Richard 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)
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”).
- Does nuclear power have a negative learning curve? ‘Forgetting by doing’? Real escalation in reactor investment costs
- Consumer surplus and electricity markets: When compared to the value of the service they provide, U.S. electric rates are an astonishingly good deal