The Perfect Storm: Why Electricity Prices Are Set to Surge in the Coming Decade
Energy costs are expected to rise
An analysis by Sustainable Energi examining the convergence of policy changes, infrastructure demands, and market forces driving unprecedented electricity cost increases
Executive Summary
American households and businesses are bracing for a dramatic escalation in electricity costs over the next decade. Since 2022, U.S. residential electricity prices have risen 13 percent on average, outpacing inflation, with government forecasters expecting electricity prices to rise quickly over the next two years. However, this recent surge may be just the beginning of a more profound transformation in the energy cost landscape.
Bottom Line Up Front: The proposed repeal of clean energy tax credits, combined with exploding data center demand and constrained natural gas supplies, could increase the average family's energy bill by $400 per year within a decade, with some regions facing even steeper increases.
The Clean Energy Credit Cliff
The most immediate threat to electricity affordability comes from Congress's proposed elimination of critical clean energy incentives. The House budget bill would end most Biden-era federal tax credits for wind, solar, batteries and geothermal power, with some credits terminating as early as 2025 and requiring projects to begin construction within 60 days of the bill's passage.
Quantifying the Impact
Multiple economic analyses paint a stark picture of the financial consequences:
Repealing clean electricity tax credits could increase nationally averaged electricity rates by roughly 5–7 percent in 2030, reaching a peak of 6–10 percent higher in 2035, translating into a $75–$100 increase in national average annual electricity bills in 2030, with a peak increase of $100–$150 per year
The REPEAT Project at Princeton University estimates that the average annual household electricity bill would be pushed up more than $270 after 10 years
Rate increases differ significantly by region, with the highest impact seen in the upper plains states ($300–$400 per year increases in the West North Central census region)
The Economics Behind the Numbers
The logic underlying these projections is straightforward but concerning. Electricity demand is surging for the first time in decades, partly because of data centers needed for artificial intelligence, and power companies are already struggling to keep up. Ending tax breaks for solar panels, wind turbines and batteries would make them more expensive and less plentiful, increasing demand for energy from power plants that burn natural gas.
Solar, wind and battery storage are expected to account for 93% of new U.S. electric capacity this year, according to the U.S. Energy Information Administration. The sudden removal of tax incentives would create a supply shortage precisely when demand is accelerating.
The Data Center Revolution
Perhaps no factor is reshaping electricity demand more dramatically than the artificial intelligence boom and its voracious appetite for computing power.
Unprecedented Growth Trajectory
U.S. data center demand is expected to grow from 25 GW in 2024 to more than 80 GW by 2030, with electricity demand increasing by about 400 terawatt-hours at a CAGR of approximately 23%. To put this in perspective, global aggregate electricity demand is expected to grow by 6,750 terawatt-hours (TWh) by 2030, exceeding the combined demand of the United States and European Union today.
The US power sector is undergoing a significant transformation this year, with electricity consumption projected to exceed 4,200 terawatt-hours (TWh) for the first time, driven largely by data center expansion.
Natural Gas Dependency
Critical to understanding future price pressures is recognizing how data centers are being powered. Natural gas is powering most of the U.S. data centers today, capturing around 40% of the load, and is on a trajectory to fuel most new projects until at least 2030.
East Daley Analytics projects up to 6 Bcf/d of additional gas demand by 2030 to make electricity for data centers, accounting for 290 projects totaling ~81 GW of new power capacity. This represents a massive shift in natural gas consumption patterns.
Natural Gas Price Pressures
The convergence of data center demand with broader natural gas market dynamics creates additional upward pressure on electricity costs.
Export-Driven Demand
The United States already exports roughly 11 percent of its gas in the form of liquefied natural gas, or L.N.G., much of it to European and Asian countries willing to pay a premium. U.S. export capacity is set to nearly double by 2028.
Natural gas exports are the main driver of growth in U.S. natural gas demand, with LNG exports forecast to increase 22% in 2025 and 10% in 2026.
Price Trajectory
The Energy Information Administration's latest forecasts show a clear upward trend: We expect the Henry Hub spot price to average $4.10/MMBtu in 2025 and $4.80/MMBtu in 2026, between $0.80–$1.00/MMBtu higher than we had forecast in January.
We expect that the cost of natural gas delivered to U.S. power generators will average $3.37 per million British thermal units in 2025, which is up 24% from last year's average.
Regional Variation and Grid Strain
The impact of these converging forces varies significantly across the United States, with some regions facing particularly acute challenges.
High-Impact Regions
In New England, the Mid-Atlantic and the West Coast, prices are increasing even faster. The shocks are also being felt in places like Ohio, where this month rates are rising by 26 percent, on average — hundreds of dollars more per year for many families — as energy-hungry data centers flood the state.
Infrastructure Constraints
One big driver has been fluctuating natural gas prices. After Russia invaded Ukraine in 2022, gas prices spiked and so did electricity bills. While gas prices fell to record lows last year, they are expected to nearly double this year and climb further in 2026.
