Electrical Hangover

Electrical Hangover from Long Term Energy Contracts
I never should have signed that last contract.

There has been a lot of talk recently, in the context of our “neXt metering” solar discussion, about the problem with entering into long term energy contracts. Briefly, the proposed new approach would compensate solar producers in dollars per kilowatt hour via a 20 year contract; while net metering nets out kilowatt hours prior to cost being figured into it, effectively capturing whatever electrical rates are at that moment in time.

It’s understandable that we are concerned about entering into long term renewable energy supply contracts. It’s a hangover from the 20 and 30 year contracts entered into by Central Maine Power in the 1980’s, prior to electrical deregulation, for power generated from waste to energy plants. Those contracts were at 18 cents per kilowatt hour – about three times the standard offer of today. They looked like good deals because they would stabilize electrical power pricing and were at or below rates. Unfortunately, they captured a high point in the market, ultimately artificially holding Maine’s power rates high, which is the last thing we need.

Since we’re still working off that hangover, we are resistant to enter into 20 year power contracts today. However, I think we need to get over that hangover. The contracts contemplated for solar power today are as low as three or four cents a kilowatt hour. That’s cheap power. In fact, there’s a fairly strong argument to be made that we are at the bottom of the electrical power market. Here it is: Oil. It’s about as low as it can go. Even if you get it out of the ground free, it’s still got a cost to process and bring to market. And low oil prices keep natural gas prices down. When oil rebounds, as it already is, natural gas – and thus electricity – will follow it back up.

The opportunity we have now is like refinancing your house at the bottom of the market. We should grab it.

And I don’t think we should assume that renewable energy producers are all such do-gooders that they won’t follow the market back up, too.

In fact, as power prices increase, it is likely that the cost of solar (and wind) contracts will increase too. We should grab this moment in time and lock in some very low power rates. I think 3 and 4 cent power is going to look mighty good five years from now, let alone 20 years from now.

Comments

4 Comments

  1. If you think contract offers of 3 to 4 cents per kilowatt per twenty years, including energy, renewable energy credits and capacity payments are going to be offered by solar aggregators to CMP and Emera, your brain has been cooking in the sun too long.

    1. Hah! Probably true.
      Actually there are several in the works in this range. They need to be competitive, and some power contracts are going for as low as 2 cents now. That is why I think it is critical we lock in some of these low rates. I think solar pricing will follow the market back up as fossil fuel prices increase.

  2. The manufacture of solar voltaic panels requires lots and lots and lots of fossil fuels. It’s the way all that silicon and other high-temperature semiconductors liquefies to make the wafers.

    When the price of traditional fuels goes up, so will the cost of the panels and in-turn the cost of the electricity they produce.

    1. Sorry to be slow to reply to this comment Russell. It is an interesting point. Although the long term downward trend on panel pricing is encouraging, it is certainly a good time to capture a low price on both panels and the electricity they generate.