US utilities are spending less on making electricity and more on getting it to customers

Source: By Jeff St. John, Maria Virginia Olano, Canary Media • Posted: Sunday, January 9, 2022

Cheap renewables are a good thing, but customers will likely be stuck with a hefty bill for grid upgrades.

U.S. utilities are spending less and less money on generating electricity — and more and more on getting it where it needs to go. And if ever-cheaper renewable energy continues to supplant fossil fuels as the country’s chief source of electric power, this shift may just be getting started.

Data the U.S. Energy Information Administration gathered from the Federal Energy Regulatory Commission, shows the two main cost areas for major U.S. utilities:

  • Power production: This includes building, operating, fueling and maintaining power plants, or purchasing power from others
  • Power delivery: This includes maintaining, replacing and building new transmission and distribution grids, plus other equipment like transformers and meters

Two trends are clear. First, the cost of generating power has declined significantly — from 6.8 cents per kilowatt-hour in 2010 to 4.6 cents per kWh in 2020, using 2020 inflation-adjusted figures. That’s due largely to falling natural gas prices and the growing share of power coming from wind and solar. With renewables making up the vast majority of new generation capacity, the generation share of utility costs is likely to continue declining over the coming decade.

At the same time, the costs of the infrastructure needed to deliver power rose from 2.6 cents per kilowatt-hour in 2010 to 4.3 cents per kWh in 2020— nearly equal to the cost of generating the power itself. Delivery costs have in fact been rising steadily since 1998, according to the EIA — an outgrowth of the need for new grid infrastructure to replace aging lines and equipment and accommodate new wind and solar power farms, as well as for new technologies such as smart meters to modernize the utility system. And according to multiple studies, the U.S. will need much bigger grid investments in future years to accommodate the massive growth in renewable energy that will be required to decarbonize the power sector.

These trendlines spell major changes for U.S. utilities and their customers. Rising infrastructure costs are being passed on in the form of higher customer rates even as electricity is becoming cheaper to generate. And the divergence between falling power prices and rising infrastructure costs has major implications for key policies such as solar net metering, as well as the broader question of how distributed energy resources like rooftop solar, batteries and electric vehicles can help reduce, rather than expand, the cost of power grids that connect them.