From this side of the Atlantic, European governments seem to have little concern for low-cost power. For instance, a colleague says that in Germany, electricity costs about $0.50/kWh (€0.38/kWh) during peak hours, and about $0.25/kWh in off hours, usually from 10 pm to 6 am (as I recall). Because it is priced that way, he says he’s careful to do energy-intensive tasks, such as ironing clothes, after 10 pm.
In Japan, the government introduced a feed-in-tariff last June in response to the tsunami that removed a nuclear plant from the island’s grid. Presumably the FIT is to encourage energy production. Utilities will now pay ¥42/kWh for solar power, (about $0.45/kWh) twice the tariff paid in Germany and three times the tariff offered in China, according to a recent online article. Japanese ratepayers will feel that pinch.
Another article reports that the Spanish government is planning to reduce its deficit with a 6% tax levied on all generation – renewables included – and a “green cent” tax on coal, fuel oil, and natural gas. This raises the burden on average citizens to pay for government miscalculations.
For contrast, an electric bill from the U.S. Midwest shows the cost of power to residents at about $0.115/kWh around the clock. Our home electric bill reports that $0.057/kWh pays for power production and transmission while other charges boost the overall rate to the $0.115 figure.
Relatively expensive power and how it shapes behavior prompts the question: Should electric power come at prices with moderate cost or as inexpensively as possible? There are advantages to each.
Expensive power encourages conservation and careful use, just as my German acquaintance related. What’s more, costly power encourages more development of devices that use electricity frugally, such as sensors that turn lights off in unoccupied rooms and more efficient air conditioners. Sufficiently high prices also encourage power production. You can see that in Europe as it builds wind farms offshore, a location that is twice as expensive as on land.
On the downside, costly power punishes those with incomes that can least afford it. What’s more, the cost of all manufactured products is driven up by expensive energy thereby making production in some countries less competitive. This is a serious handicap in a world economy.
Low-cost power, one could argue, encourages consumption which puts demand on power producers and loads on generators. So what is best for the U.S – high or low energy costs?
In my mind and without a doubt: the lowest possible cost. High costs punish consumers without benefit and reward producers without reason. Taxes on energy punish citizens for a government’s inability to control its spending. Consider one item, the cost of food, which rises and falls with the cost of energy. Can you think of a better way for a government to punish its people than to make food expensive?
Restraining high costs is a good argument for the Production Tax Credit, which encourages production at no cost to taxpayers, while long term power-purchase agreements (often 20 years) keep costs to consumers low and stable. A competitive energy market is a great advantage to every producer and consumer be they individual or company. Let the energy producers compete. WPE
Filed Under: Policy