Ameren just announced a REDUCTION in the funding of its energy efficiency customer assistance. It is reducing this financial commitment from $25 million to $20 million. That’s a 20% reduction in funding.

At the same time Ameren Corp. is a partner on an Illinois clean coal project that won $1 billion in Federal stimulus funds.

This is a classic example of the issue of build vs. save confronting the utility industry and our country.

Energy efficiency is a huge win for a customer’s pocketbook. It basically means paying a lower electric bill without sacrificing key goals like their home’s comfortable temperatures.

And energy efficiency is a huge win for the environment. It means using less fuel to run an electric grid which can result in less pollution emissions from burning coal.

But for most utilities like Ameren their profits are tied to the financial size of their investment in power plants. They are not rewarded, or not rewarded as handsomely, for investing in their customer’s energy efficiency.

What a utility confronts when they support customer energy efficiency is called revenue erosion. They earn less because their customer is saving money.

And that conflict between the financial interest of a utility like Ameren and the financial interest of its customer is a fatal flaw in utility regulation.

This flaw is further compounded by the unintended consequences of providing a utility with financial incentives for burning fuel in a power plant that increases emissions that could harm their customer’s air quality.

This is one of those frustrating examples where so much could be gained by aligning public policy, including regulatory incentives for electric utilities, with the overall best interests of customers.

Bill Roth is the founder of Earth 2017 that focuses upon a smart, healthy and green economy. His book, The Secret Green Sauce, profiles best practices of companies making money going green.

Why? The first reason is that the price of fuel is higher and will continue to escalate in price.

For example, coal fuels half of America’s electricity consumption. Today coal is a global fuel just like oil . Would you be surprised to learn that America now EXPORTS coal?? With utilities confronting higher coal prices and competition for coal supplies with countries like China the impact at the meter is higher prices!

RenewablesBiz reports these additional reasons for higher prices at your meter:

1. The cost of developing the smart grid;
2. Retiring and replacing massive numbers of coal-fired generators
3. Building new power plants of every size and stripe, including renewables and possibly nuclear
4. Expanding transmission lines across multiple states and regions.

What will higher prices at the meter mean to you, our economy and the environment? In the short term a higher meter price will hurt.

But longer term higher meter prices will produce positive results for our economy and environment. It will drive economic growth and jobs as consumers shift to buying energy efficiency products. The result is more consumer control over high bills and for our economy, more manufacturing jobs.

And the potential for our environment and personal health is very positive. Less fossil fuel burning means less pollution. That should result in better health and lower health care costs.

Yes, our future will be stressed by higher prices at the meter similar to what we are facing at our gasoline pumps. But if we can transition to more efficient “smart energy”  then it will be a strong path toward the restoration of our economy, jobs and the environment.

The municipal electric utility Austin Energy serving Austin, Texas was the top electric utility having sold in 2009 almost 765 million kWh of green energy or over 10% of national green energy sales. Rounding out the top five utilities were Portland General Electric (Oregon), PacifiCorp (Ore. and five other states), the Sacramento Municipal Utility District (Calif.), and Xcel Energy (Col., Minn., Wis. and New Mexico). The renewable energy common denominator for these top five utilities was their supplies of wind power.

The City of Palo Alto Utilities in California had the greatest percentage of customer participation in a utility green energy program. One out of five of their customers purchased green energy. This level of participation was double the level of participation of Portland General Electric that ranked second in the percentage of their customers buying green energy. Rounding out the top five were Madison Gas and Electric Company (Wis.), the Sacramento Municipal Utility District, and the City of Naperville (Ill.)

Most telling is the dramatic narrowing in the price difference between green energy and non-green energy sold by the utilities. In 2000 the price for green energy was 3.4 cents higher. RNEL reports that today this price difference has fallen to a 1.75 cents per kWh.

The U.S. Department of Energy (DOE) reported that the average residential price for electricity in 2000 was about 8 cents per kWh (the total average price for all customers was about 6 cents). At these 2000 electricity price levels buying green energy represented an approximately 50% price premium. Today the average price for electricity has increased to almost 10 cents per kWh with residential customers on average paying almost 12 cents per kWh. At these price levels the price premium for buying green energy has dropped to approximately 10% more in cost. And there was even one utility, Edmund Electric, where the price for green energy was LESS than the price for non-green energy.

