As electricity prices in the United States continue to boom, household energy costs are becoming crucial and urgent baggage for American families. As of March 2023, the typical American household was paying about 17 cents per kilowatt-hour (kWh) for electricity. Inflation has slowed, but CPI release does not happen in a vacuum. Several forces are pushing these changes.
Regional disparities in electricity costs are stark. Households in North Dakota benefited from an average electricity rate of just 11 cents per kWh. In contrast, residents of Hawaii experienced heart-stopping costs as much as 41 cents per kWh. This regional variation further highlights the unique energy landscapes that exist across the country.
At the same time, demand for electricity will increase exponentially. Projections show that number could double if not triple by 2028. Data centers are essential to allowing us to produce and consume vast acres of digital data, almost instantaneously. By 2023, they’re expected to eat up to 12% of all U.S. electricity, a steep increase from today’s 4.4%.
Further deepening these wounds are today’s supply chain challenges. U.S. Transformer gear for regulation of voltage on all U.S. grid, hugely impacted. Further, delivery times for transformers have soared to 12 months or more. Now, it takes two to three years, compared to four to six weeks in 2019. The supply situation has become critical. In fact, half of all U.S. transformers are past their designed lifetime and in dire need of replacement.
“Half of all US transformers are near the end of their useful lives and will need replacing, along with replacements in areas affected by hurricanes, floods and wildfires,” – Michael Cembalest.
The implications for American consumers are significant. By 2025, the average American household may be looking at an additional $219 per year on their electricity bills relative to 2022. This would increase their bill from about $1,683 to just under $1,902. This is a dramatic and alarming increase to families that are already economically stressed.
Adding to this double whammy is the expected increase in electricity costs in many areas. The Pacific region is expected to face the largest jump at 26%, raising prices to more than 21 cents per kWh. Households in the West North Central region could have their rates increased by almost 11 cents per kWh. This replacement goes hand in hand with an 8% increase. Residential electricity prices in Middle Atlantic and New England regions are expected to spike. These innovative states will probably do much better than the national average.
“Electricity prices are regionally determined, not globally determined like oil prices,” – Joe Seydl.
This change in electricity pricing is a bellwether for larger changes taking place around how the U.S. sources its energy. The nation is on an unstoppable path toward replacing fossil fuels—especially coal, oil and natural gas—with cleaner energy sources. This historic change seeks to provide desperately needed investments to dramatically curb greenhouse gas emissions. This change has come without hiccups. As the demand for cleaner energy sources grows, keeping the lights on affordably and reliably gets even harder.
And as you might expect, this transition is right in line with projections. By 2030, the U.S. economy will require more electricity just to power the data processing than manufacturing all energy-intensive goods put together. This trend points to the increasing importance of digital infrastructure and its impact on patterns of energy use.
Even with overall economic inflation cooling down, skyrocketing electricity prices add even more strain to American households. Specifically, in 2023, the average American consumer spent nearly $1,760 on their electricity bills. As interest rates continue to increase, millions more will have difficulty affording their monthly payments.
The situation surrounding electricity prices can be distilled into a simple equation: supply versus demand. As David Hill notes, “It’s a pretty simple story: It’s a story of supply and demand.”