The price of crude oil on the futures market jumped to a record over $145 a barrel this week, and that got me thinking about electricity. If the price of oil is going up so dramatically, surely that will affect the price of power. What's going to happen to my electric bill?
The answer is yes, your bill is going to go up, but not for the reason you might expect.
Most of us probably know that electricity is produced in power plants--2,776 of them according to the U.S. Energy Department.
Most of those plants require a fuel to power their generators. The fuel is burned, heating water in giant boilers until it becomes steam. The steam turns turbines, sort of like giant multi-bladed fans, and the turbines turn generators that produce the electricity.
Oil doesn't have much of a role in this process. According to the Energy Department, only about 1.2 percent comes from burning petroleum. That's good news, because the rising price of crude oil won't have much effect on this small segment.
About 6 percent of our electricity is generated essentially for free in hydroelectric plants where running water from a river, or a dam, turns the turbines. Another 19 percent of power generation comes from nuclear plants. This, too, is cheap, although there are environmental issues over the disposal of spent nuclear fuel.
After this point, the news gets worse.
Half of all our electricity in the U.S. is generated by burning coal.
Coal is becoming the fuel of choice for many new power plants, both in the U.S. and abroad, because it has been relatively cheap relative to other fuels, and the plants using coal are easy to build. The booming demand for coal has driven prices to records, and that, unfortunately, will be felt in our electric bills.
Coal, of course, has environmental consequences. Sulfur dioxide emissions from coal plants have been responsible for causing acid rain and the carbon dioxide generated contributes to global warming.
Aside for coal, about 20 percent of our power is generated by burning natural gas. This has much more positive environmental consequences, but, here too, the price is rising. Natural gas today traded for more than $13 per million British thermal units, the highest since hurricanes Katrina and Rita knocked out natural gas production in the Gulf of Mexico in 2005.
Gas production in the U.S. and Canada is barely keeping up with demand. This is causing increasing reliance on LNG, natural gas that has been produced overseas and shipped to markets as a liquid in refrigerated tankers. Demand from China, India, and Europe for LNG is also increasing, and this is driving up the price of LNG.
So there you have it. The fuels responsible for about 70 percent of our electrical generation are under tremendous price pressure because of growing demand, both in the U.S. and internationally. We'll feel the impact in our power bills in the months, and maybe years, to come.