Trystan Casey
Electricity prices are surging in the US, causing concern for Americans and challenging Trump's 2024 presidential campaign promise to halve energy costs. The US Energy Information Administration (EIA) predicts that wholesale power prices will increase by 7% in 2025, with residential electricity prices rising by 2%. While prices have stabilised since 2022, they remain higher than in previous years, with gas prices doubling since early 2021 and electricity prices increasing by a third. Supply and demand issues, global events, and the cost of natural gas are key factors contributing to rising electricity prices.
| Characteristics | Values |
|---|---|
| Reason for electricity price surge | Supply and demand issues, global events, low renewable energy generation, low gas reserves, higher costs for natural gas |
| US wholesale power prices in 2025 | $40/MWh (weighted by demand), $30/MWh in Texas, $55/MWh in the Northwest region, $55/MWh in the ISO New England region |
| US residential electricity price in 2025 | 16.8 cents per kilowatthour |
| UK energy prices in 2025 | Set to drop by 7% from 1 July |
| US electricity rates in June 2025 | Hawaii: 41.1 cents per kWh, California: 32.41 cents per kWh, North Dakota: 11.1 cents per kWh |
| Business electricity rates | Varies by industry and function, e.g. the latest average commercial electricity rate in Texas was 9 cents per kWh |
| Factors affecting electricity prices | Time of energy usage, time of year, location |
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What You'll Learn
Energy suppliers going bust
Electricity prices are rising across the United States, with wholesale prices expected to average $40 per megawatt-hour in 2025, a 7% increase from 2024. In the ISO New England region, prices are predicted to average $55/MWh, a 16% increase from the previous year. These rising wholesale costs are a significant factor in the increasing energy prices experienced by consumers.
Since the beginning of 2021, 31 energy companies in the US have ceased trading due to soaring wholesale gas prices, with Bulb Energy and Rebel Energy being notable examples. These companies' collapse has left millions of customers dependent on the safety net provided by the market regulator, Ofgem (in the UK) or the government (in the US), to maintain their energy supply and protect their credit balances while they are moved to a new supplier.
When an energy supplier goes bust, consumers often absorb the cost through higher bills. For instance, the collapse of Bulb Energy, which provided power to around 1.5 million homes and businesses, resulted in the UK government placing it under 'special administration'. While the initial cost of this process was estimated at £2.2 billion, the actual expense is expected to reach £6.5 billion, potentially adding £200 to annual household energy bills.
If your energy supplier goes bust, don't panic. Your supply will not be disrupted, and you won't be cut off. The relevant regulator, such as Ofgem in the UK, will appoint a new supplier for you, and your credit balance will be protected. Your new supplier will start you on a 'deemed' contract, which may be more expensive, but will be covered by the energy price cap to ensure a fair rate. You don't need to do anything until your new supplier contacts you, and you can then discuss any ongoing issues or complaints.
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Supply and demand issues
In the US, electricity consumption remained stagnant for two decades until 2021, when a swift change in the demand landscape pushed electricity demand back into expansion. This increase in power demand over time, or load growth, has resulted in ballooning prices. Several factors have contributed to this growing demand for electricity, including:
- The accelerated rollout of electric vehicles (EVs)
- The establishment of hydrogen hubs
- Heightened peak demand from high temperatures and extreme weather events
- Substantial investments in the manufacturing sector, particularly in electrical equipment manufacturing
- Increasing interest in artificial intelligence (AI), with data center electricity consumption projected to increase
The supply of electricity is also rising to meet this growing demand. However, this process is complicated by the utilities sector's ongoing transition from coal to natural gas, wind, and solar. While these sources are less expensive and polluting, they are also less predictable. For example, renewable energy sources like wind power are dependent on weather conditions, which can be unpredictable.
The shift towards renewable energy sources also impacts electricity prices. In the UK, lower renewable energy generation due to low winds and nuclear power station outages has resulted in a higher percentage of electricity generation using gas, which is more expensive. Additionally, the price of renewable energy is tied to the price of gas in the UK, so when gas prices increase, renewable energy prices follow suit.
Global events, such as political tensions and extreme weather, can also impact electricity prices. For instance, during a week-long cold snap in Montana in January 2024, NorthWestern Energy was forced to purchase electricity at a much higher cost due to high demand and low supply.
The competition for available supply has further contributed to rising prices. Demand for electrical equipment, such as transformers and switchgear, has outpaced available supply, leading to increased prices for this equipment.
To address these supply and demand issues, investments are being made in the manufacturing sector and data centers, and utilities are expanding their generation capacity. However, the technical manufacturing processes required for some equipment create high barriers for suppliers, slowing down the expansion of domestic supply.
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Cost of natural gas
The cost of natural gas is a key factor influencing wholesale electricity prices. In the United States, the cost of natural gas is a primary driver of wholesale electricity prices in many regions, as the marginal generator is often fuelled by natural gas.
