Fossil-fired electricity prices went up significantly in the last six months of 2021 across the entire U.S. In California prices went up 37% year-over-year. The Midwest saw a 97% rise. You get the picture. Even worse, the increases are here to stay.
How can this be? Natural gas prices drive electricity prices, and gas is much more expensive now. That’s partly a post-Covid shortage, but it’s more a result of natural gas exports. Large gas-exporting facilities recently came online in the U.S. Now large volumes of domestic gas are being sold to pricey Asian and European markets, rather than captive to domestic consumption. In other words, local natural gas prices are now linked to higher world prices. The infrastructure has been built, so the linkage is here to stay.
US natural gas exports to higher priced foreign markets are up 700% in 5 years. They will go higher in 2022. Natural gas is the marginal fuel for electricity, which means that natural gas prices set electricity prices.
How to respond? There are two basic ways to reduce energy costs. One is to access cheaper renewable options. The other is to use less energy by increasing your efficiency. Most states have incentive programs to help. But they are as confusing as they are plentiful. To sort through the complexity, Sustaine’s free Energy Scorecard is a great place to start.