Every winter it seems, a story comes out of Europe concerning how high energy costs are affecting the old and the poor. The one that sticks in my mind is from several years ago, when an article described a German senior citizen who couldn’t afford to heat his apartment, so every evening he would turn on a single light bulb and warm his hands over it before going to bed.
Given that Germany is a highly developed first-world country, scenes like this seem impossible. However, electricity costs in Germany are the highest in the European Union (EU) at about $.34/kWh (in U.S. currency). Compare that to the U.S., where the average price people pay for electricity is about $.12/kWh. One reason for Germany’s high cost of electricity is its aggressive move toward using renewable energy sources such as wind and solar. Investing in these technologies is expensive, which is why each German kWh includes a 23 percent renewable energy surcharge.
California has now signaled that it, too, intends to follow Germany down the renewable energy path. In September, the governor signed a bill requiring that 100 percent of the state’s electricity be generated by renewable energy sources such as solar or wind by 2045. This is an expensive proposition and will significantly boost California’s already high residential electricity costs, which are currently about $.20/kWh. Under the new mandate, the state will not only need to pay for more renewable energy, it will need increased storage and transmission capabilities as well. Some estimates indicate the state will need about 200 times more energy storage than it currently has to compensate for natural gas-fired plants.
What is ironic is that California already produces too much renewable energy at times, but the supply often does not match the demand from customers, noted California Independent System Operator (CAISO), which manages the state’s electricity grid. During peak times -- such as late afternoons and early evenings -- there is often too much demand and not enough supply, which is why the state will need to invest heavily in large-scale energy storage technology.
This is going to be a costly endeavor, and as a result, homeowners will likely see their electricity costs increase significantly. Business owners will also see higher utility bills cut into their profits, which may affect the salaries and benefits they offer employees. Supermarkets could be especially hard hit, as electricity used to power refrigeration systems and lighting consumes over 50 percent of a store’s total energy use. Store owners will respond to higher electricity costs by raising prices on products, which will then be passed on to the consumer.
All of these scenarios will hurt low income individuals the most. Indeed, green energy policies that call for increased use of renewables – usually in place of low-cost natural gas -- are already making electricity less affordable for the poor. According to an article in The Detroit News, green policies have resulted in energy bills that now consume 20 percent or more of income for many of the poorest Americans. To be considered affordable, utility bills should be no more than 6 percent of one’s income.
In California, higher electricity bills will be accompanied by higher housing costs, as earlier this year, the California Energy Commission (CEC) adopted building standards that require solar energy systems be installed on most new homes starting in 2020. According to the CEC, the standard will increase the cost of constructing a new home by about $9,500, but some experts disagree, noting that the added cost will be closer to $30,000, once the mandate’s additional requirements of a tighter building envelope and high-efficiency appliances are taken into consideration. Right now, only about 25 percent of households in California can afford a single-family home – which has a median price of almost $601,000 – and higher construction costs could push that number even lower.
There is no question that we should seek to produce the cleanest forms of energy production possible, because everyone wants to breathe clean air. But energy policies that set an aggressive timetable to eliminate cheaper (and increasingly cleaner) forms of energy without replacing them with comparably affordable solutions are often regressive and ultimately hurt those who can least afford them. Particularly in California, which, per the U.S. Census Bureau, already has the highest overall poverty rate in the nation.
Publication date: 12/2/2019
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