Millions of Americans already financially strapped due to inflation and rising interest rates have had to deal with extremely high electricity costs, too.
According to the U.S. Bureau of Labor Statistics, electricity rates in September hit an all-time high, at an average of $0.171 per kilowatt-hour. That figure dropped to $0.169 one month later, but there are many reasons why there are future causes for concern.
Among those concerns are global pandemics, the transition to green energy and various geopolitical tensions. All of this, industry experts fear, might lead to the reality that electricity will no longer be low-cost.
This would be a major concern heading into the coldest months for the country, though some slight optimism did emerge recently. Natural gas prices did decrease slightly recently, which foreshadows a potential drop in electricity bills for many households.
Newsweek conducted a full analysis of data available from the Energy Information Administration, and found that there’s a 2% decrease in electricity rates for residential properties projected. That being said, consumers are being warned to brace for energy expenses being relatively high in the future.
The main reason for that, according to the media outlet, is that the energy market is quite complex. In other words, experts say that lower costs for fuel don’t always result in electricity rates being lower for consumers as well.
A 2024 power and utility industry outlook published by Deloitte predicts an overall increase of 1.9% for retail electricity costs by the conclusion of next year.
Deloitte also pointed out that the warning issued by the Federal Reserve of a “higher for longer” environment for interest rates has resonated within energy. Capital expenditures surged in 2023 to $171 billion for some of the top utility companies, and that’s not likely to change anytime soon.
With interest rates continuing to climb, the cost of borrowing goes up as well. That causes ripple effects throughout the economy, affecting utilities first and then affecting the rates they pass on for the electricity people consume.
The double whammy of all of this is that utility companies have been relying on borrowing to modernize their systems and transition toward energy sources that are more sustainable.
Their costs are going up as a result of the higher interest rates, and they’re passing at least some of those increases onto consumers.
Jim Thomson, who serves as Deloitte Consulting’s leader of power, utilities and renewables, told Newsweek that “much of the increase over time is due to inflation and has often lagged inflation.” Because of this, a return to electricity prices that consumers enjoyed during the 2010s probably won’t happen soon.
In other words, consumers are having to deal with the immediate pain that higher prices are causing them. Yet, utility companies and the energy industry as a whole might have to contend with these higher costs for a much longer period of time.
As a result, in the short term, “utilities will likely to continue to face high costs as they modernize and decarbonize the electric grid,” Thomson said.