In Rhode Island, we have inexpensive natural gas and expensive electricity.  This does not seem to make sense; most of our electricity in Rhode Island is generated from Natural Gas.  Lets look at the reasons for this phenomenon.

Natural Gas prices are going down because there is excess supply from fracking, much of it coming from Marcellus Shale in the northeaster region of the US.  In addition, up to this point in the 2015 winter, we have experienced higher than normal temperatures.  High supply and low demand has driven the price of natural gas to all time lows.  Prices for natural gas in New England, however, are higher than the rest of the country.  This is due a lack of pipeline capacity that limits the amount of gas that can be pumped to Rhode Island and the surrounding states for the heating season.

Even still, heating gas prices are going down this year and electricity prices are going up.  This is due to the fact that heating suppliers are required to lock in long-term contracts for gas to meet the seasonal heating demand.  These long term contracts give price predictability and overall price reductions.  Electric generation facilities buy gas on much shorter contracts and are therefore, are exposed to price volatility.  In fact, on cold days, almost all of the gas supply is used for heating; at this point electric distribution companies buy energy from even more expensive facilities such as coal fired power plants.

What is the outlook for Rhode Island electricity consumers?  National Grid might start purchasing gas on longer contracts to reduce price volatility.  But, to reduce overall price increases for gas, larger gas pipelines will be needed.  This build-out will take many years.  National Grid could also take the approach of stabilizing the cost of their electricity by bringing renewable generation facilities on-line.  These resources, with zero fuel cost, have very predictable 20 year electricity pricing.  Beyond this, consumers of electricity can choose to stabilize their own electricity cost by implementing efficiency measures and installing an appropriately sized and financed solar array.  With the new incentive programs in RI, this is becoming feasible for a broader range of RI residents.

 

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