Is residential electricity price going up or down?

electricity rates and solar cost trends graphic

What You Should Know About Solar Energy: Costs Are Going Down

If you’re considering whether going solar is a worthwhile financial move for your home, there are essentially two factors that you should look at: 1) the costs associated with solar power, and 2) the rates you pay for electricity from your utility. Going solar makes economic sense when solar electricity costs less than grid electricity.

As for solar, it is clear that costs are coming down. Rooftop solar panels are now more affordable and accessible than ever. This is why more and more households are having solar energy systems installed: going solar is a great way to reduce your power bills.

But what about the future cost of grid electricity? If electricity rates are going up, then of course going solar makes sense. As you’re probably aware, however, utility electricity rates fluctuate seasonally and annually. “What if utility electricity rates go down instead of up?” you might be asking yourself. Would it still be worth it for you to go solar? This article seeks to address this question and put to rest any idea that grid electricity rates could be going down.

Key takeaways: Are electricity prices trending up or down?

  1. Retail residential electricity rates (the amount you pay per kilowatt-hour, or ¢/kWh) have risen across the nation at a rate of about 4% on average over the last 10 years.
  2. This trend is unlikely to be disrupted in the future: natural gas prices are only likely to increase, and as they do electricity rates will rise.
  3. Some areas of the country have witnessed sharper price increases than others: For example, electricity rates in Oregon have increased by about 40 percent over the past 10 years, while they’ve hardly changed at all in Florida.
  4. Electricity prices fluctuate annually, seasonally and monthly. Installing a solar energy system can help you insulate yourself against these fluctuations.
  5. If you purchase a solar energy system for your home, all of the solar electricity that your system produces will be ‘free’ once the system has paid itself off (which will take approximately 5-10 years, depending on where you live). If you purchase your system with a solar loan, you could start saving money from the first day that your system produces power.
  6. If you finance your solar energy system with a solar lease or power purchase agreement (PPA), you will pay a set rate for your solar electricity regardless of whether your utility electricity rates go up or down. This means that in some years your power bills may actually be higher with solar than without, although you will still save money in the long term.
  7. If you’re thinking about going solar, make sure you know all of your options before you make a decision. EnergySage can help you do this: Start by getting an instant estimate and then compare installers and financing choices on our Solar Marketplace.





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How have electricity prices changed in the past 10 years?

Utility residential electricity prices have risen steadily in the last decade. According to the Energy Information Administration, residential electricity rates have increased nationally by around 20% in the last 10 years – from about 10.8¢ per kilowatt-hour (kWh) in 2007 to about 13¢/kWh in 2017 (an increase of a little more than 0.2¢/year).

average us electricity rate 2007-2017

This graph, from the Energy Information Administration (EIA), shows the increase in average residential electricity prices as a percentage between May 2007 and May 2017. During this period, US residential electricity prices rose by about 20%.

This may not sound like much, but these numbers add up over time: if your home uses about 500kWh of electricity per month, by the end of this 10-year period, you will have paid about $750 more in total (about $75 more per year) for your electricity than if rates had stayed at their 2007 levels.

Could electricity price fall in the future? Highly unlikely

“The past is no predictor of the future”, you might argue. And it’s true that just because electricity prices have been going up does not mean that they will continue to do so. However, there are a number of very good reasons why it is unlikely that residential electricity rates will fall in the future.

  1. Natural gas prices have fallen in recent years thanks to the ‘fracking’ boom, bolstering the prominence of natural gas in the American electricity generation mix. While gas-generated electricity is cheap now, many expect the price to rise once export terminals for liquified natural gas (LNG) are completed and America’s natural gas supply is exposed to international markets – Europe and Japan, for example, currently pay significantly more for natural gas than the US.
  2. Extreme temperatures can drive up the demand for electricity, as more energy is needed for heating and cooling, among other operations. As global climate change progresses and extreme weather becomes more widespread, this higher demand will likely drive electricity prices higher.
  3. The Energy Information Agency also predicts that electricity price is going to increase, both in the short-term (2015-2016) as well as the long-term (out to 2040).
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Electricity price fluctuations over time and by location

On average, electricity prices in the US certainly seem to be on an upwards trajectory. But this is only part of the story: What the first graph in this article doesn’t show you is the nuances of how prices fluctuate over time, and how their intensity differs depending on where you live.

