What is the Cost of Clean Fuel?

Is Clean Fuel Cheap?

Consumers have begun to feel at least a modest pinch in their electric bills. The impact is expected to grow in the next few years as utilities accelerate their investments to meet state quotas requiring a portion of clean energy in their generation mix. What consumers may not know is that bills in Congress would impose a similar national quota, an idea President Obama supports!

The cost is one reason electric rates have been fairly stable as oil and natural gas prices have plunged.

“There are offsetting costs — renewables is one — that are keeping power prices up,” says Larry Makovich of Cambridge Energy Research Associates (CERA)

Until recently, clean energy didn’t noticeably affect rates because it accounts for just 3% of U.S. power generation. That’s changing as utilities scramble to meet state quotas, says Standard & Poor’s analyst Anne Selting. Among rate increases:

• In Arizona, Tucson Electric Power has raised rates 4.5%, or about $4 a month for an average customer, the past two years to fund new solar power to meet state quotas. Solar is pricey, costing more than twice as much as natural-gas-fired electricity. And since Arizona has surplus natural-gas power, the solar energy has not replaced generators that would be built otherwise, says the utility’s Joe Salkowski.

• In Oregon, Portland General Electric is seeking a 2.3% rate increase to raise the annual $41.3 million needed to fund construction of a big wind farm.

• In Texas, the prices Austin Energy pays for wind power more than doubled recently. The reasons: strict state renewable quotas that drive up demand and high costs to deliver wind energy from West Texas, says General Manager Roger Duncan. Customer charges could rise next year, he says.

• California has among the highest electric rates, partly because it requires 20% clean energy by 2010, Makovich says. And with the most accessible green power tapped, Southern California Edison is spending $2 billion to build lines to deliver wind energy from remote areas, says utility executive Pedro Pizarro. It’s also developing expensive solar power.

Renewable energy is deemed a bargain, as there are no fuel costs. But since it’s spotty, utilities must set aside conventional power as backup and build lines to deliver clean power from far away. Wind power is 30% more costly than natural-gas-fired energy after figuring those costs and assuming moderate gas prices, CERA says. A U.S. standard requiring 20% clean energy by 2020 could boost electric rates about 15%, vs. building standard power, Makovich says. He advises phasing in quotas gradually.

Still, green energy is widely supported to fight global warming. High fossil fuel prices or an anticipated cap on power plant carbon emissions could make clean energy competitive with — or even cheaper than — conventional electricity.