Electricity prices rising in the World. What to Do?

Electricity and gas prices have been steadily increasing in recent years and all indications are that prices will continue to rise in the foreseeable future. While many people believe this is because of energy retailers trying to increase profits, these increases actually happen across the board, due in a large part to changes in wholesale costs.

Why are electricity prices rising in the World?

Electricity and gas prices have been steadily increasing in recent years and all indications are that prices will continue to rise in the foreseeable future. While many people believe this is because of energy retailers trying to increase profits, these increases actually happen across the board, due in a large part to changes in wholesale costs.

Electricity prices across countries around the world vary due to factors like infrastructure maintenance, government energy and climate change policies, local energy resources and diversity in generation assets. As reported in the Energy in Australia 2015 report, Figure 1 shows electricity prices in 2014 from leading economies worldwide. As can be seen, Australia’s power prices, (at equivalent purchasing power exchange rates) were lower than the OECD average of 23.03 US cents per kilowatt-hour (c/kWh). At 20.47 US c/kWh Australian 2014 electricity prices are also low by overall international standards.

Consumers have been warned to brace for a new round of energy price rises within weeks because suppliers are under pressure to pass on increases in wholesale costs.

Worldwide growth of photovoltaics has been an exponential curve between 1992–2017. During this period of time, photovoltaics (PV), also known as solar PV, evolved from a niche market of small scale applications to a mainstream electricity source. When solar PV systems were first recognized as a promising renewable energy technology, programs, such as feed-in tariffs, were implemented by a number of governments in order to provide economic incentives for investments. For several years, growth was mainly driven by Japan and pioneering European countries. As a consequence, cost of solar declined significantly due to Experience curve effects like improvements in technology and economies of scale.

Experience curves describe that the price of a thing decreases with the sum-total ever produced. PV growth increased even more rapidly when production of solar cells and modules started to ramp up in the USA with their Million Solar Roofs project, and when renewables were added to China’s 2011 five-year-plan for energy production. Since then, deployment of photovoltaics has gained momentum on a worldwide scale, particularly in Asia but also in North America and other regions, where solar PV by 2015–17 was increasingly competing with conventional energy sources as grid parity has already been reached in about 30 countries.

Let’s going solar!

The “Wind and Solar Will Save Us” story is based on a long list of misunderstandings and apples to oranges comparisons. Somehow, people seem to believe that our economy of 7.5 billion people can get along with a very short list of energy supplies. This short list will not include fossil fuels. Some would exclude nuclear, as well. Without these energy types, we find ourselves with a short list of types of energy — what BP calls Hydroelectric, Geobiomass (geothermal, wood, wood waste, and other miscellaneous types; also liquid fuels from plants), Wind, and Solar.

Our progress in getting away from fossil fuels has not been very fast, either. Going back to 1985, fossil fuels made up 89% of the total, and wind and solar were both insignificant. As indicated above, fossil fuels today comprise 86% of total energy consumption. Thus, in 30 years, we have managed to reduce fossil fuel consumption by 3% (=89% – 86%). Growth in wind and solar contributed 2% of this 3% reduction. At the rate of a 3% reduction every 30 years (or 1% reduction every ten years), it will take 860 years, or until the year 2877 to completely eliminate the use of fossil fuels. And the “improvement” made to date was made with huge subsidies for wind and solar.

If you’re considering whether going solar is a worthwhile financial move for your home, there are essentially two factors that you should look at: 1) the costs associated with solar power, and 2) the rates you pay for electricity from your utility. Going solar makes economic sense when solar electricity costs less than grid electricity.

As for solar, it is clear that costs are coming down. Rooftop solar panels are now more affordable and accessible than ever. This is why more and more households are having solar energy systems installed: going solar is a great way to reduce your power bills.

But what about the future cost of grid electricity? If electricity rates are going up, then of course going solar makes sense. As you’re probably aware, however, utility electricity rates fluctuate seasonally and annually. “What if utility electricity rates go down instead of up?” you might be asking yourself. Would it still be worth it for you to go solar? This article seeks to address this question and put to rest any idea that grid electricity rates could be going down.

What are you paying for?

Your energy bill is made up of a number of different cost components, each of which contributes to the total amount you pay.

Wholesale costs – the costs associated with purchasing electricity and gas from generators and producers
Network costs – transmission, metering and maintenance costs associated with the delivery of energy via power lines or gas pipes (these can account for 40-60% of your bill)
Retail costs – billing, customer service, connections and other services by energy retailers
Other costs – including government-mandated environmental programs such as those aimed at increasing renewable electricity generation.

On your energy bill, you will see what is known as a fixed charge (often called a ‘daily supply charge’ or ‘average daily cost’). This amount goes largely towards wholesale (generation) and network (supply) costs.

There is also a variable or consumption charge, which is shown in cents per kilowatt hour (c/kWh) for electricity and cents per megajoule (c/MJ) for gas. This is the amount you pay for each unit of electricity and gas you consume. This can vary depending on factors such as whether you have solar panels or appliances that operate off-peak.

Other charges which you may be required to pay for your energy can include:

  • Connection and disconnection fees
  • Credit card processing fees
  • Late payment fee – extra charge for paying your bill late or not having adequate funds for a direct debit payment.

