How Fast Do Electricity Prices Increase?

Many solar contracts have payment escalators that increase payments by 3 – 4% per year. If local electricity rates go up even faster, solar savings only get larger and larger.

Nationally, electricity prices have increased 2% per year since 1990. But in the states where solar is the most popular, 6 – 8% annual price increases are common. And after the very cold winter of 2014 (the polar vortex), many utilities had to raise rates sharply to recover costs. While this is a short-term phenomenon, it still hurts.

In other states, residents have experienced sharp increases in electricity rates as deferred maintenance on the electricity grid is completed and expensed.

Long-term, the key issue that will cause rates to increase is that electricity use is falling. 2007 was the peak year for U.S. residential electricity use, and the U.S. Energy Information Administration predicts a 25% decrease in residential energy use by 2040.

This decrease is a difficult situation for utilities, as they still have the on-going cost of maintaining the grid and other infrastructure. To obtain the required funds, experts expect utilities to demand higher rates and faster rate increases.

The 3% escalator in the solar contract seems like a safe bet in comparison.


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