The graph below shows electricity pricing trends in different parts of the country over the past decade. Although an overarching upwards trend is clear, the story is not the same in every region. For example, electricity prices in the East North Central region (yellow line: Indiana, Illinois, Wisconsin, Ohio and Michigan) and West North Central region (red line: Iowa, Kansas, Minnesota, Missouri, Nebraska and the Dakotas), rose the most quickly and steadily of any of the regions. Meanwhile, electricity prices in the West South Central states (light green line: Arkansas, Louisiana, Oklahoma and Texas) have remained comparatively low, increasing gradually from mid 2007 until late 2008 before dropping again. There was another slight rise that started in 2014.

Average residential electricity prices monthly increase 2007-2017

Residential electricity price trends from May 2007 to May 2017, by region. You can learn more about which states are included in each region (and explore electricity trends in your state) by visiting the EIA’s Electricity Data Browser.

The graph below illustrates electricity price trends in a handful of key solar states. You can see that prices have risen in almost all of these states over the 10-year period between May 2007 and May 2017. Some have risen more than others, however – average prices in Florida, for instance, have only risen slightly, while they’ve increased dramatically in Oregon and Washington.

Residential electricity prices monthly increase 2007-2017

Electricity price trends in a handful of key states between 2007 and 2017. Electricity prices have increased in all of these states, albeit to varying degrees.

Interestingly, if we look at prices over only the last five years (May 2012 – May 2017), we see that rates have continued to rise in most states, with the exception of a steep drop in Hawaii’s prices. This highlights some variability of electricity prices in the short-term – supporting a clear upwards trend in the longer-term.

In support to the graph above this one (electricity price increases over 10 years), electricity prices have continued to rise in the last 5 years.

Taking Massachusetts as an example (in the chart below), you can see that the gradual upwards trend has not been steady. Instead, prices actually fell from a peak in 2009 to below 2007 prices, only to spike again later at the end of 2013 and the beginning of 2015. By the end of the 10-year period, residential electricity prices had increased by over 25% compared to what they had been in 2007.

Residential electricity prices Massachusetts 10 year increase

If you want to understand how much electricity you use in your home each day, and how your monthly bills are impacted by electricity rate fluctuations, using a home energy monitor like the Neurio W1-HEM Home Energy Monitor or the CURB Home Energy Monitoring System is a great place to start.

 

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What does all of this mean if you are thinking about going solar?

There are some important implications in all of this if you are thinking about going solar.

  • Utility electricity rates go up and down throughout the year, but have a long-term tendency to rise. These fluctuations, which are the result of fuel costs and a number of other factors, are completely outside of your control. Going solar gives you some control over how much you pay for electricity by protecting you against rising electricity prices.
  • Having a solar energy system on your roof is one effective way to reduce your power bills because the electricity generated by your solar panels is not subject to the same variations that utility electricity is. Therefore, if you go solar, your electricity costs will always be more predictable than if you stick with grid electricity. In the long term, they will almost certainly be lower with solar than with grid electricity.
  • What should you expect from your electricity bills after you’ve gone solar? The answer depends on how you finance your system. For example:
    • If you purchase your solar system (either with cash or a solar loan), your electricity bill will be greatly reduced or completely eliminated soon after the system is connected to the grid. This monthly savings will eventually ‘pay off’ the original cost of the system. The typical payback period for a solar system in the US is in the range of 5-12 years. Fluctuations in your utility’s electricity rates will not affect this by much, and once the system is paid off, the electricity it produces is basically ‘free’. You will have no or only very small electricity bills for the remainder of your solar system’s life (25-30 years total).
    • If you choose to install your system through a solar lease or power purchase agreement (PPA), you will most likely start saving money immediately. However, when you sign up with these programs, the amount you pay for solar will be fixed for the duration of your contract (usually 20 years). You will either lock in your solar payments a flat rate (e.g. 10¢/kWh, or a set price per month) for the entire duration of the contract, or your solar rate will be subject to an ‘escalator’, which causes the rate you pay for solar to increase by a set percentage (e.g. 2.5%) every year. This means that if your electric utility’s rates go down instead of up, you may temporarily find yourself paying more for solar than you would have if you had stuck with purchasing your power from your utility. This is particularly likely if the rate the solar company promises you is only slightly lower than your current utility rate.