Beyond fuel costs, power companies are spending tens of billions of dollars to upgrade aging electric grids and prepare for weather disasters, electric vehicles and growing amounts of renewable energy. Transmission and distribution costs have been soaring and now make up nearly 40 percent of power bills.
The Construction and Equipment Cost Crisis
Adding to these challenges, the physical infrastructure needed to meet growing electricity demand faces its own cost pressures.
The cost of building gas power plants has nearly tripled since 2022, and power companies now face wait times of five years or more for new gas turbines. Tariffs are also making it more expensive to drill for natural gas by raising the cost of equipment such as steel pipe.
Economic Consequences for Business and Manufacturing
The electricity price surge extends far beyond residential bills, threatening American industrial competitiveness.
"Whenever there's an inadequate supply of natural gas or electricity, manufacturing's the first thing to be curtailed," said Paul Cicio, president of the Industrial Energy Consumers of America, a trade association that represents energy-intensive manufacturers in steel, aluminum, plastics, chemicals and paper.
Mr. Cicio said that this past winter, pipeline operators told some of his member companies to curb their gas use because of inadequate supplies.
Policy Uncertainty and Market Response
The clean energy industry's response to proposed policy changes reveals the scale of potential disruption.
Sunrun CEO Mary Powell told CNBC that the legislation could result in the loss of 250,000 jobs and would increase the cost of electricity for consumers. The deployment of clean energy to the grid could decline by 57% to 72% over the next decade, according to Rhodium.
The Investment Cliff
Companies have invested more than $161 billion in large solar and battery storage projects since the IRA passed in 2022. The sudden policy reversal threatens to strand these investments and create a chilling effect on future development.
Near-Term Outlook: 2025-2026
Government forecasters provide a mixed but concerning near-term picture:
We forecast that the 11 wholesale prices we track will average $40 per megawatthour (MWh) in 2025 (weighted by demand), up 7% from 2024. We expect the 2025 average U.S. residential electricity price will be 2% higher than the 2024 average.
However, other regions of the country are likely to see higher wholesale prices over the next year as a result of higher costs for natural gas. We expect the largest increases (about 30%–35%) will occur in the Southwest and California regions.
The Vulnerability of Low-Income Households
The electricity price surge disproportionately affects America's most vulnerable populations. In 2020, 34 million households reported difficulties in paying their energy bills or said they kept their homes at unsafe temperatures because of cost concerns.
Compounding this challenge, the Trump administration wants to end the Low Income Home Energy Assistance Program, a $4 billion federal fund that helps 6.2 million people from Texas to Maine pay for high heating and cooling bills.
Strategic Implications for Sustainable Energy
The convergence of these factors creates both challenges and opportunities for the sustainable energy sector:
Challenges:
Rapid reduction in federal support mechanisms
Increased competition from subsidized fossil fuel infrastructure
Supply chain disruptions and equipment cost inflation
Opportunities:
Growing corporate demand for renewable energy as a hedge against volatile gas prices
State-level incentives may partially offset federal cuts
Energy storage becomes increasingly valuable for grid stability
Recommendations for Stakeholders
For Policymakers
Gradual Transition: Consider phased reductions rather than abrupt termination of clean energy incentives
Grid Investment: Prioritize transmission infrastructure to alleviate regional bottlenecks
Energy Security: Balance export growth with domestic supply stability
For Businesses
Long-term Contracts: Lock in electricity rates during current relative stability
Energy Efficiency: Accelerate efficiency investments to reduce exposure to price volatility
Renewable PPAs: Consider direct renewable energy procurement as a price hedge
For Utilities
Diversification: Reduce over-reliance on natural gas generation
Storage Integration: Invest in battery storage to manage peak demand
Demand Response: Develop programs to shift consumption patterns
Conclusion: Preparing for a New Energy Reality
The American electricity system stands at a critical juncture. "We're facing a huge affordability crisis in America," said Charles Hua, a former Energy Department adviser who recently founded PowerLines, a nonprofit organization focused on modernizing utility regulations to cut power bills. "This issue is not going away."
The convergence of policy changes, technological transformation, and infrastructure constraints is creating unprecedented upward pressure on electricity costs. While some regions and time periods may see temporary relief, the underlying fundamentals point toward sustained price increases that will reshape how Americans and American businesses consume and think about electricity.
For Sustainable Energi and other stakeholders in the energy transition, this period demands strategic agility, innovative financing mechanisms, and a renewed focus on value proposition amid changing market dynamics. The organizations that successfully navigate this challenging period will likely emerge stronger and better positioned for the energy system of the 2030s and beyond.
The path forward requires acknowledging these realities while working to minimize their impact on affordability and energy security. The choices made in the next 24 months will determine whether America's energy future is defined by crisis or by opportunity.
