Annual Energy Outlook 2006 with Projections to 2030 - Usinfo.org

Electricity Fuel Costs and PricesFuel Costs Drop From Recent Highs,Then Increase GraduallyFigure 65. Fuel prices to electricity generators,1995-2030 (2004 dollars per million Btu)108642HistoryProjectionsPetroleumNatural gasCoalNuclear01995 2004 2010 2015 2020 2025 2030Electricity production costs are a function of the costsfor fuel, operations and maintenance, and capital. Inthe reference case, fuel costs account for about twothirdsof the generating costs for new natural-gasfiredplants, less than one-third for new coal-firedunits, and less than one-tenth for new nuclear powerplants in 2030. For most fuels, delivered prices to electricitygenerators peak by 2006, fall in the middleyears of the projections, and then increase steadilythrough 2030. As a yearly average, natural gas pricesdrop to $5.06 in 2016 and then rise to $6.26 permillion Btu in 2030 (Figure 65). Similarly, petroleumprices decline to $6.39 in 2013 and then rise to $7.61per million Btu in 2030. Coal prices remain relativelylow, with highs of about $1.50 per million Btu at thebeginning and end of the projection period and lows ofabout $1.40 in the middle years. Nuclear fuel costs,averaging $0.45 per million Btu in 2004, rise to $0.60per million Btu in 2030.Electricity generation from natural-gas-fired powerplants, which have relatively low capital costs andemissions levels, increased in the early years of thisdecade. More recently, higher fuel prices haveincreased the cost of natural-gas-fired generation.For example, the price of natural gas to generatorsjumped by 37 percent from 2004 to 2005. With naturalgas prices rising after 2016 in the reference case,the natural gas share of total electricity generationdrops, and both coal-fired and renewable generationincrease.Electricity Prices Moderate in theNear Term, Then Rise GraduallyFigure 66. Average U.S. retail electricity prices,1970-2030 (2004 cents per kilowatthour)12 History Projections1086421.7Average price(nominal cents)14.11970 203001970 1985 1995 2004 2015 2030Electricity prices are determined primarily by thecosts of generation, which make up about two-thirdsof the total retail price. The 2004-2005 spikes in naturalgas and petroleum prices, along with elevated coalprices, led to a jump in electricity prices. Averageretail prices (in 2004 dollars) fall to 7.1 cents per kilowatthourin 2015, as new sources of natural gas andcoal are brought on line. After 2015, natural gas andpetroleum prices rise steadily, and power producersincrease their reliance on lower priced coal. As aresult, retail electricity prices rise gradually, to 7.5cents per kilowatthour in 2030 (Figure 66).Customers in States with competitive retail marketsfor electricity see the effects of natural gas prices intheir electricity bills more rapidly than those in regulatedStates, because their prices are determined to agreater extent by the marginal cost of energy—theaverage operating cost of the last, most expensiveunit run each hour—rather than the average of allplant costs. Natural gas plants, with their higheroperating costs, often set the hourly marginal price.Distribution costs, which accounted for more thanone-quarter of retail electricity prices in 2004, declineby 14 percent from 2004 to 2030, as the cost of distributioninfrastructure is spread over a growing customerbase, and technology improvements lower thecosts of billing, metering, and call-center services.Because of the additional investment needed to meetconsumers’ growing electricity use and to facilitatecompetitive wholesale energy markets, transmissioncosts rise by 27 percent, increasing their share of thetotal electricity price from 7 percent to 9 percent.82 Energy Information Administration / Annual Energy Outlook 2006