Contrasting the painful immediacy of an oil price shock to that from electricity prices, Bloomberg columnist Javier Blas wrote, “akin to a rising tide, it is slow but relentless and then, surprise, you are overwhelmed.”
Blas penned that description about the crushing electricity costs about to overwhelm Europe, but the metaphor neatly describes the electricity crisis building towards a crescendo here.
In Europe, electricity prices are reaching all-time highs, eclipsing the dizzying heights from this past winter that shuttered energy-intensive industries and sent governments scrambling to soften the blow to consumers. In the U.K., where it seemed the wheels had already fallen off British energy policy, the very bad is on a trajectory to terrible. The cap on what families can pay for a combined electricity and natural gas bill had already jumped 54% this year. Now, the government is warning it will jump another 40% come October.
Billions have been put aside to assist families with rising prices in the U.K. but the government still expects 40% of households to slip into fuel poverty. As grim as that situation sounds, this electricity price trainwreck is underway in the U.S. as well. While all eyes have been on oil prices and the pain at the gas pump, electricity prices are surging too, threatening to overwhelm millions of families.
A 40% Jump in Electricity Bills
Incredibly, in the same week that the North American Electricity Reliability Corporation warned of power supply shortfalls and even blackouts across much of the country this summer, reporting from one coast to the other revealed an emerging electricity price crisis. Electricity prices are now catching up with soaring natural gas prices, the dominant source of power for much of the country. Natural gas prices are well above $8 per million British thermal units after sitting at just $3 a year ago.
Analysts project monthly power bills will be more than 40% higher than last year. Residential electricity bills averaged $122 a month last year, but that number is projected to jump by nearly $50 a month this year. Signs of the price spike are emerging everywhere.
Bloombergfound that households in Miami spent 38% more on energy in April than a year earlier. In California, bills jumped 25% in the past year and are expected to rise another 25% this summer. Electricity prices in the PJM market, the nation’s largest, covering much of the Mid-Atlantic and stretching as far west as Ohio, jumped 51% in the first quarter of the year. In the ISO New England market – which is almost completely dependent on gas for power generation – wholesale power costs rose 83% in the same period.
These costs are disproportionately impacting those who can least afford them. Those on fixed incomes and others struggling to get by simply can’t afford the surge in prices. The Department of Energy reported in 2018 that a third of American households faced trouble in keeping up with energy bills. Already far too high, that percentage is now set to explode.
With energy-driven inflation only poised to grow, economic recovery seems farther away than ever. Stacked upon deteriorating grid reliability, it’s hard not to see a full-blown energy crisis – a crisis largely of our own making.
The energy transition is proving woefully and needlessly messy and expensive. Policies that deconstructed well operating power plants – in many cases desperately needed dispatchable generation – while promising a renewable future that hasn’t yet arrived are taking a painful toll. Policy-driven underinvestment in fossil fuel production – particularly in responsible nations – has left the world, including American consumers, deeply exposed to energy price spikes. Overreliance on natural gas as a bridge to the future is also proving a deeply costly mistake.
A reckoning should be coming – must be coming – for the regulatory agenda that has substituted as energy policy for the Biden administration. It’s abundantly clear the U.S. needs to lean into its energy resources, recommit to an energy abundance agenda and tackle the energy crisis head on. No single policy commitment will do more to underpin economic recovery and address inflation. And no action will mean more to working Americans.
- On May 25, 2022