Over the past two years, the cost of energy infrastructure construction has risen dramatically. Several factors should be considered when looking at the root causes, but paramount in this phenomenon is the rising costs of fuel, steel, cement and regulatory delays.
Why have the costs skyrocketed? Well, as one of my friends put it, “Enter the Dragon.” China has engaged an amazingly robust period of energy infrastructure development, thus gobbling up materials on a dramatic scale. So much so, that the typical materials used for the industry are increasingly on aggressive delivery schedules headed for mainland China. With no regulatory controls in place (in China), construction and development of energy infrastructure is on a pace that is perhaps only comparable to what the United States experienced during the industrial revolution.
When I asked folks currently engaged in energy infrastructure development in California about their surging costs, what became patently clear was the fact that we too are competing in world market for these resources. The difference here is that we have to abide by significant regulatory control, thus putting this capital intensive development industry at a disadvantage when we compare to the rest of the world. Cambridge Energy Research Associates (CERA) has recently developed some modeling that shows the dramatic increase in costs to develop this infrastructure in the United States. Conclusions by their reports should worry al consumers. Other reports that are getting little attention also peg the run up in material costs (just since the energy crisis of 2000-2001) anywhere from 33 to 130 percent (depending on the technology). That will translate into a significant impact to all ratepayers.
Is there anything that we can do to curb this eventual shock to energy consumers? While we have a moral imperative to do what we can to protect the environment, it should be equally important to protect energy consumers from the coming rate shock as much as possible and not create unnecessary regulatory burdens that compound costs. A regulatory process that moves at glacial speed is dangerous on many fronts – and the bottom line is that the ratepayer will always bear the cost of those delays.
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