Mitigating the Impact of High Electricity Costs
Business owners in Pennsylvania face higher electricity bills this summer as generation costs spike. By installing a solar energy system, they can reduce the impact of costly energy rate hikes.
Natural Gas Prices Increase Generation Costs
Natural gas is the fuel stock used to generate half of Pennsylvania’s electricity.[1] Spiraling natural gas prices are increasing generation costs, which are being passed onto consumers despite the fact that Pennsylvania is the nation’s second largest producer of natural gas after Texas. Commercial and residential consumers will see electricity bill increases of between six and 45 percent.[2]
As of June 1st, utilities across the state have raised their rates:
- Citizens’ Electric – up 27% from 7.3995 cents to 9.3667 cents per kWh
- Met-Ed – up 16% from 6.832 cents to 7.936 cents per kWh
- PECO – up 8% from 7.07 cents to 7.64 cents per kWh
- Penelec – up 35% from 6.232 cents to 8.443 cents per kWh
- Penn Power – up 23% from 7.082 cents to 8.694 cents per kWh
- PPL – up 38% from 8.941 cents to 12.366 cents per kWh
- Wellsboro Electric – up 24% from 7.7569 cents to 9.592 cents per kWh
- West Penn Power – up 47% from 5.667 cents to 8.198 cents per kWh
Factors Driving Higher Natural Gas Prices
A number of factors are combining to drive the higher cost of gas, which has risen about 90 percent since the beginning of March 2022. These factors include summer weather, market forces, exports, and a lack of storage.
Geopolitics
Geopolitical events like the Russian invasion of Ukraine have created a frenzy in energy markets as countries scramble to increase access to reliable energy sources. Embargoes on Russia, the world’s largest exporter of natural gas, have driven European benchmarks to several multiples of the U.S. price for gas.
Exports
To meet European demand, the United States has diverted liquified natural gas (LNG) to Europe. Demand for U.S. LNG is expected to continue as European nations boycott Russia for the foreseeable future. LNG prices are expected to remain high until domestic production increases, which will require additional infrastructure and investment.
Lack of Storage
Spring is the time that natural gas utilities usually store gas in preparation for demand in the fall and winter months. Due to increased foreign demand and worry about a lack of global energy supply, utilities aren’t storing gas.
U.S. gas inventories in spring 2022 were more than 15 percent below the five-year average. Analysts warn that production will have to increase sharply to ensure there is enough supply to keep prices from soaring this winter.[3]
Lack of investment
Some of the country’s largest gas producers claim that, rather than investing in additional production, investors expect executives to demonstrate discipline in high and low commodity price environments. Their investors want the companies to return cash to shareholders through dividends and to buy back shares.[4] Other operators cite shortages of manpower and materials as well as too few pipelines to get more gas to market as barriers to increasing production.
Summer weather
Electricity usage peaks in the summer months as Americans cool their homes and businesses.
Protecting the Bottom Line from Price Hikes
With an average thirty-year life span and low maintenance costs, solar energy systems produce energy at a fixed cost, which can help insulate companies from energy price hikes. By including solar as part of a larger energy mix, business owners can help stabilize their energy costs.
The good news for businesses considering solar is that installing a solar farm isn’t usually capital intensive. In most commercial and industrial solar projects, an investor will pay for the installation. The client pays the investor back over time by way of a power purchase agreement (PPA).
A PPA is a financial agreement with a developer who will design, permit, finance, and install a solar PV system on your property or other site with no capital outlays needed from you. PPAs normally range from 15 to 25 years.
The developer sells the generated solar power to you at an agreed rate per kilowatt hour that is competitive with your local utility. The developer takes advantage of the tax credits and is usually able to pass the savings onto you.
Next steps
If you are a business owner interested in mitigating the impact of rising electricity prices with solar, contact us for a free assessment. Making a switch or diversifying your energy sources with a solar energy system can be a safe, financially smart, and profitable decision in the longer term. If going solar is something that sounds right for your business, there are many things to consider. We can help you make sense of the entire picture.
To learn if solar is the right move for your organization, contact us for a free solar feasibility report.
[1] https://www.statista.com/statistics/1287663/pennsylvania-electricity-generation-share-by-source/
[2] https://www.eia.gov/state/?sid=PA#tabs-4
[3] https://www.wsj.com/articles/why-surging-natural-gas-prices-havent-sparked-a-drilling-boom-11651623490
[4] https://www.wsj.com/articles/why-surging-natural-gas-prices-havent-sparked-a-drilling-boom-11651623490