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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Why Californians Have Sky-High Electricity Bills

Californians pay for some of the most expensive electricity in the United States. They also live in one of the greenest states, at least from an energy perspective. California is only going to get greener. Meanwhile, electricity bills are expected to continue their rise. Some deny there is a link between the two.

The facts show otherwise.

A paper by the California Public Utilities Commission released earlier this year identified the state's plans to reduce greenhouse gas emissions by adopting more renewable energy as one big factor for bigger utility bills and expectations for further increases in electricity rates in the coming years.

The report said that while the state's plans to reduce emissions will negatively affect electricity bills, a concerted switch to what the authors call "all electric homes and electric vehicles" could lead to a substantial drop in monthly bills. However, this would require a large upfront investment, which would be impossible to shoulder by medium- and lower-income households.

"In the absence of subsidies and low-cost financing options, this could create equity concerns for low- to moderate-income households and exacerbate existing disparities in electricity affordability," the report said.

But funding such a hypothetical move to "all electric homes and electric vehicles" is only part of the problem. Another part, ironically, is distributed energy systems.

Related Video: Good Luck Getting Gas This Summer

 

A March report in CalMatters summarized the reasons for Californians' high electricity bills as follows: first, the size and geography of the state make the fixed costs associated with the maintenance of its grid higher than in most other states; second, households with rooftop solar installations don't pay for these fixed costs even if they use the grid. And all this is deepening the divide between wealthy and not-so-wealthy Californians, making electricity increasingly less affordable for the latter.

Distributed solar installations appear to be only affordable for the wealthier citizens of the state. They can afford the upfront costs and then benefit from lower electricity bills, according to one of the authors of a UC Berkeley's Haas Business School study that CalMatters cited in its report.

Solar power is regularly touted as cheaper and cheaper, even exceeding the affordability of fossil fuels. The truth, however, is that the cost declines that have been celebrated by renewable power lobbies only concern the PV panels. Granted, any cost decline in solar is good news, but what most reports forget to mention is that it's not just panels that make solar farms or even rooftop installations.

Besides panels, solar power installations also involve other components—whose costs are not falling—and there is the cost of installation. Taken together, all these make up a rather hefty sum, which explains why it is wealthy Californians who are the ones taking advantage of the state's programs aimed at encouraging the adoption of low-carbon energy sources. They are also the ones reaping the benefits at the expense of poorer Californians.

California has something called a net energy metering (NEM) program that basically pays owners of solar installations for feeding electricity into the grid. An analysis of the system between 2017 and 2019, Utility Dive reported recently, shows that the costs of the program stood at $9.46 billion while the benefits stood at $7.96 billion. Another study of the program, focusing on customer bills, found that the benefits of the program came in at $7.58 billion while costs were as high as $20.58 billion and much of that was shouldered by the people who couldn't afford to buy a rooftop solar installation. Related: Oil Close To Hitting $70 As The U.S. And Europe Reopen

And yet, California is forging ahead with its electrification plans as the only presumably viable way of reducing emissions. Meanwhile, the state's utilities are preparing for another hot summer with possible blackouts on the menu. According to the new chief operating officer of CAISO, California will see additional generation—and crucially storage—capacity come online this year, but supply will remain tight because of the retirement of gas-fired plants and one nuclear power plant.

These retired facilities are being replaced with renewables, much of it solar. Last summer, solar was one of the culprits behind California's blackouts as the output of solar farms declines exactly when demand for electricity increases, in the evening, and storage capacity was nowhere near sufficient to handle the discrepancy. This summer, as CAISO's COO, Mark Rothleder, "we will ensure storage resource providers understand how we expect them to operate the system so that storage is available when needed to meet the challenging net peak demand in the stressed summer conditions." 

California's government certainly has its emission-reduction work cut out for it. On the one hand, electricity bills are rising along with renewable power capacity and the retirement of fossil fuel power plants. On the other, grid reliability leaves a lot to be desired. Dealing with the bills will require a massive investment because the people most affected by electricity rate trends simply cannot afford to shoulder that bill, too. Dealing with grid reliability will require investment, too. It would be nothing short of a transformation of the state's grid that will involve lots and lots of energy storage capacity. On the bright side, however, California's emissions have fallen considerably since 2000.

By Irina Slav for Oilprice.com

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