Hate high electricity bills? Blame fossil fuels and climate change.

Hate paying that expensive monthly energy bill? You’re not alone.

Over the past year, nearly 33% of U.S. households had to give up basic necessities to pay energy bills, and nearly 25% were unable to maintain a safe temperature in their homes due to high bills.

Most Americans have been surprised by the height of their electricity bills in recent years, especially during record-breaking heat waves when air conditioning became a necessity.

Fossil fuels and the climate change impacts they cause are the culprits. New Energy Innovation’s research shows that volatile natural gas prices, uneconomic coal-fired power plants and the cost of hardening our power grid against extreme weather events are the main reasons why electricity bills are constantly rising.

Utility business models that reward big investments even if they are more expensive for customers are not helping — 2023 was set to be the most profitable year in the past decade for investor-owned utilities.

Fortunately, rapidly falling clean energy prices can lower bills. States that have seen the most growth in wind and solar power since 2010 — Iowa, Kansas, New Mexico, Oklahoma and Texas — have seen rates rise for customers slower than inflation as they have reduced their exposure to fossil fuel costs.

Government officials and utility regulators must protect customers from electricity price spikes and ensure that households don’t have to choose between buying groceries and paying their bills. Clean energy can help, along with smart utility reform that puts customers first.

Electricity bills are rising. Clean energy prices are not.

Rising bills are, unfortunately, nothing new. Since 2010, the consumer price index, which measures the prices of goods and services across the economy, has risen 40%—at the same time that average electricity rates for residential U.S. customers have also risen nearly 40%.

Yet the average U.S. home electricity bill has risen only 24%, well below inflation. The difference is largely due to increases in energy efficiency and the use of solar panels on roofs of homes and businesses, as well as falling clean energy prices.

Over the past decade, the price of solar power has fallen by 90%, wind power by 70%, and batteries by more than 90%. According to the National Renewable Energy Laboratory, by 2030, solar power is expected to fall another 30%, wind power by 20%, and battery storage by 25%.

This is seen in most clean energy leading states, where electricity rates are rising below the rate of inflation.

Consider Iowa, where wind power’s share of the state’s total energy mix has grown from 15% in 2010 to nearly 60% in 2023. During that time, average residential electricity rates have increased only 1.8% per year, slower than 42 other states.

Or ruby-red Texas, where researchers estimate that a surge in wind and solar power has reduced wholesale electricity costs by $31.5 billion between 2010 and 2022, and by $11 billion in 2022.

So if clean energy is making electricity cheap, what’s behind the big price jumps?

Unstable natural gas prices are causing dangerous increases in electricity costs

Unlike wind and solar power plants, which produce energy virtually for free once built and become cheaper as technology develops, natural gas production relies on raw materials that are inherently unstable, with prices that fluctuate under the influence of geopolitical conflicts, extreme weather conditions, and booms and busts.

Because natural gas is traded globally, with sellers seeking the highest possible prices, even “American energy independence” doesn’t protect consumers. When Russia invaded Ukraine in 2021, Europe scrambled to replace Russian gas supplies, and American suppliers sent gas abroad, quadrupling domestic natural gas prices in a matter of months.

This volatility affects every part of the economy – the soaring cost of fossil fuels accounts for a third of recent US inflation.

In fact, increasing U.S. liquefied natural gas exports to international markets could increase gas prices for consumers by as much as 14% per year, and approving all pending LNG export terminal expansions could increase natural gas costs for U.S. households, businesses and industry by as much as $18 billion per year.

Massachusetts, which has seen the nation’s largest electricity rate increases since 2010, nearly twice the rate of inflation, is an example of how natural gas is affecting consumer costs. In 2023, 64% of the state’s electricity generation came from gas, and significant spikes in gas prices between 2010 and 2014 and 2021 and 2022 have driven up retail electricity prices.

In North Carolina, spikes in natural gas prices caused residential electricity bills to increase 46% to 67% compared to 2017. In Oklahoma, winter storm Uri pushed natural gas prices to more than $300 per MMBtu, more than 100 times normal, and regulators approved a $4.5 billion increase in utility rates for consumers.

The list goes on and on.

Expensive coal-fired power plants mean high electricity bills

And then there are coal-fired plants. Even though coal reached a record low of 15% of total U.S. electricity supply in late 2023, it still costs consumers billions.

It costs more to maintain 99% of the remaining U.S. coal-fired power plants than to replace them with new on-site wind and solar, and swapping uneconomic coal for clean energy would save enough money to fund more than 150 gigawatts of energy storage—roughly ten times the total planned and operational capacity of industrial batteries as of 2023.

But many utilities ignore the economic reality of coal-fired power plants. Instead of paying off those windfalls, they invest new capital to keep the plants running, increasing utility debt for increasingly uncompetitive assets and forcing customers to foot the bill.

RMI reports that the average amount of debt for remaining coal-fired power plants has increased from $560 per kilowatt of capacity in 2010 to $745 per kW in 2020. These sunk costs and the rate of return on utility investment are added to the bills that electricity customers pay.

Bringing coal-fired power plants online when cheaper power is available elsewhere has cost consumers more than $17 billion since 2015, hurting states that rely on coal. In West Virginia, residential electricity rates have risen more than twice as fast as rates for other customers, and state regulators have forced utilities to make significant investments to keep coal-fired plants in the state online — at consumers’ expense.

Climate change is accelerating extreme weather events, increasing network costs

The costs of climate change are visible on our electricity bills. The cost of generating energy has remained the same or fallen over time, but this is more than offset by the costs of wildfires and the rising costs of grid infrastructure to cope with extreme weather events.

Since 2010, the cost of maintaining existing power lines, strengthening the grid’s resilience to extreme weather, and meeting growing demand has increased from 20% of total electricity revenue requirements to 33%. Most of this investment is not going into expanding the grid to reduce costs and increase reliability. Instead, we’re fixing what’s broken and upgrading local power lines.

Wildfires are hitting electricity customers hard, especially in California. Even though it’s one of the nation’s leading states for clean energy, wildfire-related costs, including grid investments, vegetation management and insurance, have risen to 16% of the total electricity costs paid by customers of the state’s three major investor-owned utilities.

Western states that are suffering from wildfires, extreme drought and rising temperatures, such as Colorado, Oregon and Texas, face similar challenges. Texas already has the second-highest wildfire risk of any state after California and will be the most at risk by 2050. And climate change could increase the impact and costs of nationwide grid infrastructure by as much as 25%.

High electricity costs can be reduced by reforming the utility business model

Across the United States, utilities earn a regulated rate of return on their capital investments, paid for through customers’ electricity bills. This rewards shareholders and utility boards for making large capital investments that ignore cheaper alternatives.

For example, a utility can make more money investing in an unprofitable coal-fired power plant or buying top-of-the-line equipment for an electrical substation than it can by investing in energy efficiency or a portfolio of distributed energy resources that eliminate the need for such a large investment.

These high, regulated profits are exacerbated by external factors such as expensive fossil fuels and extreme weather, but it doesn’t have to be that way.

Utility regulators and government officials can protect consumers from unnecessary costs through smart policies, such as competitively sourcing energy, making better use of the existing electricity grid by rebuilding existing transmission lines, refinancing coal debt, or sharing energy supplies over a wider area.

Clean energy costs are steadily falling, and using more renewable energy can lower costs, reduce exposure to volatile fossil fuel prices, and reduce fossil fuel emissions that accelerate extreme weather events.

Americans will not have to bear the burden of high energy prices if utilities and their regulators address the root causes of skyrocketing electricity bills.