For months, news headlines around the world have heralded increasingly high energy prices due to a variety of international issues. Unfortunately for many Alaskans, these high prices are nothing new. According to a recent report by the American Legislative Exchange Council (ALEC), Alaska has the second-highest electricity prices in the nation with an average price of $0.22 per kWh, below only Hawaii. Policymakers must be cautious about well-meaning legislation that inadvertently raises energy prices, such as restrictive “green energy” regulations.
The authors at ALEC calculated electricity prices in cents per kilowatt-hour (kWh) using 2020 data from the U.S. Energy Information Administration (EIA). A kWh is a unit of measurement that demonstrates how much energy is being used. For example, it takes one kWh to burn a 100-watt light bulb for 10 hours. ALEC’s calculated electricity price is the weighted average across multiple sectors: residential, commercial, industrial, and transportation.
In addition to the second-highest overall electricity prices in the nation, Alaskans are burdened with the sixth-highest residential prices. EIA’s most recent data update from August 2022 shows that the average retail price of electricity to the residential sector is almost $0.24 per kWh.
The authors at ALEC pointed out that one factor influencing Alaska and Hawaii’s high prices is infrastructure. States in the lower 48 have the benefit of sharing transmission lines and can import or export power across state lines when necessary.
Additionally, the report examined three energy policies that affect electricity pricing. They considered whether states had a Renewable Portfolio Standard (RPS), which requires that a certain amount of a state’s electricity generation comes from renewable sources. They also looked at if states were a part of a CO2 cap-and-trade program. Finally, they looked at whether a state has “state-mandated rules for utilities regarding net metering, which is a process in which utility companies pay consumers who own rooftop solar panels for any excess electricity generation that these panels push back onto the electric grid.”
Alaska does have an RPS and state-mandated rules for certain utilities but does not participate in any CO2 cap-and-trade program. ALEC explains that implementing policies such as these can increase the average price of electricity in a state. In fact, they argue that government mandates are “associated with higher [electricity] prices.”
However, what’s missing from the report are further details. Both Hawaii and Alaska also use more diesel-powered electric sources than the rest of the nation. In fact, 16% of Alaska’s electricity generation is from diesel. Furthermore, according to the EIA, Alaska has a high per-capita energy consumption rate — which can raise prices — due to “its small population, harsh winters, and energy-intensive industries.”
Because of the uniqueness and remoteness of Alaska, there are a variety of solutions to energy affordability. And all the solutions rely on freedom and flexibility for success. Policymakers can best influence downward prices by not getting involved in the energy production market and allowing for innovation and market demands.