Tom Shepstone
Natural Gas NOW

The latest data on electric prices here and in Europe demonstrates the power of shale gas and the foolishness of political correctness.

It would be hard to find better evidence of the foolhardiness of European (particularly German) energy policies than that offered by electricity costs here and there. Ours are low due to natural gas and their costs are soaring due to lack of shale gas development and a politically correct but economically imbecilic forcing of renewables. There’s a powerful lesson to be had for the US and, especially, states such as New York who pine to be more European with similar foolishness.

A Today in Energy column on Tuesday, by Energy Information Administration (EIA) researchers Cara Marcy and Alexander Metelitsa lays out precisely what’s happening and why with respect to electricity prices in the US versus Europe. It’s a powerful case for shale gas development. Here are some excerpts:

European residential electricity prices have historically exceeded U.S. prices, and the gap has widened in recent years. In 2013, average residential electricity rates in European Union (EU) countries were more than double rates in the United States. Regulatory structures—including taxes and other user fees, investment in renewable energy technologies, and the mix and cost of fuels—all influence electricity prices.

In 2013, average EU residential prices were 0.20 euro per kilowatthour (euro/kWh), which translates to about 26.57 cents per kilowatthour (cents/kWh), a 43% increase from the average 2006 price of 18.80 cents/kWh. In that same time, U.S. prices increased only 17%, from 10.40 cents/kWh to 12.12 cents/kWh…

Taxes and levies explain high prices in some European countries. EU countries taxed residential electricity rates at an average of 31% in 2013, up from an average of 23% in 2006. These values vary greatly by country, with tax ratess in 2013 as low as 5% in the United Kingdom (UK) and up to 57% in Denmark.

In Germany, where taxes and levies account for about half of retail electricity prices, transmission system operators charge residential consumers a renewable energy levy that is used to subsidize certain renewable generation facilities. Overall, nonhydro renewable electricity generation in the European Union increased its share from 6% in 2006 to more than 12% in 2013, while in the United States it increased from 2.5% to more than 5%.

In addition, Germany committed to reducing the number of operating nuclear plants in the country and introduced policy incentives to reduce electricity generation from coal. Replacing these existing facilities and their fuels with new generation sources has also increased their electricity cost.

Natural gas has accounted for an increasing share of U.S. generation as domestic natural gas production increases have allowed for a greater supply to be available at relatively low cost. Although about 18% of 2012 EU generation came from natural gas, most EU countries consume more natural gas than they produce and thus rely on pipeline or liquefied natural gas (LNG) imports. From 2006 to 2013, prices for natural gas at the main trading hubs in the UK and Germany increased by more than a third, while prices at the U.S. benchmark Henry Hub decreased by 45%.

Here’s the chart that tells all:

And, here’s another:

Notice where the countries with big renewables mandates (e.g., Germany, Spain, et al) stack up. That’s the shale gas difference in electric costs. End of story.

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