Corn, Oil & Electric Rates

Corn, Oil & Electric RatesI recently attended a series of seminars designed to inform realtors, lenders, appraisers and builders about the importance of energy efficiency and green building. The program, hosted by the Green Alliance/Nevada Energy Star Partners, featured Sam Rashkin, the national director of the Environmental Protection Agency’s Energy Star for Homes program. The seminars were very informative and those in attendance definitely gained a leg up on the future of our housing market.

I’ll write more about them in a future column. For now, I’d like to expand on an interesting concept from Rashkin’s presentation about the Energy Star brand that highlighted the growing importance of home energy efficiency.

Rashkin quoted Wayne Gretzky, who once said, “A good hockey player skates to where the puck is. A great hockey player skates to where the puck is going to be.” Rashkin then laid out an interesting scenario, explaining just where our energy “puck” is likely to be in the not-too-distant future.

Corn, Oil & Electric Rates are Linked

The story was about the future cost of electricity but Rashkin started by explaining the link between the price of oil and corn. When oil prices recently rose so drastically, it became more profitable for many U.S. farmers to sell their corn to ethanol producers to be used as an alternative fuel rather than as a food crop. The corresponding shortage of corn on the open market led to a rapid tripling of the price. As we turned food into fuel for cars, the price of corn became linked to the price of oil. There were repercussions to this linkage, including strong protests in Mexico dubbed the “tortilla wars” since many people could no longer afford the corn tortillas that are a staple part of their diet.

Many things are similarly affected when linked to the price of oil, which is a finite resource. We need alternatives to fossil fuel and there is no doubt that plug-in hybrid and pure-electric cars are inevitable. As Rashkin emphatically pointed out, “They are coming!” This transition will reduce our need on dwindling reserves of foreign and domestic oil which is a very good thing, but it also means that the value of electricity will become linked to the price of oil.

Gas is again in the range of $3 per gallon. At present rates, the energy equivalent for an electric vehicle costs around 75 cents. As more people begin using electricity to run their vehicles, the cost per kilowatt hour is bound to rise significantly, just as the cost of a bushel of corn did. Absolutely no one I know sees the price of energy going down over the long term (at least not until we wean ourselves from nonrenewables).

Rashkin’s point was to illustrate the extreme importance of energy efficiency in our homes and that an Energy Star rating holds tremendous value. I’m no stranger to the value of efficiency, yet he provided a new perspective for me that further reinforced the practicality of investing in it. Efficiency dollars spent now will yield growing dividends for many years to come.

I believe the same holds true for investments in residential solar power systems. For example, as electric rates adjust to reflect the cost of competing with oil, it is not inconceivable that market forces could cause a tripling of the rates as a balance is sought. If grid-supplied electricity rises to 30 or 40 cents per kilowatt hour, imagine the value of a home that not only uses electricity sparingly but generates more than it needs. Having extra power to charge an electric vehicle with the sun would be very sweet indeed.

People like Rashkin are telling us where the puck will be. It’s up to us to step into the green living arena and start skating — hard and fast, just like Gretzky would.

Green Living column for Thursday, August 13, 2010, published in the Las Vegas Review Journal: “Act now for better energy efficiency”