Curbing Energy Rate Hikes

Published November 17, 2015

Curbing Energy Rate Hikes

DATE PUBLISHED: November 17, 2015
Category: Blog Article


Living in New England, we are all too familiar with feeling the pressure from energy rate hikes.  No one likes paying more for energy, but when the temperature drops below 20o outside, most of us will go running to the thermostat, even if it means a big energy bill the next month.

This is true, if not more so, for small to medium-sized businesses, commercial and institutional customers, who are already dealing with large energy bills due to the higher energy demands associated with their operations. If homeowners are feeling the pressure of rate increases, business owners feel it even more so.

Here in the Northeast, electricity prices typically increase in the summer and the winter – the two seasons in which residents and businesses alike tend to use more electricity to mitigate temperature changes. Prices can increase in two ways, relative to the two main charges on electricity bills: delivery and supply. Delivery rate is the fixed cost set by the utility to cover the transportation of energy from their generation site to the consumption site. This includes upkeep of powerlines, natural gas pipelines, transformers, and other physical equipment.

Supply charges on the other hand, are variable costs, dependent on how much electricity actually consumed. National Grid recently announced that it plans to increase fixed delivery costs, as a reflection of increased infrastructure costs over recent years- compounding on previous supply cost increases imposed on ratepayers earlier in the year.

In the winter, especially in a state like Massachusetts, demand for electricity spikes as people use more power to light and heat their homes and businesses. This jump in demand increases supply and delivery cost, as the power infrastructure is used more heavily and the power itself becomes more valuable in the market. Unpredictable rate hikes make it almost impossible to accurately budget for energy cost.

The main reason typical energy prices are so volatile is that the market for fossil fuels like natural gas and oil is constantly fluctuating- limited supplies, high demand, and factors such as unpredictable weather all affect price variance. In recent years, the US has seen a rise in the number of natural gas power plants as old coal and nuclear plants go offline or are retired.

In Massachusetts, a whopping 59% of all electricity consumed in 2014 was generated with natural gas, which puts a big strain on the system in colder months when customers are using more natural gas for heat, forcing energy providers to drive up costs to meet demand. Unfortunately, as our dependence on natural gas increases, we are faced with “significant energy supply, reliability, and price issues,” according to a spokesperson from ISO-NE.

So, what can be done to avoid the energy price hikes? One way for a company to reduce its individual reliance on the grid is to look into on-site distributed generation with solar. Reducing even a portion of your electricity usage by adopting renewable energy assures that operating costs remain steady.

Solar power is one of the best ways to stabilize energy costs and supply. Solar has one of the least volatile price points from a service perspective: once a solar array is built and paid for, energy is produced at the predictable cost of $0.00. This price stability is seen across all solar solutions; an average commercial solar customer with a 300kW system will start to see positive cash flow within 7-9 months, and can expect to break even on their investment in 3-5 years. After recouping the cost of the system, solar array owners benefit from the avoided cost of electricity for up to 25 years. Imagine that. Those engaging in a solar PPA contract benefit from rates significantly below those charged by their utility, that are often pre-negotiated to assist with long-term stability.

Solar consumers also see significant energy savings over traditional users. While prices for both solar and traditional energy sources are trending upward as the global economy changes, the rate of change for solar compared to traditional energy in Massachusetts is much slower.

The best part is that as more people adopt solar power and other renewable energy sources, the entire market will see the effect; an increase in solar energy produced during peak periods, like a dark, chilly winter day, equals decreased demand on the grid, and decreased demand on the grid means lower costs of energy during peak periods. The reality is that solar has the potential to bring the price of peak energy down for ratepayers across the board. In addition, the contribution of solar energy during peak demand is significant since reducing peak energy demand can help reduce the likelihood of brownouts and rolling blackouts when temperatures fall.

With an increase in solar installations, peak demand will decrease, less strain will be placed on grid infrastructure, and our reliance on volatile fossil fuels will wane. With widespread adoption of renewables, we can help make rate hikes a thing of the past and make energy prices more predictable for Massachusetts residents and businesses alike.