Global versus local trends of energy costs increasing

Large scale investments in energy are becoming part of the global daily news. Large scale investments in energy are becoming part of the global daily news. Whether we’re talking about energy storage partnerships between European wind power developers and U.S. engineering specialists or 2.8 MW waste-to-energy projects in Florida, the industry is expanding rapidly, becoming more and more varied. In fact, it was recently reported that the energy industry are the heroes of America’s economy - judging by U.S. capital expenditure for 2012, eight of the top 25 top companies are energy companies, six oil and natural gas firms and the remaining two electric power generators. This all looks wonderful and positive, but what are the implications for the end user, the one that actually pays the energy bills to keep his home or business comfortable?

The European energy market

Europe is definitely working hard to fight climate change and meet the Kyoto Protocol’s CO2 emissions targets. However, the results of these intentions vary greatly within the continent, depending on a combination of “national” factors, both natural and anthropogenic. The geography and amount of natural resources dictate the country’s dependence on imported fossil fuels and potential to switch to particular types of renewable energy generation. On the other hand, the existing climate and comfort / life style standards of each country dictate its general energy requirements, for instance the tendency to heat or cool buildings. All of these factors – and many more – shape the very different images of the national economies the EU is comprised of.

According to data provided by Europe’s Energy Portal (EEP), retail (end-user) energy prices (reference month May 2013) vary greatly by country. For natural gas households, the average EU cost is 0.06 euro per kilowatt/hour, but in Sweden it reaches 0.12, while in Romania it is as low as 0.03. Average retail costs for electricity in the EU are much higher, 0.18 € per kWh, with Denmark being on top of the list at 0.30 and Bulgaria charging ten times less, at just 0.03. However, major increases have occurred since May, the reference month of the data. The United Kingdom, for example, has increased all energy tariffs, and even the best dual fuel energy deals are now higher. Four of the six biggest UK energy companies raised their costs by roughly 10% starting with the middle of November, as reported by The Guardian. For the end-user, this transition is not easy to accept, especially as the U.K. prices were way below the average EU costs - for natural gas households it was 0.04 € per kWh, while the electricity households cost was 0.17 € per kWh. Until May, the U.K. prices for industrial consumers of natural gas was 0.03€ per kWh, and electricity cost was 0.10 € per kWh.

The U.K.’s sudden energy cost increase is not an isolated phenomenon, but the result of EU’s struggle to meet the 2020 carbon emissions target. Judging by the information provided by the EEP, not all European countries have succeeded to emit less carbon dioxide than the target imposed by the Kyoto Protocol. The “greenest” EU countries are Estonia, 49.25% below the Kyoto 2012 target, followed shortly by Latvia (48.93%), Lithuania (44.90%) and Romania (43.86%). Modest improvements also come from the U.K. (7.39% below the CO2 Kyoto target), France (6.56%), Belgium (1.91%) and Germany (1.52%). On the other side, some of the countries that emit more than the Kyoto target are Luxembourg (37.36 %), Austria (26.06 %), Spain (22.35 %) or Denmark (16.42 %). These somehow surprising results indicate that switching to carbon-free energy is a complicated long-term investment of money, time and dedication from governments, industries and citizens. In fact, as reported by Reuters, “Europeans are paying the steepest energy bills in four years and face ever higher payments”, as the governments need money to invest in the modernization of the energy infrastructure. This money come from the extra charges imposed on the industry, therefore the industry raises the prices. Germany, for instance, has “reinvented the energy crisis”, according to a recent Wall Street Journal article. Efforts are being made to adapt the energy infrastructure to renewable technologies, and at the moment, 25% of Germany’s power comes from renewables according to Reuters. The electricity price is 0.26 € per kWh for households and 0.11 € per kWh for industrial consumers, as indicated by the EEP. Local companies cannot afford this high energy rates and would rather move their businesses in places where prices are lower, which would mean severe cuts on jobs and a possible crisis of the national economy.

The whole European Union is still largely dependent on importing fuel, as shown by the 2009 data presented by the EEP. From the total natural gas imported by the EU, 34% comes from the Russian Federation and 31% from Norway, while crude oil is imported from OPEC countries (35% of total EU imports) and, again, Russia (33%). Energy import dependence also varies greatly by EU country, with countries such as Malta importing 100% of their national energy and Denmark importing zero and exporting 18.80%. Luxembourg imports 97.60%, Spain 79.40% and Austria 65%. Among the lowest energy importers in the EU are Romania (20.30 %), Estonia (21.20%) and the U.K. (26.60 %).

U.S. energy prices

The U.S. Energy Information Administration (EIA)’s “Electric Power Monthly“ report published in October contains up-to-date information on the electricity cost trends in America. According to the report, the average retail price of electricity has increased from 10.34 cents per kWh (last year) to 10.58 for all sectors. The energy industry obviously varies across the different states, and so do the prices – for instance Hawaii’s average price for electricity (all sectors) is 32.86 cents per kWh, while Washington’s is 6.98, but there is a national tendency to increase prices. The national average retail price of electricity for the domestic sector has increased to 12.51 cents per kWh from 12.17 in 2012. For the commercial sector, the current electricity price is 10.73 cents per kWh (it was 10.43 last year). The price also increased from 7.11 to 7.23 cents per kWh in the industrial sector, and from 10.29 to 10.67 for transportation.

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