The National Renewable Energy Laboratory (NREL) recently released a study that found 850 utilities across the United States now offer some form of green energy program. In 2009, green energy sales by electric utilities exceeded 6 billion kilowatt-hours (kWh) or approximately 5% of total kWh consumption.
The municipal electric utility Austin Energy was the top electric utility having sold almost 765 million kWh of green energy in 2009 or over 10% of national green energy sales. Rounding out the top five utilities were Portland General Electric (Oregon), PacifiCorp (Ore. and five other states), the Sacramento Municipal Utility District (Calif.), and Xcel Energy (Colo., Minn., Wisc. and New Mexico). Supplies of wind power were the renewable energy common denominator for these top five utilities.
The City of Palo Alto Utilities in California had the greatest percentage of customer participation in a utility green energy program. One out of five of its customers purchased green energy. This level of participation was double the level of participation of Portland General Electric that ranked second in the percentage of their customers buying green energy. Rounding out the top five were Madison Gas and Electric Company (Wisc.), the Sacramento Municipal Utility District, and the City of Naperville (Ill.)
Most telling is the dramatic narrowing in the price difference between green energy and non-green energy sold by the utilities. In 2000 the price for green energy was 3.4 cents higher. NREL reports that today this price difference has fallen to a 1.75 cents per kWh.
The U.S. Department of Energy (DOE) reported that the average residential price for electricity in 2000 was about 8 cents per kWh (the total average price for all customers was about 6 cents). At these 2000 electricity price levels buying green energy represented an approximately 50% price premium. Today the average price for electricity has increased to almost 10 cents per kWh with residential customers on average paying almost 12 cents per kWh. At these price levels the price premium for buying green energy has dropped to approximately 10% more in cost. And there was even one utility, Edmund Electric, where the price for green energy was LESS than the price for non-green energy.
The comparison of NREL’s research on falling green energy prices and the EIA’s documentation of utility electric price increases defines the growth potential for the utility industry and green energy. It appears only a matter of timing when increasing fossil-fueled electricity prices and decreasing green energy prices reach price parity.
Two additionally telling issues add to this economic analysis. One is the potential cost at the meter for “clean coal.” Electricity fueled by coal represents 50% of our nation’s total electricity generation. A U.S. DOE study estimates the current cost to recapture and store CO2 emissions from coal fired power plants to be $100+ per ton of CO2. The DOE references an analysis performed by SFA Pacific, Inc. that found electricity would cost 2.5 to 4 cents more per kWh if current CO2 sequestration technology was deployed at existing coal fired power plants. At today’s prices for green energy the cost for “clean coal” added to the current average utility prices would result in green energy achieving at least price parity, if not moving into a position of being the lower priced electric energy supply alternative.
The second issue is the potential for future utility price increases beyond the potential of price increases tied to the costing of CO2 emissions at the meter. The utility industry faces massive new investments in power plants, transmission lines and smart metering systems. A Moody’s 2009 study projected electric utility capital expenditures through 2019 to be 150-250% of the industry’s previous year’s annual depreciation and amortization rates. This means the industry will have to raise external sources of funds for which they will seek rate increases to reflect this increase in their capital costs. In addition, coal has become a global commodity trading at prices three times historical norms. This globalization price for fossil fuels further adds to the potential for utilities filing for rate increases.
Globalization is having an opposite effect upon green energy’s costs. Globalization is creating manufacturing economies of scale that are driving down the per-unit cost for green energy. A UNEP funded study found that global investment in renewable energy has grown six fold from $22 billion in 2002 to $155 billion by 2008. The ramifications of this scale of capital investment is fueling the growth in manufacturing capacity in Europe, China and the United States that has created a global market for solar panels which is now delivering panels priced 50% lower at approximating $3 per DC watt. At this panel price in many parts of the U.S. a solar power system is price competitive with utility supplied power.
The implications for electricity prices and green energy are:
- The price premium for green energy is going away. The price for green energy is declining. The price for non-green electricity is increasing. Even without Federal legislation the time is rapidly approaching where green electricity will “cost less, mean more.” Federal legislation reflecting the price at the meter and pump of fossil fuels’ externality costs will only accelerate the timing of this sea changing pricing event.
- Customers are increasingly buying green. Beyond the topic of electricity there is a sea change occurring in consumer buying behavior. Market research has document that the overwhelming majority of consumers will buy the more sustainable product versus the less sustainable product if their prices are at least in parity. Today’s green electricity sales by utilities are only 5% of their total sales. This is representative of the green market segment that will pay more to go green. However, the consumer implications when green energy achieves pricing parity are massive for the utilities, our economy and our environment. The economics of green energy holds the promise of providing rate stability and environmental recovery.