"The recent energy price rises that have overwhelmed consumers aren't the result of a domestic supply-demand imbalance. Neither are they the result of monetary mismanagement by the U.S. Federal Reserve. Globalization, especially the rise of populous China and India, has put strong upward pressure on commodity prices. Cartel activity by OPEC has added to the upward price pressure. Commodity speculation, too, has contributed to the hike in energy prices," Kucewicz says.
"But probably the single biggest factor affecting the price of fuel has been geopolitical risk. Ever since the tragic events of 9/11 and the later U.S. invasions of Afghanistan and Iraq, global markets have become acutely aware of the potential dangers posed by terrorism and the risk of instability in the oil-rich Persian Gulf. Vital commodities such as oil and safe havens like gold have, not surprisingly, become particularly sensitive to geopolitical risk. Experience has shown, though, that geopolitical risk factors can disappear as quickly as they appear, meaning the potential for a price correction is ever-present," he adds.
"The solution to high electricity prices in the end is a simple one: Let electric power companies do their job, unfettered by overly intrusive or misguided regulation. Whatever regulators do, they mustn't turn the electric power debate into a political football or 'Californize' the issue by trying to have it both ways - i.e., regulating and deregulating prices at the same time. There's no reason regulators can't act responsibly and help lay the foundation for a stronger, more productive economy," Kucewicz says.
U.S. electricity consumption is projected to increase steadily between now and 2030 at an average 1.5-percent rate, according to the Department of Energy's Energy Information Administration. That would be considerably slower than past growth rates ranging between 2.3 percent and 4.2 percent in the 1970s, 1980s and 1990s.
"The projections, however, may be giving insufficient weight to the demand for electricity expected to be imposed by baby boom retirement and the need for more labor productivity gains. Increased electric power generation is likely to be fueled by increased coal use and more nuclear power. Natural gas used for electricity generation is expected to grow more slowly than previously forecast because of high prices in the decade of the 2020s. High energy prices will help the case for renewables and could stimulate production at marginal oilfields and make unconventional sources viable (e.g., oil sands and ultra-heavy oils), potentially jeopardizing OPEC's dominance," the study says.
Internationally, growth in the developing world is likely to see a sharp rise in electricity use, especially as poor populations gain access to electric lighting, refrigeration, air-conditioning and electronic home entertainment for the first time. This, however, could put these emerging economies - notably China and India - on a collision course with the opponents of global warming, who seek to cap so-called "greenhouse" gas emissions.
