The Long View: Indiana's Energy Outlook.

• Author: Dillon, Matthew B.

Who knew that when the late Yogi Berra said, "The future ain't what it used to be," he was talking about Indiana's energy future?

Coal has been the linchpin of Indiana energy. On the production side, Indiana is ranked eighth in the country for coal production. In 2014, coal-fired power plants provided about 85 percent of Indiana's electricity generation. Indiana's industrial manufacturers of aluminum, chemicals, glass, metal casting and steel consume more energy than the residential and commercial sectors combined. Historically, this reliance on coal by Indiana has kept the price of energy relatively cheap and arguably has attracted industrial companies to locate in Indiana.

The state's dominance in coal production and use has also led Indiana to have the eighth-highest energy-derived carbon emissions in the United States. Over the last few years, the state has diversified its energy portfolio by moving away from coal. This rebalancing of energy sources has been, and continues to be, motivated by environmental regulations on emissions and largely enabled by the steep drop in natural gas prices attributed to new extraction technologies (hydraulic fracking).

Rates

Historically, Indiana has used its cheaper-than-average energy rates to attract businesses to locate in the state. That said, over the past 10 years, the price of energy for all market sectors in Indiana has increased 28.3 percent from 6.99 to 8.97 cents per kilowatt hour (kwh). The industrial sector was hit even harder, with a price increase of 32.7 percent. Even with this significant increase in price, Indiana still ranks 36th in the nation for energy prices, with the current United States average at 10.45 cents per kwh for all sectors. These electricity price increases have eroded Indiana's comparative advantage in energy production compared to neighboring states, as Figure 1 shows. The good news is that the price increases have moved Indiana's electricity closer to prices in border states (with the notable exception of Kentucky).

Energy Sources

The dominant energy sources in Indiana and the United States are coal, natural gas and petroleum. In Indiana, coal has been a primary source of electricity generation because historically it has been much cheaper than any other source. Recently, Indiana has been relying more on natural gas. From 2008 to 2012, reliance on coal as a source of energy has decreased 7.3 percent and the reliance on natural gas has increased by 6.0 percent...