Lower energy prices: Now you see them, now you don’t

By Elisa Wood

November 13, 2008

When combined with efficiency, solar homes can achieve ‘net zero’ – they consume no more energy than they produce. It is likely we will see a growing number of net zero homes built as more states reach what is called ‘grid parity’ – the cost of solar energy becomes no higher than the power we buy from our utility. Industry insiders say that about a dozen states already have reached this goal.

This is all good news. But at some point – maybe soon – the laws of supply and demand kick in, creating an odd dilemma for the clean energy industry. Net zero homes and other efficiency measures reduce the amount of power we need from utilities. And as demand drops, so do utility prices. Suddenly, solar energy is once again more expensive than utility power. Clean energy, in effect, becomes undercut by its own good work.

Bob Reedy, solar energy research director for the Florida Solar Energy Center http://www.fsec.ucf.edu/en/, sees “an uncomfortable zone” occurring in the next five to ten years when energy regulators will need to rethink utility rates. Utilities will still need to cover their fixed costs and may find it difficult to do so as efficiency reduces their energy sales. So regulators may raise utility rates, making solar power cheaper once again.

This oscillating price position for power in some ways mirrors what is happening in the transportation fuel market now. Gasoline prices are falling. How will consumers and policymakers respond? Will we expect them to stay low and get lazy about diversifying toward cleaner fuels?

Given the political climate – Obama is pushing for more renewable energy – it may seem unlikely. But history suggests that the clean energy industry should be wary. The post-Carter years offer a cautionary tale. Solar and efficiency advocates may want to start now educating consumers and policymakers that low energy prices can vanish quickly.

Visit Elisa Wood at www.realenergywriters.com and pick up her free Energy Efficiency Markets podcast and newsletter.