Electricity Rate Increases In 2022 And Beyond

At Palmetto, we believe that going solar is one of the best ways to counteract rising electricity rates and higher utility bills. In 2022, we’re seeing drastic electricity rate increases, and as a result, the benefits of solar power are more obvious than ever before.

When rates increase, consumer demand for installing solar solutions and buying energy efficiency products generally increases as well. In addition, homeowners who already have solar panels on their homes benefit from increased solar savings, and a stronger return on their investment.

This article will help you understand why electric rates are increasing, what’s happened historically with average electricity rates, and how you can expect electricity rates to change as we head into the summer of 2022.

Why Are 2022 Electricity Rates Increasing?

Several news outlets have recently written about how electric rates have experienced major price increases over the previous 3-6 months. These higher prices can be attributed to the rising demand for natural gas, and they are expected to continue through the summer:

• Why Your Electric Bill Is So High — and Could Keep Climbing (Wall Street Journal)
• Get Ready for Another Energy Price Spike; High Electric Bills (New York Times)
• Power Prices Jumped 51% In PJM, 85% In New England In Q1 Due To Rising Gas Prices (Utility Dive)
• Pennsylvania Electric Generation Costs Increasing Up To 45% On June 1 (TRIB Live)
• Electricity In Ohio Will Cost More This Summer (The Columbus Dispatch)

Natural gas is the largest source of electricity in the U.S., supplying 37% of total generation. Coal generated 23% of U.S. electricity in 2021, but that number will steadily decline as those power plants are retired. Nuclear energy represents approximately 20% of electric generation, and it’s expected to remain the same, while renewable energy including solar and hydro will continue to rise from their 20% level in 2021.

The primary reason for the increase in electricity rates is that natural gas prices are increasing at a faster rate than in the past several years because the Russian supply to Europe and Asia is lower. Additionally, the demand for U.S. natural gas is higher both abroad and domestically, so prices are increasing as a result of this increase in demand.

Let’s examine the top three reasons for these across-the-board increases in energy costs and rates:

1. Russian Invasion of Ukraine Impacts Supply and Demand of Natural Gas

• Russia is the world’s 2nd largest natural gas producer. (The United States is 1st.)
• Russia is the world’s largest natural gas exporter.
• With the war in Ukraine, supply from Russia to Europe and Asia is significantly down.
• European & Asian demand is driving the cost of natural gas much higher.
  • Europe’s spot Liquified Natural Gas (LNG) prices this past winter were five times higher than their 5-year average, despite a mild winter.
  • Asia’s spot Liquified Natural Gas (LNG) prices this past winter were four times higher than their 5-year average.
• Per the International Energy Administration's Gas Market Report, Q2-2022: “US LNG exports registered a remarkable 50% increase in 2021, and were up by nearly 60% year-over-year in H2..."

2. Increased U.S. Electricity Consumption Boosts Demand

• In 2020, during the pandemic, U.S. retail sales were down 2.5% compared to 2019. While residential sales were higher, commercial and industrial shutdowns impacted that decrease.
• 2021 electricity consumption was up 2% compared to 2020.
• The U.S. Energy Information Administration (EIA) projects that electricity sales for summer 2022 will be 0.4% higher.
• If the weather is hotter than forecast, residential demand could significantly increase.

3. Coal Plant Retirement Creates Supply Constraints

• Coal generation plants are being retired, shifting the power generation mix.
• The EIA projects that planned coal plant closures will continue.

Two-Year Projections for Electricity Prices

Residential electric rates increased sharply by 4.3% in 2021, and are continuing to increase in 2022. This is the highest annual growth rate since 2008.

• The electric rate increase is also in line with 2021’s inflation rate of 4.7%.
• The EIA estimates 4.3% growth in 2022, but a more modest 1.6% in 2023.

Compare these projections with the U.S.’s average annual growth rate of electricity prices, which was 2.4% in the 20 years from 2001 to 2021.

Summer 2022 Projections for Electricity Prices

For January and February 2022, the EIA reported an average retail price of electricity of 13.78 cents per kWh. While this is about the same as 2021’s average, January and February of this year are up 8% and 3.7% respectively, compared to last year.

The EIA only projects a 3.9% increase in average residential electric rates for Summer 2022, but regional differences are significant:

• EIA projects a 16% increase in New England, 8% in the Middle Atlantic, and 6.5% in South Atlantic.
• The Pacific Contiguous region is projected at a 3.4% increase.

Be Cautious of Headlines About Electricity Rate Increases

Rate plan structures and historical data reinforce the fact that electric rates in the winter are typically lower than in the summer months.

News articles about electricity and energy prices can be full of half-truths. Be cautious of headlines that use exaggerated language.

Here are the numbers you should know:

• The average residential electricity price increased by 4.3% in 2021.
• The average residential electricity price is projected to increase another 4.3% in 2022.

Avoid Electricity Rate Increases By Going Solar

By locking in a fixed rate for your electricity, going solar is one of the best ways to counteract unexpected increases in electricity rates. When you purchase a solar power system, you lock in a fixed rate for those solar panels, which helps reduce reliance on the grid for electricity.