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Why electricity will continue to become more expensive

published, Dec 21, 2010 2:43am
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Forget the cost of carbon, the cost of energy is going up, wether we like it or not.  In Melbourne, it's been 50% since 2006 and the utilities predict another 50% by 2015

created on: 12/21/10

2010 has had two hikes, first up in January with a 15% rise coupled with a Smart Meter levy - anywhere between $67 and $104 per year.  July took another 15% hit, taking most people's peak energy rates into the 22 c/kWh mark.  

With 2011 nearly ready, odds are short for another rise, personally I'm betting on 25c /kWh.  This is starting to become a little expensive, and it's now a common point of discussion, and it's important to understand why this is happening.

The electricity is a pure commodity, and one that can't really be stored (forget pumping hydro).  This means it needs to be generated at the instant we purchase it by turning on a light switch, TV or Air Conditioner.  This is a natural supply and demand market, and unknown to many there is a very sophisticated wholesale energy trading market that makes the stock market seem quite simple.

Over the last few years, the sales of appliances like Air Conditioners have been quite successful, and these all require electricity.  Simply put, at a time when we have more energy than any other time in history, we don't have enough.  The generators can't keep up, and the market responds by increasing the wholesale price.

On hot days, everyone want's their cooling air conditioner running, and we buy our electricity at standard rate of 22 cents per kWh.  The retailer on the other end is buying this energy from the market, sometimes at a rate of up to $10 per kWh.  A bit of a mis match?

The result, the energy retailers loose a lot of money on hot days, and the only way they can recover is by raising the rates another notch or three.

So simply put, it's the the economics of supply and demand at work.  While we continue to demand more electricity than there is available, the prices will continue to go up, up and up.

This is why the utilities are installing Smart Meters.  Not to help us save energy directly, but by increasing the information they have about peoples energy usage so they can charge us more.

Sam,

@samotage

 

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Another factor is China (and the developing world generally). Once upon a time, when the US economy sneezed, oil demand fell enough to drop the oil price, helping trigger recovery. Not so today, China is there buys oil for it's booming middle class. No $20/bbl oil this time.

 

Oil is our most flexible and thus most valuable energy. Energy's gold standard. The price of all other energy sources are based on the oil price.


Between Peak oil & China, energy prices are only going one way: up!


High energy prices mean the US & Europe are in for long grinding recessions not seen in the life times on most.

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