Electricity transmission in the United States, distribution costs exceed electricity generation costs

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Strong points

T&D costs of utilities 65% higher over the decade

The trend could continue with the modernization of the network

U.S. utility transmission and distribution costs have grown faster than the costs of generating electricity over the past decade, with utilities spending on providing electricity 65% ​​higher in 2020 than in 2020. in 2010, a trend that could continue as public services invest in modernizing the network.

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“Over the past decade, major utilities in the United States have spent more to provide electricity to customers and less to produce that electricity,” the US Energy Information Administration said in a research note from 23 November.

After adjusting for inflation, major U.S. utilities spent 2.6 cents / kWh for electricity delivery in 2010, in 2020 dollars, and the expense for delivery was 4.3 cents / kWh in 2020 , while utility spending for power generation declined from 6.8 cents / kWh in 2010 to 4.6 cents / kWh in 2020, according to the EIA.

In real 2020 terms, utilities’ electricity delivery spending increased each year from 1998 to 2020, as utilities replaced aging equipment, built transmission infrastructure to accommodate new wind and solar power generation, and installing new technologies like smart meters to increase the efficiency, reliability, resiliency, and security of the U.S. electricity grid, analysts said.

As the energy transition to low-emission, zero-emission power generation resources progresses, power grid infrastructure costs could increase further with further grid modernization efforts by utilities.

For example, Duke Energy Indiana said on Nov. 24 that it had just filed a plan with Indiana state utility regulators to improve the reliability and resiliency of its grid of power lines and infrastructure. statewide in a six-year investment that will increase customer bills if approved.

“Our reliability ratings are good, but we need to prepare the power grid for what’s to come, including electric vehicles and more customers generating their own green power,” said Duke Energy Indiana President Stan Pinegar in a statement.

Currently, 11% of Duke Energy’s customers in Indiana are served by an automated circuit, but once the proposed plan is completed, about 65% of customers will be served by automated circuits, Duke Energy said.

If the plan is approved by the Indiana Utilities Regulatory Commission, Duke would be required to submit six-year biannual files to the commission to review the progress and cost recovery claims of the investments made, the statement said. .

Duke Energy estimates that its grid improvement strategy, if approved, would increase tariffs by around 1% / year on average between 2024 and 2029.

Increase in the price of electricity

Average retail electricity prices in the United States have risen from nearly 12 cents / kWh in 2010 to just over 10 cents / kWh in 2020, according to the EIA, but electricity prices have steadily increased. increased in 2021.

Retail electricity prices reflect the cost of producing and delivering electricity, the rate of return on investment allowed by regulated utilities, and the profits of unregulated electricity providers.

“In 2021, the demand for consumer goods and the energy required to produce them exceeded supply,” said the EIA, adding that this difference had contributed to the rise in the prices of fuels used by producers of electricity, especially natural gas.

According to EIA data, monthly Henry Hub gas spot prices have averaged $ 3.24 / MMBtu over the past ten years. US benchmark gas prices averaged $ 2.04 / MMBtu in 2020 and averaged $ 3.81 / MMBtu from January to October 2021.

The EIA said that the increase in the cost of fuel, capital, labor and building materials, as shown by the United States Bureau of Labor Statistics Producer Price Index , increases the cost of electricity production in 2021.

Average electricity prices in the United States have been higher each month of this year compared to 2020, when electricity and gas prices were much lower due to erosion in demand from pandemic, according to the EIA’s monthly report on the electricity industry.


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