The cost of electricity around the world has steadily been rising for over the past 40 years. With the exception of a few periods of flat rates and a handful of minor downwards, the cost of electricity has risen almost every year since 1970. There are a number of factors which have contributed to this trend including a growing population and the emergence of the digital age. And while history can serve as an indicator for the future, there is a whole new set of challenges facing utility companies that is laying the groundwork for much higher rates in coming years.
The three main factors that will drive rates higher in the coming decade are:
. The required Infrastructure Investment
. The Compound Pricing Effect
. Increasing Environmental Regulations
The combination of these factors will likely result in residential electricity price increases with the potential for significant price hikes in later years.
Utility companies are corporations with investors and shareholders just like any other publicly traded company. They are expected to earn returns for their investors in the form of profits and as their costs rise, they will pass on these costs to their customers.
Infrastructure Investment has been lagging behind growth for quite some time. The electric utility industry is one of the most capital intensive sectors and capital costs related to improving the grid factor heavily in determining retail electricity prices.
To compensate for decades of underinvestment, utilities have begun reinvesting in their core infrastructure including building new power plants and reinforcing the delivery system, specifically, the high-voltage transmission lines, substations, and distribution systems which deliver electricity to the home. In the USA for example, the Edison Electric Institute estimates that by 2030, the utility companies will need to spend $1.5 – $2.0 trillion on infrastructure growth and improvement. Additionally, the cost to make the system “smart”, by incorporating smart grid technology, to comply with current and proposed environmental standards is expected to add another $250 billion.
The Compound Pricing Effect
refers to the need to raise electricity rates faster than the rate of attrition from users leaving the grid all together and the reduction in kilowatt hours as customers become more energy efficient.
As homeowners and businesses seek to escape ever rising electricity costs, many are pursuing alternative energy sources such as solar power. As the customers remove themselves from the grid and stop paying into the utility companies, these revenues need to be recovered from the remaining customers. While currently only a small percentage has gone solar, as this number inevitably grows, the cost burden of the utility companies will be passed on to their neighbors. Fair or not, it is the reality of the situation as the utility companies need to generate ever increasing revenues to cover increasing costs. Increasing Environmental Regulations
are the third significant driving factor for higher electricity rates. Most electric utilities are subject to environment rules along with air and water quality requirements. While there is plenty of evidence to support that the requirements are, indeed, resulting in cleaner emissions and better environmental standards, they come at a significant cost. As the utilities enter more phases of emissions reductions, the costs will be reflected in customer electric bills, and will have to be spread equitably among all the customers on the grid.
As a result, solar arrays are going up on houses, schools, industrial buildings, parking lots and anyplace there is a clear view of the sun. Solar farms are being installed in strategic areas where the climate is conducive for sun power generation. While most renewable energy systems are intended as a supplement to electric grid power from a utility company, some, including new data center solar projects, are being designed so that they will only take energy from the grid for back-up purposes.
The number of solar panels, how they are configured, their relative size, results in a wide variation of the voltage and power that can be delivered. This wide variation can cause the need for multiple power stages in order to achieve the desired output voltage and maximum power levels. However, multiple power stages result in less efficiency and higher cost. It is apparent that improvements need to be made in conversion from the raw solar power to a regulated fixed voltage for either charging battery and/or converting it to an AC voltage that can be put back on the grid. Linear Technology’s recently released LT8705 address’s many of these issues and provides a simplified solution.