The Artificial Price Point on Energy

  • Published on July 24th, 2014

energy price indexThere is a term that is often used in the debate of renewable energy whenever there is discussion of adding tax credits for renewable energy or when the cost of energy from renewable sources is discussed. Typically it is being said by somebody that is pretending to back the use of renewable energy or expansion while there actual actions show a different agenda. They like to discuss the price point of energy where “once the technology can break this price point barrier then it will be time to really go in the direction” then there comes the inevitable “but we just are not there yet so right now…” 

This is the sound of the wizened adult gently explaining to the wayward child why their ideas have merit but that they are being inpatient. Why it would be better for everybody for them to just stop interfering. They have this magical price point argument to explain why the renewable energy is just too expensive still, and it would bankrupt the citizens of the County/State/Country were it to be allowed to go forward.

What is the Price Point Number?

The “price point” refers to the cost of a unit of energy using conventional fossil fuels vs the cost of a unit of energy using renewable energy sources. On the face, it seems to be a logic based argument that has merit. PV panels were not always as efficient as they are now and the cost of a PV/watt used to be much higher. When this argument was created 40 years ago it was a fact that the cost of electricity per kwh from fossil fuels was considerably lower than the cost of the same kwh of electricity from solar or wind sources.

This is because the efficiency of PV cells 40 years ago seldom broke the 10% mark. Now they routinely double that in real world installation and lab cells that are in the high 40% are rapidly approaching a 50% efficiency in the newest hybrid PV cells. In addition the cost of solar panels measured by wattage has reduced dramatically over the same time period. The cost of solar panels dropped 60% from 2011 to 2013 alone. So, now with solar panels anywhere from 2x to 4x as efficient and the cost of these panels dropping exponentially this price point keeps changing,

Even though fossil fuels have in theory dramatically increased in cost and solar energy has dramatically decreased in cost, we are still hearing the same speech with the same discussion of price point so it is apparent that the price point number moves over time and it is far more of a talking point than a real number. As with any talking point, it is subject to change based on the whim of the person doing the speaking.

How Does the Price Point Change?

That is the real interest in the discussion. How come no matter how much more efficient and cheaper the solar power gets, we still stay tantalizingly close but never quite reach the price point where it makes sense according to the person doing the talking? That is because the numbers giving the data keep changing in a way that artificially decreases the cost of fossil fuel energy while artificially increasing the cost of solar energy, this is done in several ways

  1. 1.When the utility companies declare their cost of fossil fuel provided electricity, they use the subsidized cost – the cost after receiving millions in federal subsidies. The solar number is giving before the value of any tax incentives. This allows them to charge an additional premium to customers electing to receive “green energy” so since their own bills say it cost more, it is easy for people to believe it costs more.
  2. 2.As customers become more energy efficient and use less electricity, more of the bill is collected as a service or hookup fee and less is measured as a cost per kwh. This means that the more energy efficient a home is, the higher the effective cost per kwh, when you divide the total of a bill by the total kwh used. The utility company uses this artificially inflated cost per kwh in setting the price point.
  3. 3.When feeding green electricity back into the grid a customer is receiving a credit of less than the cost of standard electricity per kwh, however, when they take it out of the grid it is charged at the higher green energy cost. This once again serves to show the independent provided energy is more expensive and provides less credit than it does in reality.
  4. 4.If a customer actually provides more energy into the grid than they use to the point where at the end of a year the utility company owes them a balance due, the balance in most areas is by legislature either turned into a 0 – so no payment is received, or if they receive payment they immediately lose all tax incentives of the installation which artificially increases the cost of the installation once again moving this price point.

While the discussion of price point continues and these numbers continue to be manipulated in these ways, it is clear it is no longer a real number but simply a talking point to maintain the status quo. In the US where the utility companies own a virtual monopoly on large sections of land, each utility company can produce its own numbers using these methods so it is no wonder that this price point is slower to be reached than in other countries around the world with a single national utility cost.

Incentives here come in the form of tax incentives and after production incentives that allow these manipulations, where in countries like the UK they come as part of the Green Deal Initiative so costs are based on actual cost and savings. This prevents the cost from being adjusted in different ways to serve the needs of the speaker.

Photo from Shutterstock. This post was supported by the Mark Group

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