In 2014, American households saw the largest electricity price increases in 6 years, according to government data, as utilities are forced to use more green energy and invest in energy efficiency and grid improvements.
Energy Information Administration data shows that U.S. residential electricity prices “experienced large increases in retail electricity prices during 2014, with the average U.S. residential price increasing 3.1% over the previous year.” Last year’s price increase was the highest of any year since 2008 when prices rose 5.7 percent.
“Residential electricity rate increases during 2014 ranged from 1.3% in the Pacific Coast states to 9.9% in New England,” EIA notes, adding that prices are only predicted to rise one percent in 2015.
But why did electricity prices skyrocket last year?
EIA says “increased investment in transmission and distribution infrastructure, rising requirements to generate electricity from renewable energy sources, and utility investment in demand-side efficiency” combined have increased prices.
Utilities have been retiring coal-fired power plants in recent years, in part, because of EPA regulations and replacing them with natural gas or green energy sources. By 2020, EIA predicts that 60 gigawatts of coal-fired power will be retired, representing hundreds of generating units. In 2015 alone, power producers will shutter 13 gigawatts of coal power and will replace it with wind power, natural gas and solar energy.
Energy companies have been adding record amounts of solar and wind power in recent years because of government subsidies and state mandates to use more green power. In 2014, the U.S. installed about 7 gigawatts of solar energy capacity and wind power was the largest source of new electricity capacity additions last year — which coincided with 8-year-high electricity price increases.
Utilities are expected to add even more wind and solar energy onto the grid in the coming years to replace coal power, which will continue to push prices upward along with grid and energy efficiency investments.
There was one bright note, however. Natural gas put downward pressure on electricity prices that were being pushed up by more costly green energy.
“The decline in natural gas prices has been putting downward pressure on electricity rates, although this effect often occurs with a lag since the pass-through of changes in costs to changes in rates can take a few months in some states,” EIA analyst Tyler Hodge told The Daily Caller News Foundation.
Electricity prices hit record levels in January and February this year, according to the Bureau of Labor Statistics. In contrast to gasoline and other fuels, the BLS noted that electricity “was the only major energy component to increase, rising 0.9 percent, its largest increase since May 2014” and that electricity was “the only major energy component to rise over the last 12 months, increasing 2.5 percent over the span.”
Electricity prices are also not expected to go down anytime soon. In fact, EIA projects the nominal price of electricity will hit new records in 2015 and 2016. U.S. average electricity rates will hit a record high, this year — 38 percent higher than they were in 2001.
In 2016, prices will hit 12.86 cents per kilowatt-hour — the highest annual average price in the 21st century.
“However, retail electricity prices are not likely to decline in most areas because the industry continues to upgrade its transmission and distribution system, and it continues to replace retiring generation facilities with new capacity, a lot of which uses renewable energy sources or natural gas,” Hodge added.
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