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Will fracking & cheap gas keep electricity prices down?

asked 2014-12-31 13:23:07 -0500

TimD gravatar image

I keep hearing about how cheap natural gas has become thanks to the environmentally destructive practice of hydraulic fracturing - fracking.

Even with all the fracking and excess natural gas, will electricity prices continue to increase in the future?

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answered 2015-01-08 10:27:51 -0500

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updated 2015-01-08 10:27:51 -0500

energysage gravatar image

Even with the increase in the use of fracking, electricity prices are highly likely to continue rising in the long-term, even if they fall in the short-term. In the last 10 years (2004-2013), utility electricity prices have risen at a rate of approximately 3.55% annually, according to data from the Energy Information Administration (EIA). But year-on-year the figures are quite variable - in 2006, for example, electricity prices jumped about 10%, whereas between 2008-2009 they hardly rose at all on average.

There are a few other complicating factors that cast doubt on the 'fracking is the solution to our energy woes' storyline. One is that natural gas produced domestically in the US will likely become more expensive when new markets overseas are opened up by the construction of new export facilities here in the US. In Europe and Japan, for example, there is huge demand for natural gas and therefore prices are higher. Gas prices are quite volatile for these reasons. We've pointed out that high gas prices in Massachusetts and Connecticut are the main reason for recent electricity price hikes in those states (http://blog.energysage.com/electricity-prices-in-massachusetts-connecticut-skyrocket-can-solar-help/). The other is that the cost of electricity is only partially due to fuel costs - the other major part is distribution and transmission costs, which are unrelated to fuel costs but which still increase.

Most renewable energy technologies - solar, wind and hydro, for example - there is no cost of fuel as there is with 'conventional' forms of power generation such as coal and gas plants. This means that the cost of electricity generated by renewable energy plants will not be prone to the same fluctuations as those that run on fossil fuels. So if you buy a solar system, you're locking in 'free' electricity for the system's lifetime (once your investment pays itself off). If you get a system with a solar lease instead, make sure you get a good deal on the rate they charge you for solar - and keep a close eye on how much your solar rate will increase annually (the 'solar escalator').

(Read more about buying vs leasing a solar system here: https://www.energysage.com/solar/financing/should-you-buy-or-lease-your-solar-panel-system)

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Asked: 2014-12-31 13:23:07 -0500

Seen: 1,020 times

Last updated: Jan 08 '15