In this guide, we look at potential solutions for making electricity prices cheaper and more affordable in different countries and States around the world.
We are not claiming to have the exact answers, because ultimately, the electricity sector has a lot of moving parts, is complex, and has both short term and long term interests and priorities that need to be balanced by multiple parties (government, suppliers, retailers, and so on).
What we’ve done instead is used this guide as a starting point for discussions on general solutions, and country and State specific solutions.
Summary – Solutions For Cheaper & More Affordable Electricity Prices
Some solutions might include:
– Understand average electricity prices in each country and State
– Understand the general factors that impact electricity prices
– Look at general solutions for making electricity prices more affordable, such as looking at necessity of energy taxes and levies, necessity of carbon prices for different energy sources, supply and demand, cost of electricity generation, investment in networks and electricity infrastructure, government policy and other government action, the relationship between different parties and levels of government, return on investment for suppliers and retailers, the health of the economy, importing and buying electricity, independence of electricity supply, and local weather patterns
– Looking at specific solutions for a specific city, State or country – what major factors are influencing electricity prices there, and how can they be changed
– Understand limitations and trade offs in changing electricity prices
First, Understand Average Electricity Prices In Each Country & State
Before trying to come up with solutions for making electricity prices more affordable, it makes sense to first get an idea about where each country’s electricity prices fit in compared to the global average or compared to other countries (this guide also outlines affordability of electricity prices in several countries)
Going a level deeper than that, electricity prices are generally State specific (because of factors like national and State governments), so you’ll want to also get a gauge of average State electricity prices. As an example, this guide outlines by each US State, the average electricity price, and also the % of electricity provided by renewable energy.
Second, Understand The General Factors That Impact Electricity Prices, & Country/State Specific Factors
Be aware of both, and do a country or State specific analysis to gather all the variables and unique factors that could be impacting upon a particular country or State. This guide about how to determine what is causing electricity prices to rise or fall might be helpful.
A consideration that may be taken into account is that higher electricity prices aren’t always a bad thing if there is a benefit or multiple benefits such as a higher quality electricity service (more secure or reliable), or environmental and social short and long term benefits. But, these benefits must be clear, and must be weight up against the price or volatility of prices.
Third, Look At General Solutions For Making Electricity Prices More Affordable
Some of these more general solutions might include:
- Supply & Demand
Total supply and demand of electricity, and the timing of supply and demand on a daily or seasonal basis.
When supply is lacking and demand is high, prices are going to be pushed up, and vice versa.
Ideally, prices would stay more consistent and not be too volatile.
Trying to balance the total supply and demand, and timing of supply and demand (during a particular day or during each season), are critical to any energy grid in terms of prices. Solar and wind for example can be variable sources of energy that can lead to a surplus, or a lack of power at any one time.
So, getting the energy mix and energy sources right can be important in terms of how electricity is sourced and actually provided as a service on a commercial/utility level.
But, this is only one factor – supply and demand can be directly and indirectly impacted by many factors.
- Cost Of Electricity Generation
Some sources of electricity generation are far cheaper than others. Ideally, we would want to max out the low cost sources of electricity generation first – but, at some point, they reach their maximum potential.
Also, some sources of electricity generation can have negative short and long term effects (air pollution and greenhouse gas emissions from fossil fuels are well documented). So, this is an additional consideration for cheap energy sources.
The mix of electricity generation sources in an energy system should look to keep costs as low as possible while also meeting other environmental and social targets.
Solar and wind may have minimal operational costs and be getting cheaper and cheaper from a capital perspective, but they may also need additional energy sources to complement them (more consistent and reliable energy sources), or energy storage like pumped hydro, or battery storage.
These extras can be expensive, or just be expensive to deliver electricity as a service (on top of the actual cost of capital and operation of an energy source).
So, we have to look at the cost of the service of providing electricity, and not just the cost of an individual energy source exclusive of the whole energy grid and delivery of electricity from energy source to consumer.
For new energy sources, there’s also the cost of research and development to consider.
- Investment In Networks & Electricity Infrastructure
Transmission poles and wires, and other network infrastructure needs to be replaced, maintained, built new, and upgraded. This isn’t cheap, and costs can be passed onto consumers.
Ideally, we would look to be as efficient as possible with building new and upgrading infrastructure.
Also, we would look to get as accurate a picture as possible on future electricity demand so we aren’t building more infrastructure than we need (and spending more money than we need).
Careful planning, design and construction of infrastructure is important.
- Government Policy, Energy Standards & Portfolios, Regulation, Taxes, Subsidies, Support Schemes, Etc.
There are many things governments can do to regulate, control, influence or support certain parts of the electricity sector.
Policies, energy standards in portfolios, regulation, taxes, subsidies, and support schemes should look to balance short and long term goals, without eliminating competition and a free market.
For example, although green energy can be important for different reasons, ideally government intervention in the market isn’t so abrupt and extreme that we eliminate low cost nuclear and fossil fuels, or restrict supply of these cheap sources of electricity.
Gradual transition to new energy sources and ‘smoothing’ the market might be more desirable so electricity prices don’t jump so quickly and stay at a high level.
Government intervention and support vs the free market can be a tricky balancing act overall.
- Complementary Relationship Between National, State, Local & Various Tiers Of Government
There are different levels and tiers of government – local, State and national.
