Exploding Energy Prices in California

By Steve Goreham -- March 12, 2024

“California leaders know that rising prices are a huge problem. The state is now considering a plan to tie utility rates to personal income so that the rich pay more and low-income residents pay less. Costly California looms as an example of poor energy policy.”

Energy prices are skyrocketing in California. The state’s electricity, gasoline, and natural gas prices are amongst the nation’s highest and rising. Green energy policies are the primary cause for high and escalating California energy prices.

Electricity

California electricity prices increased by 98.2 percent over the last 15 years, the highest rise in the nation. No other state comes close in terms of price increases. US average electricity prices rose 30.6 percent over the same period. California power prices rose to a level that is the second highest in the nation, only lower than Hawaii. In contrast, prices in Texas have actually declined since 2008 due to a focus on retail competition and a sharp decrease in natural gas prices, more than offsetting wind and solar additions. [1]

California is the epicenter of green energy in the United States. The state established the first renewable portfolio standard in 2002, mandating that 20 percent of electricity be from renewable sources by 2017. Governor Arnold Schwarzenegger instituted a 33 percent renewable requirement by 2020. In 2018, Governor Jerry Brown signed an executive order mandating 100 percent zero-carbon electricity by 2045.

The transition from traditional power plants to renewables has been a top priority for California for the last 20 years. By the start of 2023, California’s grid contained more than 6 gigawatts(GW) of wind, 17.5 GW of utility-scale solar, and 14 GW of residential rooftop solar.

Over the last two decades, the state retired 11 coal-fired power plants and converted three other coal plants to burn biomass fuel. The San Onofre Nuclear Generating Station closed in 2013, and the Diablo Canyon Power Plant, the state’s last nuclear plant, has been scheduled for closure.

In 2022, natural gas provided 42 percent of California’s in-state electricity generation, with other sources providing: solar (27%), nuclear (8%), hydroelectric (8%), wind (7%), geothermal (6%), and biomass (2%). The state imports about one-fifth of its electricity from surrounding states.

Solar and wind generators are more expensive than traditional coal, gas, and nuclear generators. Wind and solar occupy huge amounts of land, perform poorly during winter months, and suffer from intermittent output.

Vaclav Smil’s book Power Density points out that wind and solar systems use about 100 times the land area of traditional generators to produce the same electricity output. Renewable facilities also tend to be far from population centers, requiring expensive buildouts of transmission systems. Land and transmission costs boost the price of electricity from these generators.

The intermittency of wind and solar generation has the largest cost impact. Cloudy days and nights eliminate solar output and windless days idle wind turbines. Winter solar output drops to about half the available summer output. About 90 percent of traditional coal or natural gas generators must be maintained as backup for intermittent wind and solar systems, boosting power prices.

Batteries

California leads the US in deployment of grid-scale batteries. The plan is to use batteries to store electricity when wind and solar generation is high and then release the stored power back to the grid when wind and solar output is low. Wind and solar plus battery systems are being deployed as a low-carbon alternative to coal and gas power plants.

But the use of grid-scale batteries to backup renewable generators multiplies the cost of electricity. Utility-scale solar systems cost about $1 million per megawatt (MW) of rated capacity. Grid-scale batteries with four hours of discharge duration cost about $1.5 million per megawatt of capacity. These batteries can back up solar for only about four hours.

To replace a gas-fired power plant, a battery system would need to back up a solar installation for one or more days. A battery that can back up a $1 million one-megawatt solar facility for a single day would cost about $9 million. Grid-scale batteries only have a 12-year lifetime, about one-half of the solar lifetime. Adding batteries to backup solar for a single day boosts the total capital cost by more than a factor of ten.

Gasoline

February 29 found California regular gasoline prices at $4.74 per gallon, the highest in the nation. California drivers pay 40 percent more than the national average. The state has its own blend of gasoline, and claims that the blend will emit fewer greenhouse gases when burned. Higher gasoline taxes and a shortage of local refineries also factor into the high prices.

Natural Gas

California also consistently ranks in the top 10 in natural gas prices. Prices are high because the state has long discouraged local production, importing more than 90 percent of its gas from other states. There is a also a shortage of gas storage facilities.

Green energy policies affect not only electricity and fuel prices, but also housing utility and construction costs. Many regulations aim to reduce greenhouse gas emissions from buildings. The California Air Resources Board passed a regulation outlawing new residential gas heaters by 2030. San Francisco, Los Angeles, and other cities have voted to ban gas appliances in new construction. Only electric heat pumps, water heaters, and stoves may be used. These measures further boost the cost of energy for homeowners.

Housing Costs

Housing prices are rising because of green energy mandates. The 2020 California Solar Mandate requires newly constructed homes to have solar panels and wiring for electric appliances. The California Building Standards Commission enacted standards that require electrical conduit for level two EV charging in single-family homes and parking facilities with EV chargers for multi-family homes and hotels. These additional requirements make the cost of housing less affordable for low-income residents.

Conclusion

Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric, the big California utilities, have all asked for 2024 rate increases, in part needed to bury hundreds of miles of transmission lines to reduce the threat of forest fires. Residents already pay $300-500 per month for energy. There seems to be no end in sight to rising California energy prices.

California leaders know that rising prices are a huge problem. The state is now considering a plan to tie utility rates to personal income so that the rich pay more and low-income residents pay less.

But affordable energy is clearly not as important as efforts to try to stop global warming. Costly California looms as an example of poor energy policy.

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[1] Storm Uri (February 2021) rate spikes of $10 billion or more have been paid by floating bonds and/or are in legal limbo, which would make Texas’s electricity rates higher than recorded.

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Steve Goreham is a speaker on energy, the environment, and public policy and the author of the new bestselling book Green Breakdown: The Coming Renewable Energy Failure. His previous posts at MasterResource can be found here.