Will energy prices increase in 2023?

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Several unpredictable factors can influence energy prices, such as weather, natural disasters, and global challenges. Energy trends over the past two years may provide insight into what consumers can expect for 2023 electricity prices.

2021 energy trends

Between the first and last trading days of 2021 (Jan. 4–Dec. 31), electricity rates rose across the United States by 59%. This was the highest price increase of any major commodity in 2021. For many energy consumers, the price rise meant higher electricity bills.

The S&P Goldman Sachs Commodity Index showed that gasoline rose by 67%, crude oil by 62%, and natural gas by 38%. The natural gas price increase had a major impact on electricity prices because it is the fuel of choice for many energy producers. Green energy sources also played a big role in many regions across the country.

One reason for the sharp price increases is the expansion of business activity following the pandemic. During 2020, demand for oil and gas was uncertain due to COVID-19 lockdowns and production interruptions. As a result, some energy producers scaled down their operations. Producers struggled to keep up as energy demand increased through 2021.

Another factor is reduced investment by energy firms due to volatile oil prices. In 2021, fewer new oil wells and gas drilling operations were opened than during previous booms because companies were reluctant to invest in new projects. Instead, they focused on extracting oil and gas from existing wells. Additionally, growing investments in renewable energy and a push for existing energy firms to focus on climate change led companies to shift priorities. 

Extreme weather events also disrupted energy production and drove up 2021 energy prices. The Texas winter storm of February 2021 caused gas plants to go offline, leaving thousands of Texans without power. Texas electricity rates jumped to a maximum of $9,000 per megawatt-hour for days. As a result, many Texas consumers were charged thousands of dollars in energy bills for only a few days of power.

In August 2021, Hurricane Ida led to a suspension of oil production at some operations in the Gulf of Mexico. At one point, oil output was down by 1.5 million barrels a day. Shell’s output in the Gulf dropped by 40% during the storm.

2022 energy trends

Compared to 2021, consumers spent over 14% more on electricity bills in 2022, despite only an 11.9% increase in the price of electricity according to the U.S. Bureau of Labor Statistics.

The EIA shows that the U.S. generated roughly 135 billion kilowatt hours (kWh) less electricity in 2022 than in 2021. Residential electricity prices did not reflect the decrease in electricity generation, with prices still increasing from 13.66 cents per kWh to 15.12 cents per kWh.

With this increase, trends for 2022 followed a similar pattern to those of 2021. From August 2021 to August 2022, there was an average increase of just over 16% in the cost of utility bills across the U.S. according to a study by Bank of America. 

SaveOnEnergy conducted a study with YouGov on inflation and utilities in 2022. In this study, 93% of homeowners surveyed showed concern about inflation’s impact on their monthly utility bills. Low-income households felt particularly affected. Homeowners noticed the most significant increases in their electricity costs, leading 87% of survey participants to take action to lower their energy costs in 2022.

Similar to 2021, weather events in 2022 were an influential factor driving up energy prices. While 2022 had a mild winter, summer temperatures set records across the country. According to KWTX, central Texas experienced the second-hottest summer season in recorded history, increasing energy bills for homeowners. Hurricane Ian also caused a suspension of oil production in 2022, shutting down approximately 11% of oil production in the Gulf.

Though far away, the U.S. also felt the effects of increased energy bills due to the Russian invasion of Ukraine in February 2022. The Texas Tribune reported that some customers spent 50–70% more on their electric bills compared to 2021. The increase is a direct response to the natural gas market, which increased by over 200% from February to July 2022.

2023 energy trends

So far in 2023, energy prices continue to increase, albeit less than in previous years due to a mild winter. Figures from the Bureau of Labor Statistics show that the average electricity bill rose from $0.147 kWh in January 2022 to $0.168 per kWh in January 2023.

The EIA forecasts that electricity generation from coal will experience a major decline, while renewable energy sources will expand from 22% in 2022 to 26% by 2024. Solar and wind power are predicted to have the most growth, with 63 gigawatts (GW) of utility-scale solar and 13 GW of wind power expected to come online over the next two years.

Thanks to the 2022 Inflation Reduction Act, the renewable energy industry will continue to grow as more households and businesses have access to financial incentives for green energy solutions. Investment in renewable energy in the U.S. also continues to grow, creating a more competitive market. This increasing investment may help offset electricity spikes seen in previous years.

What will impact energy prices in 2023?

Some energy experts expect 2023 electricity prices to continue to increase. As Karr Ingham, an economist with the Texas Alliance for Energy Producers, told the Houston Chronicle, “…this is simply the market doing its work. Higher prices are designed to stimulate production and at the same time dampen consumption to bring supply and demand back in line with one another.”

At the same time, natural gas prices at the Henry Hub, an important U.S. natural gas pipeline, declined by 41% from December 2022 to January 2023, according to the EIA. Such a price drop is a result of warmer average winter temperatures across the country. It could mean that electricity prices may fall or at least slow down after a rapid increase from 2021 to 2023.

Oil analyst Mat Smith agrees, noting that the relatively warm winter this year could lead to “natural gas prices easing lower.” Smith adds that this possibility “is really important because natural gas prices are the key driver of electricity prices across the U.S. and so lower prices there is good for our utility bills.” 

Nevertheless, with the threat of high prices, Americans can take action to cut their energy bills by adjusting their thermostat, switching to energy-efficient appliances and bulbs, using ceiling fans, and more. 

If you’re looking for more affordable energy solutions for your home, SaveOnEnergy can connect you with top solar installers, deregulated energy plans, natural gas providers, and more. Enter your ZIP code, call our energy experts at the number on the screen, or explore our library of energy resources to learn more.