How Much Electricity Prices Increase Per Year in the U.S.

If you’re considering solar panels for your home, one of the biggest uncertainties is the future price of electricity from your utility company. Solar panels will make electricity for 25 years or more, so having a good estimate of the costs they will offset is vital in deciding whether home solar is a good investment for you. 

According to the U.S. Energy Information Administration (EIA), electricity prices have increased 2.67% per year in the United States for the past 25 years, from a national average price of 8.26 cents per kilowatt-hour (kWh) in 1998 to 15.98 cents/kWh in 2023 (the most recent year for which annual data is available). If you go back to 1960, the average annual rate increase jumps to 2.92%. 

Aside from the national average, the rate of increase in electricity prices in each state is also important. Every state has a specific mix of fuel sources and industrial policies that affect the rate of growth, and some states have seen their electricity prices rise much faster than average.

State-by-state increases in electricity rates from 1997-2023

During the past 25 years, the five states with the largest electricity price increases were Hawaii, Massachusetts, California, Rhode Island, and Connecticut, with rates of growth between 3.73% and 4.58%. 

The bottom five were New Jersey, Iowa, New Mexico, Illinois, and Arizona, with annual increase rates between 1.79% and 1.93%. 

All in all, there are 29 states with rates of growth below the average and 21 states (plus the District of Columbia) with rates of growth above the average. Here’s a graphic that shows all the states’ average cost of electricity, followed by a list ordered from highest to lowest rate of increase, with the U.S average in the middle:

Factors that could affect future electricity prices 

As they say in the investing industry, “Past performance is no guarantee of future results.” When it comes to the cost of electricity, many people think the historical rate of increase is too low, given the current challenges of climate change and fluctuations in fossil fuel pricing.

There has been a huge upheaval in energy prices over the past few years. In early 2020, oil and natural gas prices dipped due to the pandemic, but then skyrocketed due to the war between Russia and Ukraine and economy-wide inflation. The nationwide average electricity price increased nearly 11% from 2021 to 2022, but growth slowed to 5.69% in 2023. We say “slowed”, but that rate is still nearly double the historical rate of increase.

Will these huge increases in price continue, going against 60-plus years of data? Probably not. Increases in renewable energy sources will likely have a moderating effect in the long term, but electrical grid upgrades needed by them could also increase prices in the short term.

Why the rate of increase is important to know 

It’s important to know the historical rate of increase in electricity prices if you’re trying to estimate how much you might save by installing solar panels. 

There are very accurate online tools that can tell you how much electricity a solar panel system will produce on your roof in the first year. These tools calculate solar energy production based on your location, roof tilt, and shade. 

You can multiply the one-year production estimate by your current utility rate to find out how much you might save in the first year. But without a good guess as to how much that rate might increase over time, you won’t be able to estimate savings for the 25-year life of the system accurately.

This can be a big problem, and solar installers often use estimates of utility rate increases that are too high, leading the systems they sell to look like a better investment than they will likely end up being. Take a look at this video that shows how the same solar system changes from a good deal to a so-so one, just by changing the rate of utility cost increase:

Final word on rate increases

People go solar to save money on their electricity bills, and the good news is as long as your solar panels are making electricity, you’ll be saving money. 

How much money you will save has a lot to do with how much electricity prices go up over time, and given historical rates of increase, it looks like most folks can expect that to be around 2.7% per year. 

However, energy prices in some states have historically risen by more than 2.7%, so be sure to check your state in the list above.