THE TEXO-EUROPEAN MODEL:

The lesson from Solyndra: It's time to deregulate the energy market (Sunil Sharan, October 17, 2011, Washington Post)

Contrast the situation in the U.S. with that in Europe. The European Union mandated liberalization -- their term for deregulation, or electricity competition -- to come into effect throughout the region four years ago. The passage of the E.U. mandate released competitive forces. The looming threat of someone like the French utility, EDF, making a move towards Italy in an effort to grab a chunk of its customers motivated the Italian utility, Enel, to roll out the world's largest grid modernization project in 2001. Enel now has over 32 million smart meters operational in Italy, and offers a variety of customer-care services. (Full disclosure: From 2000-2006 I worked for Echelon Corporation, a company that provided Enel with communications technology for its smart grid project.) Installing the meters cost Enel 2 billion euros in total (slightly less than $2 billion in 2001 dollars). The payback has been swift, because the meters, according to documentation provided by Enel, save the utility more than a billion dollars a year in operating expenses. Solar energy, wind power and smart meters are all flourishing in Europe, aided in part by attractive, introductory tariffs, as well as a mandatory target that a 20-percent share of energy consumption come from renewable sources by 2020. Competition has driven industry consolidation. Big players such as EDF, Enel, Germany's E.ON and Sweden's Vattenfall are snapping up smaller utilities and improving productivity through economies of scale.

Currently, only 15 states in the U.S., as well as the District of Columbia, provide any form of retail choice. Of those 15 states, Texas, the largest electricity market in the country, is the most freewheeling. Well over half of all customers in Texas are eligible to switch electricity providers, which is about 6.6 million. By May 2011, approximately 60 percent of such competitive-choice customers -- nearly 4 million -- had done so. Texas went a step further by instituting a renewable portfolio standard (RPS) -- a law to boost renewable energy production. The initial RPS mandate of 1999 -- to generate 2,000 MW of new renewable energy by 2009 -- was achieved in 2005, when the state increased its total renewable capacity goals to 5,880 megawatts by 2015, and to 10,000 megawatts by 2025. After the RPS was implemented, Texas wind corporations and utilities, according to the state government, invested around $1 billion in wind power. Companies, such as Green Mountain Energy, that directly sell clean energy to consumers have started to emerge.

Deregulation has also encouraged the widespread deployment of smart-grid technologies, such as smart meters, which are electronic versions of spinning meters, according to documentation from the European Union. However, smart meters raise concerns about consumer privacy. They have been deployed in mass quantities in Italy and Pennsylvania, and have resulted in a more accurate measurement of electricity usage, as well as an increasingly efficient management of energy production resources.

A potential downside to deregulation is the effect on consumer rates. But deregulation does not guarantee an unfettered free-for-all. While electricity providers will be free to offer whatever rates they choose, they will be forced to operate in a competitive environment, and unfair practices would continue to be monitored by state public utility commissions

Residential electricity rates in Texas were higher than the national average for many years after deregulation was initiated, in part because of Texas's over-reliance on natural gas, which was very expensive at the time. After prices peaked in 2008, residential electricity rates in Texas have trended downward, and are today at 11.28 cents/kWh, below the national average of 11.58 cents/kWh. In Pennsylvania -- the only other state to have practiced deregulation on a wide scale -- residential prices before deregulation were about 15 percent above the national average, and now at 13.12 cents/kWh are just above 13 percent over the mean.

Posted by oj at October 19, 2011 7:24 AM
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