Ideally, energy and electricity policies between the different tiers of government should complement each other in the short and long term, but this is not always the case.
- Return Of Investment Of Utilities & Suppliers, & Profit For Retailers
Utilities and suppliers may want a return on their investment.
Retailers may want to profit off their sale to consumers of electricity.
These things are encouraged in a free market, and rightly so.
But, in a sector as important as electricity, there should ideally be some transparency or sustainability around how this happens.
- The Health Of The Economy
The health of the economy impacts investment in new power plants and energy infrastructure, demand, supply, and other factors.
Strong economic policy from the national and State governments can help keep the economy healthy, and as a result, keep competition strong in the electricity sector
- Importing & Exporting Of Electricity, & Independence Of Supply
The balance between importing and exporting electricity can impact a country or State’s electricity supplies.
They may have to pay to export surplus electricity, or pay to import expensive electricity where they lack supply themselves. They can also be vulnerable to cost variations when they rely on another country or State to fulfill their demand for electricity.
So, getting this balance right can be important.
- Local Weather Patterns
Amount of and directness or intensity of sun impacts solar. Wind conditions impact wind energy. Rainfall can impact hydro energy (for rivers and storage reservoirs).
Fourth, Look At Country Or State Specific Solutions For Making Electricity Prices More Affordable
Each country and State is going to need solutions of their own (based on their own set of variables and factors impacting electricity prices) to make electricity prices more affordable.
Just a few starting points might be:
In places like Denmark, Germany, Belgium, and other places impacted by renewable and green energy taxes:
- with more [of a country’s] energy coming from renewable sources, there is no need for the tax on electricity to remain at such a high level
- … the high electricity tax no longer supports the green change, and at the same time it is both expensive to consumers and a burden on the economy,
- Therefore, it is only sensible to lower the tax significantly
- [it has been] suggested that revenues lost from an electricity tax cut would be offset because economic growth would increase the overall tax take
California also seems to have had it’s renewable energy sources have a large part to do with increased electricity prices. They might look at similar solutions to Denmark and other European countries, but, more competition and supply from lower cost energy sources may also help (some say that the previous shut down of nuclear plants meant more affordable sources of electricity also went with them).
Somewhere like South Australia (and Australia as a whole), some of the potential solution won’t just focus on renewable and green energy taxes, but a whole range of factors:
- Gas prices could be cut by having more gas could be injected into the domestic market, whether through limiting the amount that can be exported or carving out part of what is produced for local use only.
- Also, the States could open up gas companies for more exploration and development to make it more available (increase supply). This would take years to flow through even if they were to relent.
- Also, there could be energy and climate policy to encourage investment in new power plants.
- For clean energy – Increased generation capacity will help cut the soaring wholesale price, offsetting the cost of the target itself
- This will go only so far though – eventually more old coal-fired plants will shut. … policy certainty beyond 2020 is needed to spark further investment in replacement plants and energy storage to provide reliability, limit price rises and help Australia meet its climate targets.
- There are other factors at play that make predicting the future difficult. To take one example: a significant chunk of what consumers are charged is to ensure the grid can deliver at peak times. The exponential rise of solar panels – now on more than 1.7 million homes – combined with the expected growth in home battery packs is expected to reduce this. So is the introduction of demand response programs, which offer a cash incentive to businesses and consumers who make themselves available to briefly turn off the power at times of stress on the grid (usually in periods of extended extreme heat).
- Both home generation and demand response should limit the need to invest in expensive new plants and networks. They make projections of future electricity demand – which has already levelled off over the past decade – difficult. The same applies to costs.
The ACCC released a blueprint to reduce Australian electricity prices (with 56 recommendations), which can be viewed at:
But, as noted on page 44 of a cleanenergycouncil.org.au 2019 report, the Australian government chose to pursue only several of these recommendations.
- [a State like Vermont in the US might take advantage of cheap energy sources like natural gas in order to lower electricity prices]
Fifth, Understand Potential Limitations In Changing Electricity Prices
There can be short term and long term limitations to changing electricity prices.
Some of these can be:
Lag on results from the implementation of government policy – policy can take years to show effect in the market
Stranded investment in current power plants and infrastructure – countries like China currently have a lot of money invested in current energy sources and infrastructure, which can impede the uptake of new energy sources
It takes time to build new power plants and infrastructure – it needs to be planned, designed, approved and built (have to allow for construction times)
New energy technology can be expensive – for example, some new coal plants are becoming expensive. These plants are fitted with air pollution and emission technology, and some process coal more efficiently. The result is a plant that cost more money per kWh produced
Politics – more affordable options for electricity may exist, but may not be actioned because of politics, conflicts of interest, bias, or other reasons
Lack of natural resources or other resources – lack of natural resources in a particular State or country can prevent them from expanding electricity generation from a particular energy source
Remote areas and islands – remote areas and islands have in built limitations which can prevent them from having cheap electricity. Alaska, Hawaii and the Solomon Islands are a few examples
Quality of electricity service – the more secure and reliable the electricity service, the higher the price for this service usually is
Environmental and social benefits – people sometimes forget that increased cost for electricity isn’t always bad. There can be environmental and social benefits in switching to a new electricity setup that is more expensive. In this instance though, obviously the benefits should be clearly provable and clearly worth the extra price of the electricity service