Comment: Switch from gas to electric isn’t cheap, but it saves

By Liam Denning / Bloomberg Opinion

It may feel like the U.S. stove wars are over but no. Stoves are, after all, the only way to get most Americans personally attached to an invisible fuel. More importantly, stoves are a mere skirmish in a much broader conflict: molecules versus electrons.

In the molecules camp sit things like gasoline, natural gas, fuel oil and propane. In the electrons camp sits electricity. Since the latter can be derived from zero-emission sources like renewable and nuclear power, using that to displace fossil fuels in more applications is central to decarbonization. Doing so doesn’t just require a mental leap — bidding farewell to little blue flames, for instance — but remaking more than a century’s worth of fixed assets. Think of the energy transition as the biggest, gnarliest renovation project imaginable. The check will be commensurate. That doesn’t mean it’s unaffordable.

When we think about residential energy usage, the big things are heating, hot water and cooling (gas stoves are negligible). While there are big regional differences, gas and electricity account for roughly equal (and dominant) shares of U.S. residential energy consumption.

This picture is incomplete, though. Household energy consumption also includes something that isn’t used in the house but gets parked in the garage or on the street. Light-duty vehicles consume roughly as much energy as all other residential sources combined.

This reality confronts Americans where it counts: Their wallets. On average, motor fuel takes 2.1 percent of disposable personal income, which is more than the combined total of 1.6 percent for electricity and home gas bills. Gasoline also tends to be the most volatile energy cost for U.S. households.

So when we talk about electrifying households, that has to include — maybe start with, from a cost perspective — the box on wheels that is used to get away from the household. Note that stovetops do not merit special mention here.

Hugh Wynne and Eric Selmon, utilities analysts with Sector & Sovereign Research LLC, recently released several reports in which they modeled the investment, and resulting costs for consumers, implied by the National Renewable Energy Laboratory’s “Electrification Futures Study,” published in 2021. The biggest changes occur in transportation and buildings — electrification of cars, heating and boilers in other words — requiring a massive increase in utility investment and, thereby, a marked increase in monthly bills.

Under NREL’s reference case, SSR’s calculations imply average residential electricity bills rising 86 percent, in real terms, by 2050; under the high electrification case, they jump by 145 percent. Using 2021 as a baseline, that means an extra $104 and $175 per month, real, respectively.

The vast majority of that increase relates to higher charges per kilowatt-hour as utilities recover their increased investment. Average demand doesn’t rise as much as you might expect; by only 15 percent by 2050 in the high electrification case, for example. That’s because of efficiency.

Thermodynamics dictates that burning fuel to heat water or move a piston results in the majority of the embodied energy being wasted as heat. An electric vehicle is three-to-four times more efficient than an internal combustion engine, and heat pumps display similar efficiency gains versus conventional boilers. Eventually, higher electrification using renewables should lead to overall primary energy demand actually peaking and declining as the share of waste is expelled from the system.

Efficiency means savings. For example, while plugging in your EV means a higher electricity bill, it also means bidding farewell to the gas station. Even assuming gains in fuel efficiency for internal combustion engines, just using today’s average pump price of about $3.40 a gallon implies a monthly household saving in 2050 of almost $160 by ditching the traditional car. Clearly, a household using EVs would have a bigger increase in monthly electricity bills to start with compared to the average figures implied by SSR’s analysis. Even so, that saving on gasoline goes a long way to offsetting it. Similarly, declining residential gas demand, due to electrification of space and water heating (and stoves), means some savings on that side, too, albeit of a much smaller magnitude using SSR’s figures.

In addition, the decline in gasoline consumption and natural gas consumption from the residential and power-generation sectors under the high electrification scenario imply annual carbon dioxide emissions dropping 1.1 gigatonnes per year by 2050, or 22 percent of current energy-related U.S. emissions. At a nominal value of $50 to $100 per tonne, real, that implies a further societal “saving” of about $30 to $60 per month for each household. That figure may be a tougher sell to your average voter than induction stovetops, but still.

So going electric doesn’t imply being swamped by monthly power bills, once you factor in the offsets. But that’s only half the challenge.

Besides not feeding the more paranoid fantasies of federal stove agents kicking down the kitchen door, there’s a more reality-based reason as to why regulations mandating electrification, such as those proposed by New York Gov. Kathy Hochul, focus on new construction rather than retrofits. That reason is cost.

Several in-depth studies, such as from the Rocky Mountain Institute, conclude that electrification often reduces homeowners’ costs over the lifetime of appliances for new homes but raises them when you factor in ripping out old systems for replacement. This applies especially in colder regions of the U.S., where more expensive ground source heat-pumps make more sense, raising the cost of new home construction there, too.

In addition, the hit to gas demand creates an economic conundrum. Network costs are much easier to bear when demand is rising, since each dollar spent on maintenance is spread across ever more units of fuel. In the case of natural gas, SSR projects big declines in residential demand over the next several decades under NREL’s scenarios. More importantly, but less obviously, there is also a big, and more rapid, collapse in gas consumption by power generators as renewables muscle in. This is a big problem for the gas business, as well as customers still using those pipes and state regulators setting and justifying what will be far higher prices.

The acceleration of required investment in the grid is also worth considering. Under SSR’s analysis, spending on generation and transmission to achieve zero-carbon power by 2050 equates to 0.61 percent of cumulative U.S. gross domestic product through 2050. That hardly seems like much. But it is far higher than the 0.34 percent spent over the past 30 years and on a par with the levels seen in the decades after the end of World War II, when the grid was being built out at a rapid pace to feed the postwar boom.

Back then, it was about raising the sheer quantity of electricity. Today, we are more concerned with quality, seeking higher efficiency and lower emissions. The point isn’t that electrification can’t be done. Rather that, as with any renovation job, a big obstacle to getting it done, and realizing the public good of mitigating climate change, is the sheer inertia embedded in existing infrastructure. We are invested in molecules, economically and behaviorally — plus emotionally, for some at least — and largely avoid explicitly pricing their side-effects. That tends to obscure the savings and benefits, both monetary and environmental, that would accrue from electrification and decarbonization. Hence the role of mandates and incentives, and the inevitable backlash they invite.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.