The Effect of Natural Disasters on Electricity Prices

The Effect of Natural Disasters on Electricity Prices

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Solar leasing promoters have long claimed that electricity costs will keep rising, but we haven’t see this happening – yet.  Actually, almost all of the standard generation sources are benefiting from lower costs – natural gas is low, coal is low, and nuclear is… well it’s not dramatically more expensive than it has been. There is no doubt in my mind, however, that prices are going to go up.

So why do I say that the prices are going to go up?  Three reasons – and they have nothing to do with generation: deferred maintenance, retrofits, and liability expenditures. These are structural and market issues that have nothing to do with the price of fuel sources. The recent dramatic weather events (which are only going to get worse) highlight just how these factors are coming to the forefront. 

Let’s take a look at these three items in light of recent events: fires, hurricanes, and re-expansions in the grid.

California Fires.  Remember a few years back there were devastating fires in San Bruno from a ruptured gas line, that in retrospect had needed upgrading and maintenance? Just this month, there have been equally devastating fires across quiet neighborhoods that would have never worried about fire damage.  In both these cases, it looks like the grid and power infrastructure needed substantial maintenance and retrofits to upgrade and accident-proof the network. The costs for these are in terms of 10’s of billions, and these costs are passed on to the consumer. 

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Hurricanes. Consider the hurricanes that have devastated regions and left them without power. There has been massive mobilization of resources to restore power, and in places like Puerto Rico, to start from scratch. Rebuilding will be extraordinarily costly and those costs will have to be paid for sooner or later. 

Sadly, however, events like these are becoming less “extra” ordinary, and more just ordinary.  To build a sustainable grid means building power substations that can withstand flooding, erecting power lines that won’t be blown over, etc.  These all come with a substantial price tag.  There is a scientific study looking at flooding in the mid-Atlantic states and just how many of the power stations would be incapacitated by just moderate flooding.  It’s not a pretty picture.

The retrofit costs to aging power generating facilities are expected to go into the 100’s of billions, and that is with using the same fuel sources.  Once you talk about retrofitting the transmission grid, then costs go up, literally, by the mile.

If it becomes clear that wires in trees and older transformers were the ultimate cause of the Calif. fires, this will highlight that deferred maintenance and the need for retrofitting are crucial requirements.

Then of course there is the legal liabilities that may result from either the power disasters, or from the lawsuits that can come along, which are also likely to increase. Liability expenses could change utilities in ways that are unknown – perhaps leading to smaller, regional power companies (that might well rely on microgrids).

Why We Should Be Investing in Microgrids

How do microgrids play into all of this? First, they can offer substantial savings compared to grid regeneration or refurbishing, and they become viable cost alternatives to the increased prices of grid electricity. 

Today in Brooklyn, ConEd has agreed to install a local microgrid to avoid a substation expansion – saving close to $1B, according to the utility.  This example shows that the microgrid is a win-win solution that benefits the community through local control and price management, and the utility-through saved costs.

Microgrids are not yet cheap enough to have one in every neighborhood, but the harbingers are already showing that they can provide cost-effective alternatives in a world with increasing weather disruption and utility bill price increases. 

Nothing like living on borrowed time or borrowed money.  At some point you gotta pay.

Lead image: California homes on fire. Credit: Depositphotos.com.

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