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While Europe Gets Gouged, Americans Enjoy Cheap Power

The American Interest

We told you yesterday that spot prices for German electricity jumped more than 17 percent in one day due to constricted supplies from renewable producers and French nuclear reactors, but as green-crazed Germany continues to wrangle with some of Europe’s highest (and most volatile) electricity prices, American households are about to see the first annual drop in average electricity prices in 14 years.

The WSJ reports:

In the first six months of 2016, American residential consumers paid 12.4 cents a kilowatt hour, on average, a 0.7% drop over the same period of last year. If the trend continues, it would mark the first annual decline in home power prices since 2002. Prices for industrial and commercial customers already had been dropping for a couple of years.

There are several forces working in favor of the drop, including low prices for natural gas, which is an increasingly important fuel used to generate electricity. Overall U.S. electricity demand slumped 1.6% between January and July of this year versus a year ago, according to Energy Department data.

Plentiful—and therefore cheap—natural gas is one of the biggest drivers behind this drop in average American electricity prices, and this bounty comes to us courtesy of none other than the shale boom. Thanks to fracking, U.S. natural gas production is up more than 37 percent over the past decade, and at this point the hydrocarbon has gotten so cheap that it’s doing something very few other energy sources have ever done: it’s outcompeting coal on price.

Shale gas’s ascendance is undoubtedly a boon for Americans, who as we can see are paying less on their power bills every month. That’s especially helpful for poorer households, for whom these bills take up a larger slice of a monthly budget. Just as expensive energy can be seen as a kind of regressive tax that disproportionately harms the poor, so too can we consider cheap power as especially welcome for lower-income families.

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