Electricity is a commodity — indistinguishable regardless of the source (all kWh are the same), available from different suppliers and easily transferable. But like many commodities, the cost of electricity varies depending on the location to which it is delivered.
The cost range for electricity in northern California is fascinating. Utilities pay as low as $0.04/kWh for electricity they generate in centralized solar plants. Many companies are installing rooftop solar systems for the equivalent of $0.06/kWh (less for commercial installations). And the average charge to consumers is $0.20/kWh. Why such a big range between wholesale generation costs and retail selling price? First, there are a lot of costs involved from generation to retail sales. And second, some electricity business models are much more expensive than others.
Conventional utilities provide three electricity services: generation, transmission and distribution. Here is how utilities break down their rate components to get to a retail rate of $0.20/kWh:
- $0.10/kWh for electricity generation (usually at a central power plant)
- $0.02/kWh for transmission at high voltages over long distances (those tall electric towers)
- $0.08/kWh for local distribution (that local network of substations, transformers and utility poles)
But why is the cost of electricity so high when generation costs are $0.04/kWh, and rooftop costs are $0.06/kWh? Mainly because monopoly utilities are not under any competitive pressures. A simple comparison between investor-owned utilities (IOU) and municipally owned utilities (MOU) illustrates this point. My local IOU charges an average of $0.218/kWh to homeowners; just 5 miles away the local MOU charges an average of $0.115/kWh. IOUs have much higher cost structures; spend hundreds of millions of dollars lobbying regulatory agencies, legislators and the public about why they need high rates; and get a guaranteed profit of 10 percent.
I can’t think of a single reason why we cannot transition to a more consumer friendly and less expensive way to generate electricity. Please Listen Up to the Energy Show on Renewable Energy World for more about the artificially high price of electricity, and the future of cost-effective and reliable power generation.
About the Energy Show
As energy costs consume more and more of our hard-earned dollars, we as consumers really start to pay attention. But we don’t have to resign ourselves to $5/gallon gas prices, $200/month electric bills and $500 heating bills. There are literally hundreds of products, tricks and techniques that we can use to dramatically reduce these costs — very affordably.
The Energy Show on Renewable Energy World is a weekly 20-minute podcast that provides tips and advice to reduce your home and business energy consumption. Every week we’ll cover topics that will help cut your energy bill, explain new products and technologies in plain English, and cut through the hype so that you can make smart and cost-effective energy choices.
About Your Host
Barry Cinnamon is a long-time advocate of renewable energy and is a widely recognized solar power expert. In 2001 he founded Akeena Solar — which grew to become the largest national residential solar installer by the middle of the last decade with over 10,000 rooftop customers coast to coast. He partnered with Westinghouse to create Westinghouse Solar in 2010, and sold the company in 2012.
His pioneering work on reducing costs of rooftop solar power systems include Andalay, the first solar panel with integrated racking, grounding and wiring; the first UL listed AC solar panel; and the first fully “plug and play” AC solar panel. His current efforts are focused on reducing the soft costs for solar power systems, which cause system prices in the U.S. to be double those of Germany.
Although Barry may be known for his outspoken work in the solar industry, he has hands-on experience with a wide range of energy saving technologies. He’s been doing residential energy audits since the punch card days, developed one of the first ground-source heat pumps in the early ‘80s, and always abides by the Laws of Thermodynamics.
Lead image credit: Patrick Breitenbach | Flickr