In the UK, natural gas prices have a significant impact on electricity prices due to the country's low gas reserves, making it challenging to stockpile gas during periods of high demand. Lower renewable energy generation, such as low winds and nuclear power station outages, further contribute to higher gas usage in electricity production. As a result, gas prices affect even those on green energy deals, as renewable energy prices are tied to gas prices in the UK energy system.
In early 2025, gas prices were approximately double what they were in early 2021, while electricity prices were about a third higher. This price surge poses a challenge to political promises to reduce energy costs, as seen in the US, where Trump vowed to halve energy and electricity costs during his 2024 presidential campaign.
The volatility in energy prices can be attributed to supply and demand imbalances, with prices typically increasing during periods of low supply or high demand. Global events, such as political tensions and extreme weather, can also contribute to price fluctuations. For instance, the pandemic significantly impacted supply and demand dynamics, leading to price volatility since 2020.
The increase in wholesale prices affects consumers' energy bills. When wholesale prices rise, energy suppliers pass on the additional costs to their customers, resulting in higher energy bills. In 2022, some suppliers in the UK increased out-of-contract gas rates by 180% and electricity rates by 130%switch suppliers or absorb higher costs through increased bills.
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Political tensions
In the context of the 2024 presidential campaign, the issue of electricity prices has become a populist rallying cry, with Trump seeking to turn high electricity prices into a political advantage. This comes as electricity prices in the US have been steadily increasing, outpacing inflation since 2022 and causing concerns among consumers.
The rise in electricity prices has also brought attention to the fragilities in the global energy system, highlighting the need for a faster expansion of clean energy. While natural gas prices have declined, utilities have not announced rate decreases, and federal policies promoting electrification and emissions reduction may contribute to higher prices. The reliability of electricity has become a significant concern, especially in the Midwest, where awareness of electricity sources and reliability is increasing.
In response to rising electricity prices, Governor Phil Murphy of New Jersey has unveiled a suite of executive actions to address the issue. These actions include identifying options to mitigate rate increases and investigating opportunities in nuclear generation and advanced nuclear technologies to reduce costs and stabilise rates.
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Inflation
Electricity prices are rising across the world, with prices in the US reaching levels that are unmatched since the 1990s when inflation is considered. The US Energy Information Administration (EIA) predicts that wholesale power prices will average $40 per megawatt-hour (MWh) in 2025, a 7% increase from 2024. However, after accounting for inflation, the forecast for US residential prices remains relatively unchanged from 2024. The EIA also predicts that US retail electricity prices for residential customers will average 16.8 cents per kilowatt-hour, a 2% increase from 2024, but again, after accounting for inflation, these prices are relatively unchanged.
In the UK, energy prices are also high and are expected to drop by 7% from 1 July after the latest price cap announcement. The price cap will be set at £1,720 per year, a reduction from the previous cap of £1,849. However, households that use more energy could end up paying significantly more, as the price cap is based on the maximum unit price, not the total bill. Supply and demand issues are a significant factor in rising energy prices, with low renewable energy generation and low gas reserves contributing to higher electricity prices. Global events, such as political tensions and extreme weather, can also impact energy prices in the UK.
In the US, the cost of natural gas is a primary driver of wholesale prices, and regions with higher costs for natural gas, such as the Southwest and California, will likely see larger increases in wholesale prices. In Hawaii, electricity rates are the highest at 41.1 cents per kWh, while North Dakota pays the lowest residential electricity rates at 11.1 cents per kWh. In Texas, the average commercial electricity rate is 9 cents per kWh, resulting in an average electricity bill of $544.90.
Energy prices can also vary based on the time of use, with some suppliers offering plans with time-of-use discounts or free usage periods during off-peak hours. For example, the Agile Octopus tariff changes rates every half hour depending on nationwide demand, offering cheaper rates during periods of lower demand. Fixed-rate deals can protect consumers from mid-contract price rises, but rates may increase at the next renewal.
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Frequently asked questions
Electricity prices are increasing due to rising wholesale costs, supply and demand issues, and the cost of natural gas. Global events, such as political tensions and extreme weather, can also contribute to price hikes.
In the US, electricity prices are predicted to increase by 2% in 2025 compared to 2024. The largest increases are expected in the Southwest and California regions, with a forecasted rise of 30-35%.
Electricity prices vary based on location and time of year. They are also influenced by the energy source, such as coal, natural gas, nuclear power, or renewables. Additionally, factors like time-of-use discounts, free usage periods, and local taxes can impact electricity rates.
Switching to a fixed-rate deal can protect you from mid-contract price increases. Additionally, choosing a fixed tariff plan may result in annual savings. If you're struggling financially, energy suppliers may offer support through hardship grants or repayment holidays.
As of June 2025, the average residential electricity rate in the US is 16.44 cents per kilowatt-hour (kWh). Hawaii has the highest electricity rates at 41.1 cents per kWh, while North Dakota has the lowest at 11.1 cents per kWh.
