Lately, there has been a lot of talk about the smart grid. What is it? What is so smart about it, anyway? And what does it have to do with cheap electricity? We’ll take a look at those questions in this post.
First of all, one of the things that the smart grid is designed to do is to make it easier for information to flow between utilities and customers. That can help the utility by giving them warnings about possible problems on the power grid before they occur, so they don’t need to wait for customers to call them to find out about outages, and so on. More relevant for those of you interested in cheap electricity, it will also allow the utility to send information to customers about changes in electricity prices, so that you can choose to use electricity when it is cheap and not so much when it is expensive, and thus reduce your electricity bill.
Now, you might ask, why would electricity prices change? Aren’t they usually the same all of the time? Yes, that is true for most customers today, but it turns out that the value of electricity is different depending on the time of day, and also depending on the season. This is mostly due to changes in demand; both residential and business electricity customers tend to use more electricity during the day, particularly during the summer when they are running their air conditioners, and less during the night and on winter days. These changes in the value of electricity can be seen in changes in electricity prices in wholesale markets, where electricity is traded between electricity generators and electricity suppliers who then sell the electricity to end users. Today, without the smart grid, end users don’t see these variations in electricity prices, but someday we will be able to use this information about varying electricity prices to make smart choices about when we use electricity. This will tend to ease the strain on electricity supplies at times of peak electricity demand, because people will have incentive to turn down their electricity use as the price goes up. And, as a cheap electricity afficionado, having the opportunity to save money on electricity by choosing to use it when it is cheaper probably sounds pretty good!
At the moment, the smart grid is just in the process of being created, because a lot of infrastructure needs to be put in place before all of this communication between electric companies and consumers can occur. However, the federal government has recently invested $3.4 billion to spur development of the smart grid in the United States, and we should start to see it go live, at least in some places, over the next few years. Already, some big players in the information technology space (and some not-so-large players) are beginning to introduce tools that will be useful once pieces of the smart grid start to fall into place. These include electricity usage monitoring tools like Google Power Meter and Microsoft Hohm. These generally require a partnership with your current utility, and mostly are not functional yet, but you can keep an eye on these links to see when they might go live for you.
If you’re interested in saving money on electricity, please also take a look at our guide to finding the cheapest electricity supplier!
Not everyone lives in a place where electricity suppliers compete in deregulated electricity markets, so it is possible that your only option may be to move to someplace with cheaper electricity. To get an idea of how much electricity prices vary from state to state, take a look at this table that ranks the states by electricity prices averaged across all sectors. You can also find tables that that will rank the states by prices for residential electricity, business electricity, and industrial electricity.
The state with the cheapest electricity, averaged over all sectors, is Wyoming. I would love to attribute the low electricity prices to its abundant wind energy resources, but the truth is that the low prices there are mostly due to the abundance of cheap coal, which is used to produce 95% of Wyoming’s electricity. Ditto for numbers 3 through 5 on the list, West Virginia, Kentucky, and North Dakota, which all get at least 93% of their electricity from coal. As a huge advocate for renewable energy, I’m starting to get depressed by this list!
Things get a bit better when we look at number 2, Idaho, which gets 79% of its electricity from hydropower, and less than 1% from coal. It is true that abundant hydropower resources also tend to result in cheap electricity prices, so, if you want cheap power from a renewable energy source, look for a state with lots of hydropower. Other examples are Washington (6th cheapest electricity, 74% from hydropower), South Dakota (10th cheapest, 48% from hydropower), and Oregon (14th cheapest, 61% from hydropower).
However, it is true that the rest of the top 15 have coal as their largest electricity source, with one exception: Louisiana. Louisiana gets only 25% of its electricity from coal, while 47% comes from natural gas and 18% comes from nuclear power. I can’t explain why Louisiana has such cheap electricity, but I can say that natural gas has a smaller carbon footprint per kilowatt-hour of electricity, which is a plus for those of you who care about global warming!
Before we leave the subject of electricity prices by state, let’s consider which states have the most expensive electricity. On the top of that list is Hawaii, which produces 77% of its electricity from very expensive, imported petroleum. I grew up in Hawaii, and I promise you that it is a beautiful place to live, but don’t go looking for cheap electricity (or anything else cheap, for that matter) there! Besides Hawaii, a lot of states in the Northeast have relatively expensive electricity; they tend to get a small percentage of their electricity from coal, and more from natural gas or nuclear power. Alaska (6th most expensive) and California (10th most expensive) also have relatively expensive electricity, with most coming from natural gas. I am not saying that high electricity prices are a bad thing, but, if your goal is to find cheap electricity, these are not the states that you want to move to.