The graphs below (which are examples only) illustrate these points.

Electricity savings with solar lease

Example of how solar lease/PPA rates can be lower than utility electricity over a 20-year period. This graph compares the rates that you might pay for utility electricity against rates you would pay for solar electricity (from a system on your roof). Note that in years 1-4 the utility electricity price is sometimes lower than the solar electricity price. Note that if you owned your solar energy system, your power bill would be $0 (or close to $0) for the duration of the 20 years, so we have not included this option in the graph.

This graph illustrates the total amount you would pay for electricity over 20 years under the different examples in the preceding graph.

This graph illustrates the total amount you would pay for electricity over 20 years under the different examples in the preceding graph.

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4 thoughts on “Is residential electricity price going up or down?

  1. John Barnes

    Very useful info with Statistics as well, helps in calculating cost for electricity for residential solar energy.
    Thanks

    Reply
  2. tony

    Good info. I live in East Texas. I have a 3,000 watt solar grid-tie system that I installed myself so the total cost was less than $5,000. It generates an average of 380 kWh per month. A professionally installed system might do 10% better, but it would have cost twice as much. The key takeaway: I’ve learned from my solar system are:
    1. The most valuable solar power is the solar power that OFFSETS your grid power. That’s the power that goes directly from your solar into your home and offsets use from the grid. This is worth the cost of electricity (say 7 cents) PLUS the cost of Oncor Electrical Distribution (say 4 cents) per kWh. That’s a payback Equal to your cost per kwh.
    2. Electricity that you “sell” back to the grid (assuming you use Green Mountain Energy or some other company that pays 100% buyback) is only worth the 7 cents. You do not get credited the 4 cents that Oncor charges for electricity distribution.
    3. So the shortest payoff per KW for a solar system is to use a smaller 3 kw system instead of a larger 10 kw system.

    Final note, if you look at how much you are getting by selling electricity back to the grid you may find that you save MORE money by NOT selling it back. Green Mountain might charge 7 cents per kWh, but a NON-BUYBACK plan for another company might only charge 4.5 cents per kWh. If you only sell back 25% of your electricity (say less than 50 kWh/mo) but you use 1,000 kwh per month from the grid you are looking at a savings of $35 for having the lower electricity costs vs getting a credit of $3.50 from the more expensive buyback plan. That’s a difference of $31.50 (or 1000% more savings).

    Reply
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  4. Nate Lampton

    The graphs from EIA show that in the last decade prices have gone up 25%. That is true, but it doesn’t support your claim of 4% annually (which would have resulted in an increase of 48% compared to a decade ago).

    From the EIA site where you got these graphs you can also see the actual annual increases, which are:

    2017: 2.8%
    2016: -0.8%
    2015: 1.1%
    2014: 3.2%
    2013: 2.1%
    2012: 1.4%
    2011: 1.6%
    2010: 0.2%
    2009: 2.2%
    2008: 5.7%

    Stats: https://www.eia.gov/outlooks/steo/report/electricity.cfm

    Which if you average out these 10 years, it is a 1.95% increase average annually, not 4%.

    It also means that if you are locked into a PPA agreement that “guarantees a low-rate” like 2.9%, it’s a bad bet that energy prices will increase at that level, at least nationally. Energy prices are definitely going up, but not necessarily at the same rate solar companies are guaranteeing to increase in their 20 year PPA deals. Check your local energy history before getting into any of those “free” solar installations, you may actually end up paying more for electricity than if you just used the grid, but of course you’ll be doing it cleanly.

    Reply

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