The comparison of NREL’s research on falling green energy prices and the EIA’s documentation of utility electric price increases defines the growth potential for the utility industry and green energy. It appears only a matter of timing when increasing fossil-fueled electricity prices and decreasing green energy prices reach price parity.

Two additionally telling issues add to this economic analysis. One is the potential cost at the meter for “clean coal.” Electricity fueled by coal represents 50% of our nation’s total electricity generation. A U.S. DOE study estimates the current cost to recapture and store CO2 emissions from coal fired power plants to be $100+ per ton of CO2. The DOE references an analysis performed by SFA Pacific, Inc. that found electricity would cost 2.5 to 4 cents more per kWh if current CO2 sequestration technology was deployed at existing coal fired power plants. At today’s prices for green energy the cost for “clean coal” added to the current average utility prices would result in green energy achieving at least price parity, if not moving into a position of being the lower priced electric energy supply alternative.

The second issue is the potential for future utility price increases beyond the potential of price increases tied to the costing of CO2 emissions at the meter. The utility industry faces massive new investments in power plants, transmission lines and smart metering systems. A Moody’s 2009 study projected electric utility capital expenditures through 2019 to be 150-250% of the industry’s previous year’s annual depreciation and amortization rates. This means the industry will have to raise external sources of funds for which they will seek rate increases to reflect this increase in their capital costs. In addition, coal has become a global commodity trading at prices three times historical norms. This globalization price for fossil fuels further adds to the potential for utilities filing for rate increases.

Globalization is having an opposite effect upon green energy’s costs. Globalization is creating manufacturing economies of scale that are driving down the per-unit cost for green energy. A UNEP funded study found that global investment in renewable energy green has grown six fold from $22 billion in 2002 to $155 billion by 2008. The ramifications of this scale of capital investment is evidence by the manufacturing capacity growth in Europe, China and the United States that has created a global market for solar panels which is now delivering panels priced 50% lower at approximating $3 per DC watt. At this panel price in many parts of the U.S. a solar power system is price competitive with utility supplied power.

The implications for electricity prices and green energy are:

1. The price premium for green energy is going away. The price for green energy is declining. The price for non-green electricity is increasing. Even without Federal legislation the time is rapidly approaching where green electricity will “cost less, mean more.” Federal legislation reflecting the price at the meter and pump of fossil fuels’ externality costs will only accelerate the timing of this sea changing pricing event.
2. Customers are increasingly buying green. Beyond the topic of electricity there is a sea change occurring in consumer buying behavior. Market research has document that the overwhelming majority of consumers will buy the more sustainable product versus the less sustainable product if their prices are at least in parity. Today’s green electricity sales by utilities are only 5% of their total sales. This is representative of the green market segment that will pay more to go green. However, the consumer implications when green energy achieves pricing parity are massive for the utilities, our economy and our environment. The economics of green energy holds the promise of providing rate stability and environmental recovery.

Is this picture our renewable energy future? Look at the technology deployed. There are the obvious solar panels. But there is also a battery storage system that would enable this outdoor light to operate at night using solar electricity generated and stored during the day. And there is the worker installing this technology on an age-old timber pole, speaking volumes on the potential for growing green jobs.

What this picture doesn’t speak to is cost. Utility electric lighting is typically supplied from the utility’s “base loaded” power plants that are the most efficient and therefore have the lowest per kWh operating costs. The implementation path suggested by this picture is directly tied to the economics of solar and batteries compared to based load power plants.

In much of the U.S. based loaded power comes from either nuclear or coal. The great news for the consumers during the last couple decades is that this is really low cost energy, averaging around 5 cents per kWh, or less! But that trend could be changing. Utilities across America that rely on coal fired power plants are announcing significantly sized rate increases. Independent rate tracking organizations are projecting up to 50% rate increases for customers in the Midwest and South.

And the cost for solar and battery storage is declining. How soon and how low are critical strategic issues the world solar industry is pursuing out of recognition that someday subsidies will go away and they will have to compete on price. A telling example comes from India where their government recently committed to a national program targeting solar electricity pricing parity with utility generated electricity by 2022. Their expectation is that price parity will result in solar accounting for 22,000 MWs of electricity supply.

I will always remember this picture as a symbol of what could be and what might be happening sooner than later.