Rising utility bills are a huge concern for U.S. families – ⅓ of households had to forego basic necessities to pay energy bills last year. But new Energy Innovation research finds the biggest culprits behind rising prices include fossil fuels and the climate change impacts they cause, not clean energy. In fact, states with high levels of wind and solar generation like New Mexico, Iowa, and Oklahoma have experienced the lowest rate increases. The data is clear– clean energy is not causing electric bills to rise. Rather, the biggest factors causing bills to go up include:
- Wildfire costs and risk driving up prices
- Natural gas price volatility in regions heavily dependent on the fuel
- Utility investments in aging, uneconomic coal plants
- Transmission and distribution costs rising faster than inflation
- And utility business models favoring big capital expenditures
Only looking at national average electricity prices obscures real trends as well. Between 2021 and 2023, electricity prices increased faster than inflation in only 15 states, and those were states particularly vulnerable to wildfires (i.e., California), natural gas volatility (i.e., Massachusetts), or heavily dependent on coal (i.e., West Virginia).
Clean Energy Is not Driving Power Price Spikes – Energy Innovation:
- Evidence does not suggest that clean energy is driving electricity cost
increases: Since 2010, residential electricity rates have not increased faster than
inflation, while electricity bills have declined in inflation-adjusted terms. Many of
the states with the largest increases in wind and solar generation since 2010—
including Iowa, New Mexico, Kansas, and Oklahoma—have seen rates rise
slower than inflation. - Wildfire costs and risks have significantly increased electricity rates in
California: In California, a clean energy leader, high electricity rates are often
wrongly linked to the state’s rapid deployment of clean electricity resources.
Wildfire-related costs—including grid investments and vegetation
management to reduce wildfire risks and insurance costs—have ballooned and
now account for 16 percent of the total cost to customers of the state’s three
primary investor-owned utilities. But California is not alone; across much of the
Western U.S., climate change has made wildfires more common and more
severe. Colorado, Hawaii, Oregon, and Texas have all seen major wildfire events
linked to grid infrastructure in recent years. As climate-related risks accelerate,
the cost to electricity customers of mitigating these risks will be critical to
address. - Natural gas price volatility has been a major driver of higher electricity costs
in some states: Geopolitical uncertainties, extreme weather, and other factors
drive significant swings in natural gas prices. Many parts of the U.S. electricity
grid are heavily dependent on natural gas, with consumers bearing much of the
risk of price spikes. - Utilities have made substantial investments in aging, uneconomic coal
plants, raising costs to customers: Coal-fired power plants are increasingly
uncompetitive relative to lower-cost and cleaner sources of electricity. Clean
energy resources like solar, wind, and energy storage continue to fall in cost,
while the cost of maintaining and fueling aging coal plants continues to rise.
Against this backdrop, many regulated utilities continue to invest significant
amounts of new capital in their coal power plants. Instead of paying off these
aging assets as they approach the end of their life, utilities have substantially
increased the amount owed on these plants, with customers bearing the costs. - Transmission and distribution costs are rising nearly twice as fast as
inflation, driven by a focus on grid hardening, resilience, and advanced
technology: Outside of periods of fuel price volatility, electricity generation
costs have remained fairly flat, even declining over the long run.5 However, these
cost declines have been more than offset by rising costs of transmission and
distribution infrastructure, which have been driven by significant utility
spending to replace aging infrastructure, grid-hardening and resilience
investments, and investments to support growing demand. Recent
transmission investment has not significantly expanded the reach of the
transmission system; rather it has focused on smaller, local upgrades. There are
opportunities to better optimize this investment to lower costs for consumers,
such as by getting more out of the existing grid with grid-enhancing
technologies and reconductoring of existing transmission corridors to expand
capacity. - Regulated utility profit margins and bias toward capital investments
underly rising electricity rates: Utility business models allow utilities to earn a
regulated rate of return on capital investment, while generally recovering
operating expenses without a margin. This model incentivizes utilities to
maximize capital investments, select solutions to grid needs that involve large
capital investments over those that involve operational expenses (even when
they are more expensive for customers), and maximize the regulated profit
margin authorized by their regulators.
Jackson-based Consumers Energy reported third-quarter earnings Thursday, highlighting the cost-cutting initiatives the utility has taken after the high restoration costs associated with a near-record level of storm activity this year, it said.
“Over the last 20 years, we’ve seen an increase in both the frequency of storms and higher wind speeds, some of the most extreme winds within the last four years,” Garrick Rochow, president and CEO of Consumers Energy, said on the call. “We’re clearly seeing the effects of climate change.”
For example, he said the design standard for its system was to withstand 40 mph winds. Now, that’s been changed to 80 mph.
He said those new realities are part of its “reliability road map” — a long-term planto cut power outage times and shrink the number of customers facing outages simultaneously — that the utility submitted to the Michigan Public Service Commission last month.