is consumed. This makes a lot of sense for helping to incentivize customers to use power during the time of day where electricity is easier to provide and to charge a premium during the time of day it is most expensive for the utility. 

This billing can be advantageous for solar customers, depending on when their solar is producing the most power and whether that falls during a rate tier that is the most expensive. Even if that is not the case, a solar customer can program a battery backup system to charge during cheaper times of day and power their home during the peak rates. Ask your Solar Design Consultant more about this. 

Demand Charges Are Increasing 

One of Washington’s major energy neighbors, Californians may have noticed an increase in their electricity bills this year, as energy providers recently raised rates by up to 11 percent. The change is less obvious because these rate hikes only affect one specific part of the bill – demand charges. 

Demand charges, a lesser-understood part of the electric bill, are based on the maximum power required by a home at a single point in time for each billing cycle. Demand charges often make up more than 50 percent of total costs for commercial energy users, and these rates continue to rise. Demand rates have increased by an average of more than 75 percent over the last decade!

Energy Efficiency Won’t Eliminate Costly Demand Peaks, but Solar can help! 

Many homes have attempted to lower their electricity bills with energy efficiency initiatives such as LED lighting, motor or pump upgrades, or improved insulation. While these all help lower overall energy consumption and are a smart thing to do, they won’t eliminate costly peaks. Until now, there has been little to nothing that can be done to control the one part of your bill that has consistently become more expensive. 

Fortunately, Solar policy in Washington allows residents to control future demand charges when you go Solar! A combination of benefits from Net Metering’s 1:1 kWh trade, energy analytics, and reporting, and energy storage can insulate a home from both demand charges and energy charges. 

 

If you are interested in exploring solar for your home, call or text 206-462-1103 or fill out our form here.

Author Bio:

 

 

Jessica Miller (she/her) is a PNW Native and professional sun appreciator working as a Solar Design ConsultantHer 12 year old dog Lucy is a regular at the office and makes sure Jessica plays as hard as she works. When not on a roof, she can be found in the garden or falling down research rabbit holes. 

Words matter. Images matter. Communication matters. Actions matter.

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