Will Electricity Prices Go Down in 2023?

After the largest one-year spike in electricity prices in 40 years, many homeowners are feeling the impact of high electricity bills and wondering if electricity prices will go down in 2023.

We’ll put it this way: Don’t hold your breath for electricity prices to drop.

While we don’t have a crystal ball, in this article we’ll look at trends, forecasts, and economic forces to get a sense of what to expect from electricity prices in 2023 and beyond.

Let’s start with the big question: Will electricity prices go down in 2023?

Will electricity prices go down in 2023?

Despite falling wholesale electricrity prices, residential electricity prices are not expected to go down in 2023. In fact, the national average electricity price increased over 10% year-over-year in the first half of 2023 to an average of 17 cents per kilowatt-hour, according to data from the US Bureau of Labor Statistics. Electricity prices typically peak in the late summer, so they may climb even higher before coming down for the winter.

 

 

 

 

 

This comes after the 12.6% increase to the average electricity price in 2022, which added over $15 to the monthly bill of an average household using 880 kWh of electricity per month. That’s over $190 per year.

Simply put: Electricity prices have already risen 10% from this time last year. And even if they dip seasonally in November and December, they are likely to finish the year higher than they started, and certainly much higher than before 2022.

 

 

What causes electricity prices to increase?

Electricity – at least when it comes from a utility company – is a commodity and is therefore subject to the forces of supply and demand. At the most basic level, electricity prices are rising because demand is outpacing supply.

On the demand side, people are using more electricity than ever to power home appliances, electric vehicles, and devices. Much of this is due to heating and cooling as the average home size gets larger and extreme weather events increase in frequency and intensity.

On the supply side, well, there’s a lot going on…

The rapid electricity price increase in 2022 is largely attributed to some combination of:

• Supply chain tangles created during Covid-19 lockdowns
• The Russian war in Ukraine upending the global energy ecosystem
• Profiteering (aka “greedflation”) by major oil companies that supply fuel for power plants

While these are all (hopefully) short term supply issues, there are serious issues at the core of the electricity supply chain. For example, the central grid system itself is outdated and inefficient, and the cost of trying to upgrade or rebuild grid infrastructure is passed onto utility ratepayers.

As a commodity in a capitalist economy, grid electricity is subject to the same inflationary forces as food, housing, and other types of fuel.

Related reading: What’s The Average Electric Bill in Each State?

When will electricity prices go down?

Given the market forces explained above, and a 40+ year trend of rising electricity prices, it’s hard to imagine electricity prices coming down significantly in the near future.

The chart below shows the average electricity price in the US from 1979 to 2022. In that 43 year period, prices have increased at an average annual rate of 2.8% and have only decreased year-over-year nine times.

Based on this history, electricity prices may fall year-over-year once or twice every decade, but in the big picture they will continue climbing at a steady rate. The only question is at what rate will they climb?

Electricity price forecasts

After the rapid and unexpected increases of 2022, forecasting electricity prices feels like a fool’s game. But, we can use historical data to provide a baseline for what to expect in 2024, 2025, and beyond.

Since 2003, monthly electricity prices have increased at an average rate of 3.1% year-over-year. So, if the average price in January 2018 was 13.5 cents per kWh, we could expect the average price in January 2019 to be 13.9 cents per kWh. 

We applied that growth rate to current electricity prices to create the electricity price forecasts for 2024 and 2025 shown below. It’s important to note that electricity prices and rate hikes vary from state to state and utility to utility. Some homeowners may experience 10% rate hikes in 2024 while others see their rates ease.

Electricity price forecast 2023

By applying established seasonal patterns and average growth rates, we can expect the national average electricity price to peak at 17.2 cents per kWh in August 2023 and fall as low as 16.8 cents per kWh in November. 

Based on a combination of recorded data and forecasts, the average price of grid electricity in the US will average 16.9 cents per kWh throughout 2023.

Electricity price forecast 2024

If electricity prices return to the average growth rate of the last 20 years, the national average price per kWh will peak at 17.8 cents per kilowatt hour in August 2024 and average 17.4 cents per kWh throughout the year.

Electricity price forecast 2025

Assuming prices grow year-over-year at the 20-year average, the national average electricity price will peak at 18.3 cents per kWh in August 2025 and average 17.9 cents per kWh throughout the year.

Longterm electricity price forecast

If we apply the 2.8% average annual growth rate of the last 40 years to today’s prices, the national average electricity price will reach:

• 20 cents per kWh by 2030
• 26 cents per kWh in 2040
• 35 cents per kWh in 2050

Just the 3 cent per kWh increase from 2023 to 2030 would add $315 per year to the average electricity bill of a home using 880 kWh per month. 

By 2040, the average homeowner would be paying nearly $950 more per year and by 2050 their annual electricity costs would be $1,900 more than today.

Again, these are forecasts based on averages, and electricity price growth will vary from utility to utility.

Set a flat rate for your electricity

Even if electricity prices go down in 2023 or the coming years, they are all but guaranteed to continue rising in the long term based on market forces. Home solar allows you to set a flat rate for your electricity and hedge against energy inflation.

Connect with an Energy Advisor to learn more about hedging against energy inflation with solar.