By Bob Rio , SVP Government Affairs

Businesses in Massachusetts know that energy costs are much higher here than elsewhere. In fact, our electricity costs are generally the highest in the continental United States. Yet,  there’s even more rate shock throughout the state these days as employers open their most recent electric bills or invoices for natural gas. The recent surge in energy costs has even energy-grizzled employers wondering what’s behind the increases.

The answer is a complex brew of geopolitics, infrastructure and carbon-reduction public policy.’

Prices increased over the last two years due to the COVID 19 pandemic. Even if your company was insulated from the direct impacts of price spikes you likely saw higher prices for commodities due to higher energy costs and shortages in your supply chain.

Now, recent events in Ukraine have upended all energy forecasts. Although the United States does not import large amounts of now-banned Russian oil compared to our daily use, it does makes up a significant amount of our daily shortfall  (i.e., the difference between what we produce and what we use). Competition for excess oil worldwide from Europe (where Russia serves more energy needs), is likely to keep prices high, domestically, and internationally.  Additionally, since Europe is willing to spend more on liquified natural gas (LNG), even US natural gas imports and domestic supply could be strained or priced higher to reflect global economies.

Electricity is also surging. ISO New England, the regional electricity grid operator, reported that wholesale electricity prices in January rose to the highest level since February 2014, three times higher than January 2021. This is primarily due to higher natural gas prices.

Sixty percent of the electricity used in New England is generated using natural gas, followed by nuclear power at 28 percent.  Renewables like solar and wind total 7 percent with hydropower (which is not considered renewable in Massachusetts) about 7 percent. The rest comes from waste-to-energy and biomass.

Some of the strain on the electric and natural gas systems may be easing a bit as temperatures rise (although not for gasoline prices, which have hit a record in Massachusetts), but the impacts of these recent events are likely to be long-lasting in ways that go beyond the price.

Massachusetts has some of the most aggressive greenhouse-gas reduction requirements in the country – a 50 percent reduction by 2030 from 1990 levels and net zero by 2050. Massachusetts successfully met its 25 percent reduction goal for 2020, although the slim margin was likely due to pandemic related energy use reductions, particularly in transportation, rather than permanent changes.

Yet, the winter’s high price of natural gas forced generators to burn more oil and even coal to keep the lights on, increasing our carbon emissions, which further translates to higher prices due to carbon taxes at the generation level. According to ISO-New England, regional power plants generated 4.2 million metric tons of carbon dioxide in January, an increase of 50 percent from 2021. Oil-fired generators alone emitted 52 times more CO2 in January 2022 than January 2021.

While AIM supports the transition to a fossil-free future, the truth is that even under the best scenarios, a full transition to a non-fossil free future is decades away and there is no guarantee the rest of the world or even the nation will ever get on the same carbon-free path. The increased use of electricity from electric vehicles and heat pumps and other electrification efforts may swamp any gains from renewable power, leaving fossil fuels as an important source of energy despite our best intentions.

And that assumes every clean energy project planned is built on schedule.

Renewable power and electrification of our energy needs (including our transportation uses) may help our greenhouse-gas goals, but it may not help in overall prices. Billions of dollars in new transmission upgrades and storage devices may be needed to integrate this transition and that will all increase costs, even if renewable commodity costs are cheaper than fossil fuels.

What can you do?

There is no quick fix as energy prices (and even things like batteries for electric vehicles) are impacted by worldwide events mostly out of our control.  Companies need to understand their electricity and overall energy needs and take steps to reduce their energy usage with energy management, renewable power, energy efficiency and alternative fuel vehicles.

Over the next several months AIM will redouble its efforts to help employers understand and manage their energy load.  Meanwhile, every company that operates in the territory of an investor-owned utility has access to the Mass Save energy efficiency program, which provides rebates for energy efficiency and electrification. New programs were recently approved so if you haven’t checked with them lately, it’s worth a look.

If your company is serviced by a municipal light company (MLP), ask them what programs are available.

While the future is somewhat uncertain, even regionally, steps you take now can not only help reduce your greenhouse gas impact but also prepare your company for a more volatile energy future.