Posted on 23 September 2024 by dana1981

This is a re-post from Yale Climate Connections

After decades of stable electricity prices, U.S. residents have seen their rates rise by one-third over the past four years. 

The fossil fuel lobby and some Republican politicians are exploiting the opportunity to falsely place the blame on clean energy sources. 

“We are going to get the energy prices down,” former President Donald Trump said at an August 2024  rally in Wisconsin. “You know, this was caused by their horrible energy – wind.”

In reality, wind is the cheapest source of new power in the United States today. 

It’s true that electricity from wind and sunshine is intermittent, depending on the weather and time of day. So these power sources require building more energy storage and electrical transmission lines. But their fuel is free, unlike fossil fuels, whose prices vary wildly. 

A plethora of evidence, including real-world electricity rates and power generation mixes, demonstrates that wind and solar energy tend to reduce electricity prices compared to fossil fuels. Bottom line: Electricity prices have generally increased for the same reason as everything else – inflation.

Some states with lots of cheap renewables have low electricity rates

Wind energy has been the cheapest source of new electricity in the U.S. for about a decade, according to the Lazard financial services company’s annual levelized cost of energy report. 

This analysis accounts for the cost of electricity generation over the lifetime of the source, including factors like capital, operations and maintenance, fuel costs, financing, and utilization rates. In other words, it accounts for the fact that wind and solar power are intermittent. They are nevertheless the two cheapest sources of new power available in the U.S. today, especially when including clean energy tax credits from the 2022 Inflation Reduction Act, or IRA. 

The levelized cost of electricity sources in the United States over time, including clean energy tax credits from the Inflation Reduction Act. Created by Dana Nuccitelli using data from Lazard.

Because wind power has been cheap for a long time, many states in the windy central U.S. have installed a lot of wind turbines. These states provide a real-world test of the effect that deploying renewable energy has on electricity rates. As the chart below illustrates, many of the states with the highest percentage of wind and solar generation, like Iowa, the Dakotas, Kansas, Oklahoma, and New Mexico, have among the lowest electricity prices in the country. And a 2023 report by University of Texas at Austin research associate Joshua Smith estimated that renewables reduced electricity rates by about 13% in that state from 2018 to 2022.

Why are electricity rates rising?

U.S. electricity rates have long been stable, generally deviating no more than plus or minus 10% from the national average of about 15 cents per kilowatt-hour. But since 2022, national electricity prices have risen to nearly 20% above the long-term average, approaching 18 cents per kilowatt-hour.

A recent report from the energy and climate policy think tank Energy Innovation, a Yale Climate Connections partner, sought to identify the causes of those electricity rate increases. The title of the report didn’t leave readers in suspense: "Clean Energy Isn’t Driving Power Price Spikes.”

Instead, as a result of inflation caused largely by the COVID-19 pandemic, the cost of virtually everything has increased over the past several years. The Energy Innovation report notes that American electricity rates since 2010 have risen at the same rate as inflation. But electricity bills have increased more slowly due to improved home energy efficiency: Energy-efficient appliances and light bulbs mean families can keep the lights on (and the dishes washing) while consuming less electricity, for example.

Some states experienced bigger electricity price increases than others. Energy Innovation concluded that the most expensive rate increases happened in states with more fossil-fueled power generation. The report found that many utilities have continued to invest significant amounts of money in aging, expensive coal power plants. And it noted that “the states most reliant on natural gas for electricity generation were among those with the highest rate of retail price increases as gas prices surged since 2020,” in large part because “Russia’s invasion of Ukraine left Europe scrambling to reduce dependence on Russian gas, driving gas prices in the U.S. up by a factor of four in a matter of months.”

Source: Energy Innovation with dashed trendline added by Dana Nuccitelli.

Maintaining and upgrading the power grid also adds costs. Many of America’s electrical transmission and distribution lines were built over 50 years ago and need to be replaced and modernized. And electricity demand is growing due to factors like expanding data centers, artificial intelligence, and the electrification of vehicles and buildings. But most of those infrastructure upgrades are necessary regardless of where we get our electricity from.

Wildfires, not renewables, are driving rate increases in California 

California has the highest electricity rates in the continental United States, and about one-third of its electricity is generated from renewables. (It’s worth noting that household energy bills in California are close to the national average because the state has invested heavily in energy efficiency, so though electricity rates are high, electricity consumption is low.)

Electricity rates have risen rapidly in California over the past few years, primarily as a result of wildfire risk. The utility Pacific Gas & Electric was held liable for the over $16 billion in insured losses caused by the Camp Fire that swept through the city of Paradise in 2018. Since that disaster, California electrical utilities have been forced to fund wildfire risk insurance pools, wildfire prevention measures, improved power grid resilience, and other wildfire-related costs. According to the California Public Utilities Commission, wildfire-related costs have been responsible for most of the rise in state electricity rates.

Research has shown that climate change is a wildfire “threat multiplier” that has doubled the area burned by California wildfires over the past 30 years. One of the most important ways to lessen those risks and avoid worsening wildfires and the resulting rise in electricity rates is to deploy climate solutions like solar and wind power.

Ultimately, the Energy Innovation report determined that wind and solar energy are solutions to, not causes of, rising electricity prices.

“The volatility of fossil fuel prices, the cost of climate-driven wildfires, and surging spending on aging infrastructure all contribute to rising rates,” the report concluded, “while falling costs of clean energy can help to offset these factors.”