Average American wholesale electricity prices were cheaper in 2016 than they were the year before, and as is so often the case in these recent stories of cheaper U.S. energy, families can thank the shale industry for their cheaper power bills. The EIA reports:
Average wholesale electricity prices at major trading hubs across the United States during the first quarter of 2016 were significantly lower than during the same period in 2015, ranging from 24% lower in California to 64% lower in New England. Monthly wholesale prices for the rest of 2016 were slightly below 2015 prices and generally averaged between $20 and $45 per megawatthour (MWh). The primary driver of the low wholesale electricity prices was the sustained low cost of natural gas, which is the fuel that often determines the marginal generation cost in most power markets. The low cost of natural gas also encouraged increased use of the fuel for U.S. power generation in 2016.
The cost of natural gas delivered to power generators averaged $2.78 per million British thermal unit (Btu) during the first 10 months of 2016 (the latest data available), which was 17% lower than the average price during the same period in 2015.
While U.S. oil production took a dip this year as shale producers struggled to cope with bargain oil prices (though we should note that output has increased by more than 300,000 barrels per day over the past three months), American natural gas production stayed strong throughout the year. This flood of new supplies has helped bring natural gas prices to historic lows, which in turn has helped make the electricity generated from natural gas-fired power plants significantly cheaper.
Natural gas-fired power is so cheap, in fact, that it’s undercut coal to become the cheapest option for baseload power in the America. So while the shale revolution is cutting U.S. power prices, it’s also displacing the dirtiest energy source around—coal—and replacing it with an option that’s just as reliable, but that burns just half of the greenhouse gases and far fewer of the dangerous localized air pollutants.
It’s difficult to overstate the importance of the shale boom to our country’s energy security and the economy. The dual technologies of hydraulic fracturing and horizontal well drilling have unlocked a treasure trove of valuable hydrocarbons, and the benefits of this energy renaissance are as apparent in the homes of average Americans as they are to the foreign policy establishment.