Europe vs. the U.S. - Will America's low power prices come back to haunt it?

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By: SGN Staff

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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.