Rising fuel costs are no secret to anyone anymore, but an unpleasant surprise may be in store for those who expect them to crest anytime soon. Not only will the pain be felt at the gas pump but, as old and cheaper contracts expire, utilities will be significantly raising electricity rates. The relatively slow rate jump, and the reason so many consumers may find themselves shocked at the sudden increase, is due to long-term contracts through which utilities historically purchase most of the power they need.

And these contracts are due to expire all over the country. In Virginia, Potomac Edison Company, a division of Allegheny Energy Inc., is asking regulators to allow a 29% increase in July. Similarly, in Oregon, Portland General Electric Co. is seeking a 9% increase in rates starting in January 2009. This is in addition to a 10% increase since January 2007.

These and other rate hikes around the country, the companies claim, are attributable to surging costs in coal and natural gas. And the evidence is certainly there. More than 90% of burnt coal in the United States is used for electricity production and coal. The electric industry’s largest expense, is rising in price at an unprecedented rate. Appalachian coal, for example, has risen to $96 a ton, up from about $42.65 at this time in 2007. Likewise natural gas has shown a similar trend, costing now 45% more than it did a year ago.

In deregulated markets such as New Jersey and Maryland, the impact on the consumer can already be seen as companies can pass rising prices directly on to the consumer. In Maryland, residential customers can expect a $137 jump in their yearly electricity costs, setting the bill at about $1,800 annually. Commercial customers can expect a more dramatic jump as summer prices will be 27% to 41% higher than the same time period last year. And utility companies in these markets are using their advantages to rake in profits. Duke Energy Corporation’s commercial power unit earned $146 million in the first quarter this year, compared to just $13 million last year. And they are not alone.

So beneath the weight of all these staggering numbers, and the unlikely prospect that the increases will subside, many states and companies are turning to renewable energy options to protect them against the surging fuel prices. Recently, Ohio joined the parade of states taking steps to distance themselves from fossil fuel energy sources. The state will require utilities to satisfy 25% of consumers’ energy needs by 2025.

The leading energy sources in the ever-increasing push toward green, and renewable, power are nuclear, wind, and solar. But due to the controversy behind nuclear energy and the consistency and predictability of the sun, it looks as if the prospects are growing even stronger for solar energy. There are several reasons why solar seems likely to dominate the renewable energy market. Not only is the sun easy to predict and track across the sky, but innovations are constantly forthcoming and the industry has a fast rate of adaptability to these new technologies.

A big hurdle for solar energy has always been its ability to compete with market rates for conventional energy sources such as coal and natural gas. But with solar prices expected to drop significantly in the coming years and the expectation that coal and gas prices will continue to rise, and even at higher rates, the day when solar is cost competitive seems never closer.

Links:

Expect a Jolt When Opening the Electric Bill
Coal Price in World Market and Trade Higher

Posted on June 25th in Solar News by Dan.