Winter is coming, and with it, rising energy costs.
For the past several years, power generators in competitive markets have brought record low-cost electricity to the grid, reliably meeting demand while also reducing carbon emissions and building cleaner technology. But this year, national and global factors and higher supply costs are likely to cause a rise in the price of power.
What’s causing the pinch? Don’t blame power generators alone.
First, after years of record lows, the price of natural gas has increased to its highest point since 2008 in response to several factors. These include increased global demand in Asia and Europe, reduced domestic production, reduced storage volume, and the recovering economy. Because natural gas is such a critical part of fueling the electric generation fleet, these costs will axiomatically impact wholesale power prices.
Second, reliable – and cleaner – power delivery depends on natural gas infrastructure. The cancellation of several major pipeline projects may reduce the ability to deliver natural gas to where it’s needed – forcing a switch to higher-emitting resources.
So how should we manage the coming months? Competition can help – competitive power markets are more likely to incentivize lower-cost electricity solutions than monopoly systems. Consumers, too, can take steps to shield themselves. But the longer-term onus is on policy leaders.
In parts of the country where consumers can shop for electricity suppliers, they should consider signing up for a fixed price contract. Where that option doesn’t exist, suppliers can hedge the cost of supply and can help to mitigate any price increases that may end up being passed along to consumers. In monopoly utility regions of the country, fuel costs will simply have to be passed on to captive customers who don’t have alternatives.
On a larger scale, rather than ask OPEC and Russia to increase their output of natural gas and oil production, President Biden and Congress should take the kink out of the hose and allow America’s producers to fill the global supply gap – which they can do according to the highest environmental standards in the world. Shifting production and any associated emissions overseas and hoping for international supply increases won’t mitigate climate change on a global scale. It also hampers American leadership and energy independence.
Finally, policymakers must begin having real discussions around how America can thoughtfully achieve the energy transition while ensuring reliable power. We can’t base our energy future on wishful thinking that ignores real-world technical challenges. Today’s energy crisis in the United Kingdom, Europe and Asia provides a glimpse of our future if we fail to consider the medium- and long-term outcomes of policy choices.
The reality is, according to the best available research, a lower-carbon economy and a transition to more renewable energy relies on natural gas and other firm power generation sources to support intermittent resources. Energy + Environmental Economics found that in states served by the nation’s largest grid operator, PJM Interconnection, 50-90 GW of gas will be needed to maintain reliability on a deeply decarbonized system. Greater electrification – from stovetops to vehicles – will increase electric demand, which today cannot be met just through wind and solar. For the foreseeable future, natural gas is the best fuel to keep the lights on with the lowest carbon footprint.
We don’t even need to look overseas; blackouts in California and Texas are all instructive as we consider how to advance the energy transition. Keeping the proper alignment among reliability, affordability and emissions reductions can help us get to the desired outcome.
The good news? A solution exists – nearly all economists and leading energy policy experts agree that a carbon price would be the most efficient means to reduce emissions and incentivize clean energy while maintaining the benefits of competition.
Right now, consumers have choices to make and time to prepare. Competitive power suppliers are deploying private capital to operate, innovate and invest in reliable and cleaner generation technology, including renewables and storage. In the meantime, the policies that states and federal policymakers pursue must be reality based, taking into consideration power system operations and what can be achieved while ensuring reliability – and unleashing the benefits of competition to bring efficient, least-cost solutions.
Todd Snitchler is the president and CEO of the Electric Power Supply Association, which represents competitive power suppliers providing about 150,000 MW of electricity to the grid from all resources. This was first published by Real Clear Energy.
