How much does renewable electricity really cost? Can we afford it?

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We’re always hearing that renewable electricity generation is too expensive, but how expensive is it really? I was reading an article about the large deployment of low-emission and renewable energy sources in Germany and France (yay!!), but it mentioned that Germany has some of the most expensive retail electricity in the world as a result. That made me wonder, how much more expensive is their electricity in Germany than ours is in the U.S., and is that difference in price really all that big? Would people easily be able to bear that price increase without really noticing it? So, I did some digging…

  • Average price of electricity in Germany: $0.32 per kilowatt hour.
  • Average price of electricity in the U.S.: $0.1232 per kwh (per EIA)

That price is 2.5 time higher. But, how much money are we really talking about here?

  • Average electricity use per U.S. household per month: 909 kwh in 2013 (per EIA), which amounts to 10,908 kwh per year
  • Average household electricity cost per month: U.S. : $112
  • Average household electricity cost per year: $1,344

So, how do those numbers change if we jump to Germany’s electricity price?

  • Projected household electricity cost per month: $291
  • Projected household electricity cost per year: $3,491

It should be noted that electricity consumption per household in Germany is less than 1/3 of per-household electricity use in the U.S. (due to many factors, including home size, efficiency standards, efficient behavior, etc.) and, therefore, German household electricity expenses would actually average less than those in the U.S. But admittedly, there is a substantial difference between what we currently pay in the U.S. and what we would pay with higher electricity prices like those seen in Germany.

So, how does it compare to what people are actually earning? Could people bear that extra cost?

  • Median household income in the U.S.: $53,046 (per the U.S. Census Bureau)
  • Average electricity bill as percentage of median income: 2.534%
  • Electricity bill with higher prices as percentage of median income: 6.581%

That’s a sizable jump in percentage of household income, which may be quite difficult for many households to bear financially. If prices were to jump to those levels tomorrow, it is likely many households would need assistance. Would federal government assistance be feasible?

  • Number of households in the U.S.: 115,610,216 (per the U.S. Census Bureau)
  • Estimated total cost of U.S. residential electricity – current prices: $155.38 billion
  • Estimated total cost of U.S. residential electricity – higher prices: $403.6 billion
  • Difference between the two: $248.22 billion

$248.22 billion is a huge amount of money. Could the U.S. government handle that type of expense?

  • Expected monetary income/receipts of the U.S. government for 2015: $3,176 billion (per The White House budget report)
  • Additional electricity cost as a percentage of that figure: 7.8%

That extra expense would be a significant portion of the federal budget – so that’s not really an option.

As much as I hate to admit it, it would be quite difficult for U.S. consumers to absorb a price jump of that magnitude — without any other adjustments — if that’s what it took to deploy renewable electricity generation. But, greater energy efficiency within homes would reduce electricity consumption (and therefore cost per household), and the U.S. Department of Energy estimates that efficiency actions could save the average household 25%. Plus, the cost of generating renewable electricity has dropped substantially in recent years to be on par with many fossil fuel sources, and that trend is expected to continue, with costs projected to drop an additional 40% in the next four years.

So today, the (unassisted) cost of renewable electricity generation may be burdensome for many U.S. households. But, lower electricity use (due to greater efficiency) coupled with lower generation costs could bring the household cost for renewable energy in line with what they pay today in under five years. I know major change doesn’t happen over night; but in the grand scheme of things, that’s pretty fast. Let’s get to work!

 

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