Don't Look Now But...

This will be a short blog to bring something to the attention of readers that they may have missed. The wholesale prices of natural gas and electricity in New England exploded in 2013:

• 2013 percentage increase in the wholesale price of natural gas: 76%
• 2013 percentage increase in the wholesale price of electricity: 55%

http://www.bizjournals.com/boston/blog/mass_roundup/2014/03/new-englands-wholesale-electric-prices-soared-by.html?page=all

http://www.masslive.com/business-news/index.ssf/2014/03/iso_new_england_high_gas_prices_push_who.html

According to the above articles, the primary culprits behind these sudden and shocking increases are:

• The increased reliance of New England upon Natural Gas for electricity generation as older coal plants are decommissioned.
• The lack of pipelines to transport natural gas to New England.

Buried inside the first of these is another driving factor: EPA regulations that force coal plants to install expensive scrubbing technology or to shut down.

Another factor is increased demand for natural gas and electricity caused by the recovery of the economy.

This weakens one of the primary criticisms of Cape Wind and renewable energy more generally that we’ve heard since the economic collapse of 2008: That Cape Wind and renewable energy are more expensive than competing energy sources. While this argument is still true, it is much less powerful than it was just a year ago.

More important than this recent change in the financial outlook for Cape Wind and renewable energy are a few things that these price increases should cause us to remember:

• The future of energy prices is unknown. In particular, fossil fuel prices are volatile.
• It is very risky to plan for the future based solely or largely upon current energy prices (especially in the wake of an historic economic downturn).
• Diversifying our energy sources is critical to insulating against sudden increases in electricity prices
• Renewable energy prices are the most stable energy prices in the world because their fuel is free.

Do the recent shocking increases in wholesale prices mean that we, as a society, should run off and invest in huge new renewable energy industries? NO. Let me repeat: NO. The cost of renewable energy is still too high to justify that.

But the 2013 price increases do tell us this: Reasonable investments in renewable energy today may become very valuable down the road…. in our very uncertain future.

p.s. – These increases should also give pause to those who are lobbying for the shutdown of the Pilgrim Nuclear Power Plant which accounts for 10% of all of the electricity produced in Massachusetts. If that plant is unsafe then it must be shuttered regardless of cost. However, if it is safe then the cost of an unnecessary shutdown just went up significantly. A shutdown of Pilgrim would leave a 10% hole in the middle of Massachusetts energy production: A hole that would be filled using natural gas which would drive wholesale prices up even further.
 

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