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Jul 25, 2014 - 6:30pm

Less Power Diversity Will Raise Electricity Costs and Cost Jobs


Senior Editor, U.S. Chamber of Commerce


Both my grandmother and my financial adviser told me, "Don't put all your eggs in one basket." This aphorism helps me manage life's inherent risk and uncertainty. Unfortunately, Washington policymakers aren't heeding this advice when it comes to energy policy.

EPA's proposed carbon regulations would make coal an energy "loser" and drive it out of America's fuel mix. This would make electricity production more reliant on natural gas for baseload power and more reliant on wind and solar for intermittent power.

What would a reduction in power supply diversity mean for electricity costs and our economy? The U.S. Chamber's Institute for 21st Century Energy, the Edison Electric Institute, and the Nuclear Energy Institute asked research firm IHS to study this question. After looking at data from 2010-2012, the report found that, compared to a less diverse case with no meaningful contributions from coal and nuclear, our current mix of energy sources has lowered electricity generating costs by $93 billion per year while also reducing price volatility. With less diversity wholesale electricity prices would have been 75% higher and retail prices would have been 25% higher.

Since many industries buy electricity on the wholesale market, higher prices would mean fewer resources available to invest and hire workers. IHS estimates that the economic pain from less energy diversity would be over one million jobs lost and annual household disposable income reduced by around $2,100.

"The federal push to eliminate coal and favor some technologies over others could turn a major strength of our nation--a diverse supply of electricity resources--into a big vulnerability," said Karen Harbert, president and CEO of the Energy Institute

IHS explains why energy diversity is best for electricity consumers:

Engineering and economic analyses consistently show that an integration of different fuels and technologies produces the least-cost power production mix. Power production costs change because the input fuel costs--including for natural gas, oil, coal, and uranium--change over time. The inherent uncertainty around the future prices of these fuels translates into uncertainty regarding the cost to produce electricity, known as production cost risk. A diversified portfolio is the most cost-effective tool available to manage the inherent production cost risk involved in transforming primary energy fuels into electricity. In addition, a diverse power generation technology mix is essential to cost-effectively integrate intermittent renewable power resources into the power supply mix.

We've lived so long with a diverse energy portfolio that we take it for granted. This past winter during the polar vortex, many Americans benefited from our diverse energy mix as Heath Knakmuhs, senior director of policy at the U.S. Chamber's Energy Institute explains:

The colder temperatures in some parts of the country stretched natural gas demand, and utilities turned to coal to provide power. While increasing natural gas production is a very good thing for our economy and our security, it should not be at the expense of other sources.

If EPA's greenhouse gas policies were already in effect, many Americans would have been shivering, sitting in the dark, or both. Energy policies that drive abundant fuels like coal out of the market will result in higher electricity costs, jobs lost, and families hurt.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

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About the Author

Sean Hackbarth standing in front of oil pumps near Baker, Montana.
Senior Editor, U.S. Chamber of Commerce

Sean has written for various Chamber properties since 2012. In 1999, Sean launched a "weblog" and never looked back, becoming a self-proclaimed pioneer of the medium.

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