Tuesday, August 11, 2009

Falling Electricity Prices

The WSJ reports that wholesale electric power prices nation-wide (U.S.) have fallen dramatically in 2009, with recession and lower natural gas prices as the primary causes. They use the units of $ per MW-hr, a bit confusing for the consumer who is accustomed to seeing prices in cents per kWhr.

The article states that "in the Houston pricing zone, which has many power-gobbling refineries and chemical plants, the spot-market price was $61.82 in June, versus $129.48 a megawatt hour a year earlier." In cents per kWhr, that is 6.182 cents in June 2009, compared to 12.948 cents in 2008, for just over a 50 percent decline.

Retail customers pay a higher price than wholesale, largely because there is more capital equipment required to step down the voltage in substations, there are more distribution lines to businesses and residences, and many more meters to measure power consumption. The reduction in wholesale prices will eventually also be seen in retail prices, but perhaps not by the same amount.

With the certainty of abundant natural gas and low prices, currently below $4 per million Btu compared to $12 in 2008, low electric power prices will be assured for a long time. This has several ramifications.

First, if electric cars, or plug-in hybrid cars, are mass-produced and purchased, the incentive to buy such a car becomes much better. Gasoline at $3 or even $4 per gallon cannot begin to compete with the cost of recharging a car's battery when power price, even at retail levels, is around 10 to 12 cents per kWhr. Power companies are likely to offer a special low prices for recharging the car battery, by putting in place a time-of-service contract in which off-peak power (at night) costs less than on-peak power (during the day). This will reduce the cost of charging the car even more.

Second, lower utility bills puts more money in the consumer's pocket, and that will be spent which will increase the sagging economy. Businesses will find a good use for the increase in cash flow, too.

Third, the endless droning from nuclear power advocates that nuclear power is the cheapest power available will be seen even more clearly for what it is, a desperate attempt by a dying industry to fool the public one more time, just like last time in the 1970s and 80s. With a new nuclear power plant of 2200 MW cost upwards of $20 billion, and requiring a decade or more to complete, no utility will build such a power plant when their competition is selling wholesale power at 6 cents power at kWhr. Nuclear plant owners must receive 30 to 40 cents for every kWhr in order to pay off the cost of construction for the plant.

There are not many bright spots in a deep recession such as the one we are presently experiencing. Perhaps lower power prices are one. Also, tough times require consumers to take tough measures, including finding ways to cut their power bills. Such lessons will be applied long after the recession ends.

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