How Are Consumers Reacting to The Soaring Electricity Prices in The US?
The unprecedented spike in electricity prices is affecting consumers and utilities throughout America. Owing to the high cost of natural gases, customers in various cities, including New York, struggle to cope with the increasing energy rates. “The prices are “some of the highest electricity prices ever seen in recent memory”, said Julien Dumoulin-Smith, an analyst from the Bank of America. And this is happening despite any geographic implications.
“Inflation is falling, but not your electricity bills”, quote CBS News.
Currently, the average electricity cost in the US in 2023 is between 15.95 cents per kilowatt hour (kWh) to 23 cents (kWh). People in Hawaii face consistently high electricity charges and pay almost 45.74 cents per kWh - double the prices in New Hampshire (27.47 cents per kWh).
**Data taken from EnergySage and EcoWatch
But what is the reason behind the soaring electricity prices in the US? In this article, our professionals at Solarblocks will help you understand this in detail.
The Onset Of Rising US Energy Prices
In the early months of the Covid 19 crisis, the plunge in global energy consumption enabled fuel prices to plummet to an all-time low in decades. But once the situation rebounded, the prices of natural gas and coal increased drastically, along with electricity costs. The situation prompted customers to switch to alternative and affordable sources of energy. The global oil demand was also recovering from its 2020 lows, and the prices soared. In the bid of this ‘shock event’, investment in fuels faced huge resistance.
In 2022, the resilient global electric demand was triggered by the violent Russia-Ukraine war which roiled the energy markets. It took wholesale energy prices higher, inspite of subsequent Government interventions, and power generation costs escalated. The United States witnessed a 2.6% YoY demand increase in electricity demand during this period, driven by high residential usage to meet their heating and cooling needs. Households met high electricity prices in the US as the cost was believed to have returned to the 2021 levels, with no signs of decrease.
Today, customer electricity bills in cities are a thing to dread at. Most of the electricity supplied throughout states is powered by natural gas power plants which is costly due to high demand and supply hindrances. In the New York metropolitan areas, consumers saw the biggest climb in energy prices over 50 years, as household energy costs spiked by 17.2% from December to January 2022 - an overall 28.2 % jump since its series of historical price rises starting from 1971.
Inflation in The US
Quoting from the US Chamber of Commerce - “On June 10, 2022, the University of Michigan’s consumer sentiment index hit its lowest level in 52 years. A few days later, the latest Consumer Price Index (CPI) showed year-over-year inflation of 8.6% in May — the fastest pace in 41 years.”
A day later, the average nationwide gasoline price skyrocketed to $5.00 per gallon for the first time.
Data says that Americans spend approximately $730 million on gasoline now than in 2021, which is $20 billion more to fill vehicle tanks. Therefore, inflation dawned.
Wholesale electricity markets and US energy prices were largely influenced by natural gas and fossil fuel costs. Hence, retail providers had no choice but to increase prices. This saw an impact on gas power generation, disruptions in the supply chain, and rising interest rates.
“There are more people that are trying to figure out what to do as far as maintaining their household and providing for their families, and so it’s really hard.”
The average electricity prices for US residential customers rose by 13%, between 2021 and 2022. The monthly rates increased from $121 a month to $137 a month. After the inflation hit, the prices took a 40-year high - as the electricity bills took a 5% plunge. Also influenced by total consumption, the average residential electricity price in the US in 2022 was 15.12 cents/kWh, an increase from 13.66 cents/kWh in 2021. After inflation, this price went up by 2.5%.
*Data is taken from the eia - U.S. Energy Information Administration
The Current Situation
Inflation has cooled a bit, since peaking in June last year. But the US energy prices show no sign of becoming cheap. According to the Energy Information Administration, wholesale prices of electricity will come down in 2023, but it will not be noticeable in retail prices until later this year or in 2024.
The situation is bound to confuse the customers.
"Consumers look at gasoline, and say, well, gasoline's come down, why am I still paying more money for heat and power?"
