Climate

Electricity prices in America are low

Richard-Caperton-smallRichard W. Caperton continues his series on U.S. energy markets.

For decades, the mantra of the American utility industry has been to provide power at the lowest possible cost.  While reliability is tough to compare across countries, the evidence is that our utilities have almost certainly succeeded at making power affordable.

Consider this chart showing electric prices across the developed world, in cents per kwh:

Electricity Prices Around the World (US cents/kWh)

World-Electric-Prices 3 final

NOTE:  That chart does include taxes.

American rates are low for a lot of reasons, including the fact that much of our infrastructure is fully-depreciated, regulators have generally done a good job of looking out for consumers, and our utilities are well-managed.

Most interesting, though, is that the there’s very little correlation between the fuel that a country uses for power and electric rates.  Australia, like the United States, is heavily coal-based.  Portugal gets a huge amount of power from wind and solar.  Spain famously has invested heavily in solar power.  Canada uses primarily hydropower.  France, with rates about twice those of the United States, uses nuclear power.

This is not to say that nuclear power will necessarily raise rates, or that adopting Spain’s feed-in tariff for solar would necessarily reduce rates.  Instead, this demonstrates that a country’s entire electricity system, not just its fuel mix, is the real determinant of rates.

In the United States, we have a system that has kept rates low.  Now, we need to build cleaner sources of power into that system.  Whereas the old mantra was “affordable and reliable,” the new mantra has to be “clean, affordable, and reliable.”

— Richard W. Caperton is a Senior Policy Analyst with CAP’s Energy Opportunity team.

JR:  Also, power doesn’t include the full cost of externalities — the harm it does humans and the environment (see Life-cycle study: Accounting for total harm from coal would add “close to 17.8¢/kWh of electricity generated”).

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13 Responses to Electricity prices in America are low

  1. Jack Bone says:

    [snip]

    If you can point to specific inaccuracies, please do. Much of the data comes from here, which appears to be a credible source. One must convert euros to dollars.

  2. Atz says:

    This analysis is not very useful at all, because you are comparing electricity rates that include taxes (energy taxes, VAT) of various kinds.

    Looking at pre-tax figures is much more illuminating:
    http://www.e-control.at/portal/page/portal/medienbibliothek/presse/dokumente/pdfs/HEPI_Juni_englisch_Final.pdf

    [JR: We should run both, yes, but actually the point is still the same — U.S. consumers pay a lot less. Same for gasoline. True, American policymakers have chosen not to tax electricity significantly, even though that would more accurately reflect its harm to society.]

  3. Bryson Brown says:

    I’d like to know more about these numbers. If you factor in the other charges (for transmission, access, and many other items– the bills are pretty much unreadable and incomprehensible) we pay here in Alberta (Canada), the rate is much, much higher than the nominal 7.5 c/ KwH that I see on my bill. If Denmark’s number really reflects what consumers pay, then they’re doing a lot better than this graph would suggest.

  4. Lewis C says:

    Singapore – having no fossil energy resources and scant space for power plants, had and maybe still has an exemplary electricity pricing structure that is not shown by the average figure in the chart above.

    With the priority given to social stability by the autocratic government, a system of tranches was set up to ensure sufficient but frugal power usage.

    The first tranche of supply to each customer was priced at near cost, and was large enough to meet basic needs.
    The next was smaller and priced to generate profit for re-investment.
    The third tranche was priced as a luxury for those who could afford it.

    As a means of encouraging the efficient use of power supply while ensuring that none are excluded by price, this system has much to offer the over-developed economies of the west, as well as developing economies around the world. While it doesn’t get near the all-round efficacy of “Tradable Energy Quotas”, it has to be far simpler to establish and operate, particularly in less developed nations.

    Regards,

    Lewis

  5. Mike Roddy says:

    Good info, but the Spain figure is incorrect. They’re about 9.7 euros/kwh for home consumers, about in the middle of EU countries:

    http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=ten00115&plugin=1

    The interesting thing about the European data is that the weak sisters like Bulgaria and the Baltic states have both the cheapest power and the crappiest economies. Spendy power countries like Denmark and The Netherlands have the strongest economies, including growth rates. The mantra that we can’t “afford” higher power costs is false. Raising electricity rates will trigger conservation, as it did in Europe.

    These efficiencies would include smaller houses and cars, which we need to switch to anyway.

  6. Rob Honeycutt says:

    I would be interested to compare these numbers with what we spend per capita on energy. The question posed being: When we pay less do we actually spend more? Could paying a little more actually cause us to spend less?

