Lawrence Berkeley National Laboratory Reports on Rising Electricity Rates

Residential electricity prices increased 25% over President Biden’s term in office and prices continue to increase as artificial intelligence (AI) data centers and his administration’s push for increased electrification continue to increase electricity demand. A report from Lawrence Berkeley National Laboratory found that the cause of rising electricity rates is complex as the lab studied power rates in the lower 48 states between 2019 and 2024. The lab found that power price increases are being driven mainly by utility spending on distribution, transmission, disaster recovery, and some “clean energy programs.” The lab study also found that rates are rising faster in areas covered by investor-owned utilities, but that some states have slowed the trend by expanding sales to spread cost increases over a wider customer base.

Study Findings

As reported by Inside Climate News, across the nation, the study found correlations with increased utility distribution and transmission spending and rising rates, which tracks with prior research from the lab showing that distribution-related capital expenses rose by 50% from 2019 to 2023 to make up half of all national utility spending. The major reason for increased transmission spending is due to increased renewable energy, particularly wind and solar power that are sited at locations where the wind is strong and the sun shines brightly, which tend to be far from demand centers. Offshore wind, for example, requires expensive cables to be buried deep in the ocean waters to bring power from the wind turbines to utility centers at the shore. While the report does not attribute this cost to clean energy, it is a major reason for increased transmission spending.

Via Inside Climate News, the study found that 17 states had inflation-adjusted electricity rates go up, with California, Hawaii, Connecticut, Massachusetts, Maine, Rhode Island and New York at the top of the list. These states have renewable portfolio standards that require a certain amount of power be generated by renewable energy, which has primarily been from wind and solar power, adding as much as one cent per kilowatt hour to electricity prices. Renewable portfolio standards require utilities to buy solar and wind power even when it is not the most competitive fuel on the market, accounting for about 25% of utility-scale wind and solar growth between 2019 and 2024. That edge was enough to help lower their capital costs enough so that the lab found that the other 75% of their penetration was “market-based.” However, that observation is misleading because intermittent power sources like wind and solar require back-up power in the form of traditional technologies or expensive batteries that are not attributed to them, but are added costs to the system that help cause price escalation.

The New England states noted above and New York are also members of the Regional Greenhouse Gas Initiative — a cooperative effort among eleven New England and Middle Atlantic states to cap and reduce carbon dioxide emissions from the power sector. Utilities that emit more carbon dioxide than the cap allows must buy credits for those emissions, and that cost is added to electricity bills.

The lab study also found an association between net metering programs for solar rooftop customers, which reduced central utility demand by 5% in certain states like California, Maine, and Rhode Island, and average electricity rate increases of one cent per kilowatt hour. That finding follows a result from the California Public Advocates Office that found that California’s rooftop solar program cost non-solar customers $8.5 billion in 2024, as the costs of grid maintenance and research and development shifted to the non-solar consumer.

Via Inside Climate News, in a smaller subset of states, the researchers found utility spending on disaster recovery and mitigation to be associated with higher electricity rates, a trend that was most dramatic in California, where increased wildfire spending from 2019 to 2024 added about four cents per kilowatt hour to rates and caused bills to rise an average of $30 a month.

The study noted that the Ukraine-Russia war drove a one cent per kilowatt hour average price increase in the 10 states with the most gas usage on their grids from 2021 to 2023, according to Inside Climate News. States that saw the highest increases due to gas prices, like New Hampshire, Louisiana, and Maine, however, also saw the largest decreases when gas prices dropped.

As reported by Inside Climate News, the lab also found increasing electricity sales to be associated with a downward trend in prices as they spread cost increases among a greater number of customers. For example, in North Dakota, an increase in commercial and industrial buyers spread the cost of maintaining the grid over these additional customers.

Other Factors Affecting Prices

The states where the lab found electricity price increases higher than inflation also have other government policies and regulations affecting the market. The New England states, for example, have shuttered all their coal fired plants and have only one nuclear-powered plant remaining. New England’s last coal-fired power plant, the Merrimack Station, a 438-megawatt power plant, that came online in the 1960s and provided baseload power to the New England region for decades, officially ceased operations on September 12 — three years ahead of its planned retirement date. Despite having its capital costs totally paid, the coal plant was found to be uneconomic compared to a new solar/battery plant that is to take over the site.

While there are still two nuclear power plants in New England, the region closed the Pilgrim Nuclear Power Station in 2019 and the Vermont Yankee Nuclear Plant in 2014. Additionally, New England has for decades made it difficult to construct natural gas pipelines and have instead been pushing very expensive offshore wind power, whose costs are three times higher than onshore wind.

In 2021, New York closed the Indian Point nuclear power plant in Westchester County that had operated for almost 60 years and generated 25% of New York City’s electricity. Like New England, New York is turning to expensive offshore wind to supply that power. Recently, President Trump allowed construction on Empire Wind, off the coast of Long Island, to continue alongside the N.Y. governor allowing construction of two natural gas pipeline projects, Constitution pipeline and Northeast Supply Enhancement, that would bring much needed natural gas from the Marcellus fields in Pennsylvania to New York and New England. New York politicians had held up the construction of those pipelines by refusing to grant them permits.

These actions by state politicians do not allow markets to work efficiently and effectively.

Electricity Prices Are Expected to Continue to Increase

With AI demand centers and greater electrification continuing to increase electricity demand, electricity prices are likely to continue to increase as they have this year. According to Power Magazine, last year, power generation in the U.S. rose 3% to 4,304,038 gigawatt hours — the largest annual increase in five years. By 2030, U.S. electricity generation could rise to more than 4,500,000 gigawatt hours and surpass 5,400,000 gigawatt hours by 2040 — an average annual growth of 1.7%. Over the next five years, the power industry is expected to invest more than $1.1 trillion to enhance and expand the grid, compared to $1.3 trillion over the past 10 years.

Analysis

The Lawrence Berkeley National Laboratory study has some key findings regarding the role of distribution, transmission, disaster recovery, and some “clean” energy programs on electricity prices, but neglects the interrelation of these components. Because wind turbines and solar panels are sited further away from population centers and replace existing coal plants, they require more distribution and transmission lines than if their generation was replaced by existing coal and new natural gas power plants. Furthermore, due to their intermittency, adding more wind and solar to the grid necessitates more power lines than if the grid was fully powered by reliable sources. As AI and electrification demand continues to increase, it is important for policymakers to recognize the consequences of more “clean” power on the grid.

For inquiries, please contact [email protected].