Why Will the Cost of Electric Power Continue to Escalate?

By admin Thursday, January 5th, 2012 at 12:56 am

We often get asked to share our views on why electric energy rates will go up, how fast, and why. The biggest reasons we believe the rates we pay for electric power will continue to go up are related to coal, because most of the electricity used in the US comes from coal fired plants. For as far back as anyone alive can remember, coal has been the dominant source of electric power provided here in the US.  In some places (such as Colorado, up until fairly recently) coal provides as much as 90% of electric power consumed. In other parts of our country coal may only account for 40-50% of electric power production today, but across the country the cost and availability of coal are still tremendous factors in the cost of electric power. Coal Fired Plant

Here in Colorado, Xcel Energy (the dominant electric utility) has developed and begun executing a plan to migrate almost all of its plants from coal to natural gas, with this migration expected to be complete by 2014.  The migration involves closing some coal-fired plants, re-tooling and converting some coal-fired plants so they can burn natural gas instead, and building new natural-gas-fired plants to replace the capacity lost through closure of older coal-based plants.  All of this is a smart strategy… and in rolling it out here in Colorado, Xcel has put our state in a good position.  Not only will the switch to natural gas be beneficial in terms of air quality, it will also prepare us to avoid the brunt of coal shortages that may be expected within the next 20 years.

Using natural gas as the fuel to generate our electric power is a good change. However, it will translate into higher costs for electric power because:

  • The capital investments being made to convert to natural gas are substantial, and Xcel Energy is seeking to have those investments paid back through increased rates. These rate increase requests have already been submitted to the PUC.
  • As we begin to use natural gas to generate electric power, doing so will drive up our rates further, because using natural gas is more expensive than using coal, per unit energy produced. Once again, the increased costs will naturally be passed along to rate payers by the utilities.

Coal resources in this country are now thought to be more like 40 years, instead of the 200+ years we’ve been told repeatedly in the past.  Part of the reason electric power has been so inexpensive here in Colorado (compared with many other parts of the country), is that the largest source of coal in the US is Wyoming, and the cost of transporting that coal to plants in Colorado is very modest given the distance involved.  This can be expected to change as we shift to burning natural gas that’s piped in from much further away.

For an interesting view on the larger issue our country faces as we approach the end of of our coal resources, check out this video interview with Leslie Glustrom, Director of Research and Policy at Clean Energy Action (CEA).   Although the interview is from 2009, the message is still very relevant today.   A report available from CEA includes a detailed analysis of the coal situation in the US.

At Arise Energy, we are passionate about the need for greater investment in renewable energy, and particularly in solar energy in areas where that resource is so abundant, as it is here in Colorado.   We continue to work with the governor’s energy office, COSEIA, and other industry leaders to drive for increased investment in solar energy here in our state, and for the required financing and incentives to make solar energy affordable for more Colorado businesses and homeowners.