An interesting new report [PDF] from the Federal Energy Regulatory Commission seeks to explain why electric prices are currently increasing so dramatically.

They lay most of the blame on rising fuel costs and rising commodity costs (copper, steel, etc.), which is certainly contributory, but in my opinion deceptive, since it suggests that — but for commodity volatility — things could be hunky-dory again. This implicitly diminishes the fact that we’re entering a build-cycle in the power fleet, and thus fails to understand all the chickens now coming home to roost in the power sector.

That said, it still makes for an interesting read — even if one disagrees with the causes. The reality of rising power prices and even higher prices on forward markets is something that we must understand — and for which we must start thinking through the consequences.

I’m particularly intrigued by the graph on page 11 that shows FERC’s estimates of the construction cost for various power-generation technologies in the 2003-2004 time frame and today.

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The overall trend is clear: everything’s more expensive than it used to be. But look closer, bearing in mind that in 2003-2004, the only power plants that anyone was building were natural gas and wind. These two classes of power plants show comparatively little increase in construction cost as compared to nuclear and coal, suggesting that while a part of the increase in construction costs is certainly material-related, a part of it for nuclear and coal may simply be reality impinging upon the numbers thrown around in sales presentations.

Take note particularly of nuclear: Did anyone truly believe in 2003 that you could build a nuclear plant for $1,000/kW? Apparently FERC did, but I rather doubt that the increase from that data point to today’s $4,500-$7,500 cost is just because of commodity price increases.

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