Quick Take: The GlobalData study described below documents Europe's higher electricity prices, which can be more than double those in the U.S. The reasons vary widely, but as a generality you could say that European countries often use electricity to subsidize other things. For instance, Germany has some of the highest residential electricity prices in the world. They subsidize solar and wind generation via several mechanisms that raise electric power rates. Likewise, Italian residential consumers pick up the bill for solar subsidies.
I'm tempted to believe that the U.S. is better off with its lower rates because of the benefits to consumers and business. But is the U.S. just kicking the can down the road? Would we be better off to use our rates now to subsidize a gradual transition to clean energy? Will a carbon tax appear someday that makes us wish we'd worked harder to de-carbonize? The Comment form below awaits your opinions. - Jesse Berst
The difference between residential electricity prices in the U.S. and Europe is 'dramatic,' a new report from research and consulting firm GlobalData says, noting that residential customers in Germany pay over 2.5 times what American customers did in 2012.
As SGN founder and chief analyst Jesse Berst observed above, Germans pay some of the highest electricity prices in the world because they directly subsidize the country's ambitious solar and wind energy programs.
Jonathan Lane, GlobalData head of consulting for power and utilities, explains why Americans pay so much less. "Consumption taxation across most goods in the U.S. is relatively limited and electricity is no different, with very few states applying a sales tax. The major renewable support scheme in the U.S., the production tax credit (PTC), is financed by the tax system rather than recovered through electricity pricing, so there are very few extra charges for consumers to pay. The wholesale price in the U.S. is even better news for consumers, as high hydro production and low gas prices stemming from the shale gas glut feed through to lower wholesale electricity prices.
"In contrast, Germany suffers from some of the highest residential electricity prices in the world due to the high cost of subsidizing significant solar and wind generation via the Erneuerbe-Energian-Gesetz (the German Renewable Energy Act) and 19% VAT, though German consumers are able to sustain these costs through high GDP per capita. However, German wholesale electricity costs are actually rather low, reflecting low coal and carbon costs."
On the other hand, Italy pays similar high costs but for entirely different reasons, Lane said. Prices are driven by high wholesale costs from high gas prices established by long-term, oil-indexed import contracts in a country that is intensely dependent on gas-fired power. And Italian customers also pick up a large part of the tab for solar subsidies. He added that Spain should have prices similar to those in Italy or Germany but the Spanish government has kept prices low in the regulated electricity market for some time, which has left a substantial "tariff deficit" that the government is planning on cutting with a new 6% tax on all forms of energy generation, including renewables, and a "Green cent" tax on coal, fuel oil and natural gas.
And while British electricity customers pay fairly low prices because of a low VAT rate of 5%, they do pay additional charges in the form of a Renewables Obligation, an Energy Company Obligation and a small-scale renewables feed-in tariff.
Jesse Berst is the founder and chief analyst of Smart Grid News.com, the industry's oldest and largest smart grid site. A frequent keynoter at industry events in the U.S. and abroad, he also serves on advisory committees for Pacific Northwest National Laboratory and the Institute for Electric Efficiency. He often provides strategic consulting to large corporations and venture-backed startups. He is a member of the advisory boards of GridGlo and Calico Energy Services.