The Future Cost of Electricity in Montana

Travis Kavulla has tweaked his arguments against the Montana RPS, and is acknowledging that the RPS has not increased rates for Montana to date, but is poised to do so in the near future.  And in doing so, Travis has highlighted an important question, what will different forms of energy cost in the future?

One of the undisputed benefits of wind, or renewables, is that they allow utilities and customers to lock in rates at  construction.  Unlike fossil fuels, the price of wind does not depend on the variable cost of fossil fuels.

Travis Kavulla has claimed that the next generation of wind will cost $69 per MWh, which is NorthWestern Energy's avoided cost rate.  I think that the avoided cost rate is actually a poor proxy for future wind costs, and that actual rates will be around $55 per MWh (depending mostly on the cost of integration), but these are small details.

The real point is that even at $69 per MWh, Montana consumers have a fairly good deal on their hands.  Why?  Energy prices are projected to increase.  Below is a figure from NorthWestern Energy 2009 Resource Procurement Plan, Page 119 of Chapter 6, that shows several projections for future market prices of electricity.  I have added an orange line to show where the $69 per MWh wind cost falls out.  The obvious implication is that wind offers Montanan's the opportunity to lock in low and reasonable prices for a portion of the electricity we consume (not necessarily all of it), but enough to hedge against future predicted price increases and volatility.