Here are the reasons why:
- Most utilities buy natural gas in the fall and use it throughout the year.
- Shortages in labor, especially in the grid market, and tight supplies have hindered the price fall for electricity.
- Utilities need permission from the regulators for any price increase, which explains the delay in change.
- Most of them are rebuilding their grids which is an expensive process. Consumers pay half the price for wires. A lot of transmission facilities are old, worn out, and have completed their lifespan of 60-70 years. Hence, they must undergo an upgrade.
- Regional electricity prices depend on consumption levels but the limited capacity of natural gas pipelines raises the costs.
- The scarcity of liquified natural gas in the US is due to greater shipping to Europe, to make up for the lost imports from Russia, which reached a dramatic low due to the war.
- The weather and the rising temperature are the final factors contributing to rising electricity prices in the US.
Hence, there seems to be no one-to-one relationship between coal prices and electricity costs.
More than 20 million families have failed to pay their utility bills in 2022 (which is about $792 of debt) per the National Energy Assistance Directors Association (NEADA). Martin Kohli, the chief regional economist for the Bureau of Labor Statistics said that New York and other metropolitan areas have recorded the highest electricity prices in over 50 years.
+75% of Americans are concerned about the price surges and their ability to pay utility bills.
The energy crisis has enabled many experts to predict future industry changes, concerning residential and commercial customers and electricity usage.
• Switching suppliers
If the market corrects the retail electricity prices, consumers are more likely to switch suppliers. They will prefer fixed tariffs compared to market offers, to avoid volatility at all means.
• Demand side usability
In the future, consumers need to participate more to balance or increase the load flexibility due to the ongoing crisis. Most utilities plan to implement flexible tariffs to help balance end-user US energy prices depending on the market.
More people will opt for Government-initiated clean energy incentives, like the Inflation Reduction Act in the US.
• Local energy acquisition
This trend can emerge shortly when customers start sourcing electricity locally. This can awaken industrial self-sufficiency where retailers start building distribution networks and self-generate electricity from energy sources like solar, clean hydrogen, or even wind.
Keeping The Future in Sight
• More transparency in retail electricity usage
Countries should seek temporary relief from the towering electricity costs to take the burden off the consumers. As more people ask for help to pay their bills, the Government should be prepared to provide all the necessary assistance. Instead of creating a ripple effect on consumers, who, if the prices don’t lower, might have to tighten their budget elsewhere like food and housing, utility providers like Con Edison can review their billing practices.
“Natural gas is a driver of electricity costs as it is used by generation plants to create electricity. Con Edison does not make a profit on the commodity. We buy the energy on the wholesale market and provide it to customers at the same price we paid.”
Companies should closely look into their energy buying methods, to lower supply price volatility and communicate changes, if any. This is mostly to help those who have fallen behind in bill payment completion.
• Low-emission sources will take over
Over the next three years, it is predicted that renewables will dominate power generation to meet 90% of extra demand. It will accompany more investments in the grid, and successful integration into power systems. But fossil-fired power generation will remain subject to economic developments. Renewables' contribution to global power production is forecasted to rise from 29% in 2022 to 35% in 2035. Henceforth, CO2 emissions will decline too.
• Solar PV and wind will lead in annual renewable capacity
Total renewable energy capacity will grow to 4500 gigawatts (GW) by next year. It will soar by 107 GW, the largest ever increase, and more than 440 GW in 2023. High prices of fossil fuel and electricity will favor the strong deployment of solar PV and wind. Government policies are also adapting to match the marker conditions. Solar PV additions will account for 2/3rds of the increase in 2024, as manufacturing will double to 1000 GW by the same time. Wind power additions will rebound on a 70% year-on-year (YoY) basis. But it will largely depend on permissions and auction designs.
Contact Solarblocks to transition to renewables and rely on solar to power your entire home. Be the pioneer in clean energy adoption, install high-quality solar panels and solar battery storage systems to decrease reliance on the grid.
Save money despite the rising electricity prices in the US. Be power independent with us, today.
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