Why Electricity Prices Are Rising And What You Can Do To Cut Costs

Forbes

6 days ago

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Have you noticed a change in your electric bill lately? The National Energy Assistance Directors Association estimates that 2025 will be the most expensive year of the decade, with the average U.S. household expected to pay at least 6% more than in the previous year, and significantly more for others, depending on location and housing type. Multiple factors at play contribute to their bills becoming unmanageable. The most effective tips for mitigating rising electricity bills include updating your appliances and insulation, as well as unplugging electronics you aren't using.
Let's start with the rising cost of natural gas and explore the reasons behind this increase. Natural gas accounts for approximately 40% of the electricity generated in the United States. According to the U.S. Energy Information Administration, exports of liquefied natural gas have increased to 12.9 billion cubic feet per day, a threefold rise. This means that we have a limited supply of natural gas in our country, which raises its price and, in turn, increases the cost of electricity produced by it. To make matters worse, those exports are expected to double in the next five years and depending on the energy policies we implement in the future, that number could double again. In the graph below, you can see what the EIA is projecting.
U.S. LNG Exports
The rise in electricity prices cannot be attributed solely to natural gas exports; multiple factors are contributing to this increase. The second factor is rising demand. New data centers and AI are expected to drive this demand, which, according to Rystad, is projected to grow at a rate of 4% annually. To put that in perspective, it is nearly double the rise in demand we experienced from 2000 to 2020. A single data center can use as much electricity as 80,000 homes, and by 2030, we are projected to add as much as 30 GW of electricity demand from data centers in the U.S. That is equivalent to the power generated by 30 nuclear reactors, solely for data centers.
Fortunately, most of these data centers will build out some form of electricity generation to assist in powering the centers. In Pryor, Oklahoma, where Google is building a new data center, a new solar array will be built alongside it, and Google has agreed to purchase that power. What is yet to be seen is how the passage of HR1, commonly known as the Big Beautiful Bill, will impact these renewable power installations with data centers. Tax credits for wind and solar projects are being terminated for projects that are not complete by the end of 2027. At a time when electricity demand is growing at historic levels and is expected to continue doing so, we are making it harder to generate that electricity.
Infrastructure Matters
The most critical aspect of your lights coming on is the infrastructure that carries electricity to homes and businesses across the nation. However, 70% of transmission lines and distribution transformers are 30 years old, according to the Smart Electric Power Alliance. These transmission lines are now expected to face a 260% capacity demand increase by 2050 due to the growth of data centers, electric vehicles, and renewable energy. There are two pieces to this. When the infrastructure itself cannot meet demand, prices increase, as it is an essential part of the supply chain. Second, the cost of that new infrastructure is being passed on to us, the customers.
According to the Cato Institute, grid costs now comprise up to 50% of your electric bill. In many areas, delivery costs have risen by nearly 70%. In my personal experience reviewing other people's electric bills over the last two years, delivery costs have been the most significant driver of their bill increases. Higher demand for an ageing grid in a specific area can increase bills dramatically. If that weren't enough, grids require digital upgrades for renewable energy, and the assistance for those upgrades is also being eliminated. All of this has resulted in electricity prices rising by over 6% per year since 2020, according to the Bureau of Labor Statistics, which averaged 1.6% during the previous hundred years.
Here are some tips to help you save money on your electric bill.
· Switch to LED Bulbs
· Install a smart thermostat
· Seal air leaks
· Use Energy Star appliances
· Set your AC to 78 degrees. Each degree lower increases cost by 6-8%
· Lower the water heater to 120 degrees.
· Use cold water for laundry
· Unplug items you aren't using.
· Leverage of off-peak hours.
You can save hundreds of dollars a year by implementing some of these tips according to the Department of Energy. If you would like to maximize your potential savings, consider getting an energy audit done. Many utility companies offer this as a free service, and it could potentially save you up to 30% on your electric bills. If your utility company does not offer this free service, you may find a local professional that could do it for as little as a hundred dollars, just make sure they are accredited. If you are more of a do it yourself type individual you can download DIY energy assessments at www.energy.gov.