  7. Some European says:

    I agree that no specific trend is to be read in this graph. No apparent correlation between electricity cost and economy or generation model. The story is far more complex. The message for people in the US should be: stop wining, you’re actually pretty spoiled with low electricity and gasoline prices.
    It seems Obama is losing popularity because of rising prices at the pump. How stupid. It’s like the Spanish blaming Zapatero for the financial crisis. They didn’t cause it. They got elected into an existing mess.
    Nearly every day, I think of this part in Orwell’s ‘Animal Farm’ where the seven commandments of animalism are written on a wall and then gradually disappear and change at a rate just slow enough so that nobody would really notice until the only commandment left is “all animals are equal but some animals are more equal than others”. How stupid people are.
    And what a mistake to have applied the corporate model to news organizations.

  8. Mike # 22 says:

    As with the financial surpluses being lavished on luxury tax breaks and luxury wars, these number support the overall conclusion that the US economy is well positioned to tighten its belt half a notch and focus a few percentage points of GDP on whats needed. New power. Quick.

    Locally, electricity is 18 cents for residential. Green power through a local coop is slightly cheaper(!). In my experience, I’ve never actually met anyone who could initially tell me what their electric usage is in kwh–per day, per month, however. This includes engineers, scientists, and penny pinchers. People are just not skilled at understanding energy use, anymore than they understand the zeros after the 3, as in 3 trillion in costs for a luxury war.

    My glass is half full. If the majority of the developed countries can prosper under electricity prices twice ours, than surely we can add a few cents for a decade or so to get all this squared away.

    (didn’t see Japan in the list. tough audience, sry)

  9. Andrew DeWit says:

    Mike asks about Japan’s costs. Here’s a comparison:
    http://www.enecho.meti.go.jp/denkihp/shiryo/ryokin-kokusaihikaku.pdf

    It’s in Japanese (couldn’t find an English comparison), but easy to figure out and from credible sources (METI, the BS machine on Fukushima). The purple bar is household costs per kWh, the wine bar business rates per kWh. The actual figures are expressed as decimal points (because USD/kWh), and in the bar charts the Japan rates set at 1.00 to make for easier comparison with other countries. From left to right, the countries are Japan, US, UK, Germany, France, Italy, Korea.

    METI wants to demonstrate that its partial deregulation (from 2000) of the monopolized utilities (including world-famous TEPCO) lowered rates for consumers. Guess they’ll have to amend that chart when the bills come in for all the hastily contracted thermal power (including the UK’s Aggreko). Much of the costs of the Fukushima meltdown will of course be diluted among the public finances, like radioactivity in the ocean, a hassle only for the little fish.

  10. Solar Jim says:

    I’m not sure what country my northeast state is in since the cost of electric service is between 25 and 30 cents per kilowatt-hour. That is “cost of service,” not just the generation rate, which is but one of many charges on the monthly bill.

    It is interesting that the cost of solar, including site-based, is going down while the electric grid cost is trending upward. Especially when storms are increasingly taking the grid down.

  11. David B. Benson says:

    In one TEPCO serviced city in Japan the residential rate is 30 UScents/kWh.

  12. Mulga Mumblebrain says:

    I think figures concerning the cost of electricity, like inflation numbers are a load of rubbish. For a start a cost that is of no consequence to the gilded elite is disaster for the underclass, currently burgeoning throughout the Western world. And inflation figures are monstrously misleading, not only in the crapulous distinction between ‘core’ and ‘non-core’ numbers, but because different groups consume a different ‘basket’ of goods and services, and hence suffer widely differing rates of inflation. Another example of this statistical dissembling is the insistence of the propaganda machine in relying on ‘average’ incomes (inflated by the larcenous depredations of the bandit class) rather than median wages or any interest in income distribution across deciles. Bad news there for the apologists for market capitalism and its ‘magic’. Raising electricity prices might have no effect on consumption, as the rich will happily over-indulge as ever, and the poor will simply be screwed, yet again, and will do without other things to keep warm and able to cook their food and light their hovels at night.

  13. Anne van der Bom says:

    I am disappointed at the superficiality of this article. Not quite up to the standard that I expect here.

    It shows (at least for The Netherlands, but probably too for a lot of other countries) household prices. Businesses pay a lot less taxes and really large enterprises pay virtually no tax. Only 20% of electricity is consumed in households, so this article does not analyse the price that the other 80% is sold for.

    Joe, please ask mr. Caperton to do his homework next time.

    [JR: We will strive to do better. Yes, these are the prices that people experience, not businesses. That was the point of this post. I do think a few numbers need a bit more checking, but the central point is correct. U.S. electricity prices are relatively low, and that is a basic fact people should know, just as they should note that are gasoline prices are relatively low.]