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Home Energy Magazine Online July/August 1993
EDITORIAL
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.
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