Why do prices of electricity rise?

Energy price rises are an annual industry event and are driven by recurring factors such as:

The need to match supply and demand – supply and demand must be continuously matched in wholesale markets and when this does not occur, more expensive electricity must be generated to meet demand, due to the fact that it cannot be economically stored (apart from hydro electricity).
Inaccurate forecasting – energy generators sometimes miscalculate expected future energy consumption requirements, causing wholesale prices to rise.
Load profile – when peaks in demand occur, energy generators must increase their potential generation capacity in those areas, which increases both wholesale and network prices.
Generator outages – unexpected outages (other than regular maintenance) can require more expensive energy generation, resulting in sudden increases in wholesale prices.
Fuel commodity prices – rising costs for fossil fuels used to generate electricity will push up wholesale prices.
Weather – prolonged drought can impact hydro electricity supplies and raise energy prices, along with seasonal temperature extremes that create spikes in demand.

Utility residential electricity prices have risen steadily in the last decade. According to the Energy Information Administration, residential electricity rates have increased nationally by around 24% in the last 10 years (an increase of a little more than 0.2¢/year).

Could electricity price fall in the future? Highly unlikely

“The past is no predictor of the future”, you might argue. And it’s true that just because electricity prices have been going up does not mean that they will continue to do so. However, there are a number of very good reasons why it is unlikely that residential electricity rates will fall in the future.

Natural gas prices have fallen in recent years thanks to the ‘fracking’ boom, bolstering the prominence of natural gas in the American electricity generation mix. While gas-generated electricity is cheap now, many expect the price to rise once export terminals for liquified natural gas (LNG) are completed and America’s natural gas supply is exposed to international markets – Europe and Japan, for example, currently pay significantly more for natural gas than the US.
Extreme temperatures can drive up the demand for electricity, as more energy is needed for heating and cooling, among other operations. As global climate change progresses and extreme weather becomes more widespread, this higher demand will likely drive electricity prices higher.
The Energy Information Agency also predicts that electricity price is going to increase, both in the short-term (2015-2016) as well as the long-term (out to 2040).

Could electricity price fall in the future? Highly unlikely

“The past is no predictor of the future”, you might argue. And it’s true that just because electricity prices have been going up does not mean that they will continue to do so. However, there are a number of very good reasons why it is unlikely that residential electricity rates will fall in the future.

Natural gas prices have fallen in recent years thanks to the ‘fracking’ boom, bolstering the prominence of natural gas in the American electricity generation mix. While gas-generated electricity is cheap now, many expect the price to rise once export terminals for liquified natural gas (LNG) are completed and America’s natural gas supply is exposed to international markets – Europe and Japan, for example, currently pay significantly more for natural gas than the US.
Extreme temperatures can drive up the demand for electricity, as more energy is needed for heating and cooling, among other operations. As global climate change progresses and extreme weather becomes more widespread, this higher demand will likely drive electricity prices higher.
The Energy Information Agency also predicts that electricity price is going to increase, both in the short-term (2015-2016) as well as the long-term (out to 2040).

What can you do?

Rising wholesale electricity prices doesn’t necessarily mean it will cost you more to keep the lights on. Confused? Alternatively, solar panels and storage units are now more affordable than ever and can potentially help you slash your power bill. It’s being hailed as the future of energy, so why not get on board now? You can compare solar providers here.

There are many reasons why the solar energy industry has been in the news so often lately. Within the last decade, costs have taken a nose-dive, while volume and usage have steadily climbed. Within the next 30 years, the International Energy Agency predicts that solar energy could count for up to 16% of the globe’s entire energy. As it stands, it generates 1%. However, analysts have been critical of this optimistic growth potential, citing that it would only be possible if governments change their policies concerning solar energy.

What does all of this mean if you are thinking about going solar?

There are some important implications in all of this if you are thinking about going solar.

Utility electricity rates go up and down throughout the year, but have a long-term tendency to rise. These fluctuations, which are the result of fuel costs and a number of other factors, are completely outside of your control. Going solar gives you some control over how much you pay for electricity by protecting you against rising electricity prices.

Having a solar energy system on your roof is one effective way to reduce your power bills because the electricity generated by your solar panels is not subject to the same variations that utility electricity is. Therefore, if you go solar, your electricity costs will always be more predictable than if you stick with grid electricity. In the long term, they will almost certainly be lower with solar than with grid electricity.


What should you expect from your electricity bills after you’ve gone solar? The answer depends on how you finance your system. For example:

If you purchase your solar system (either with cash or a solar loan), your electricity bill will be greatly reduced or completely eliminated soon after the system is connected to the grid. This monthly savings will eventually ‘pay off’ the original cost of the system. The typical payback period for a solar system in the US is in the range of 5-12 years. Fluctuations in your utility’s electricity rates will not affect this by much, and once the system is paid off, the electricity it produces is basically ‘free’. You will have no or only very small electricity bills for the remainder of your solar system’s life (25-30 years total).

If you choose to install your system through a solar lease or power purchase agreement (PPA), you will most likely start saving money immediately. However, when you sign up with these programs, the amount you pay for solar will be fixed for the duration of your contract (usually 20 years). You will either lock in your solar payments a flat rate (e.g. 10¢/kWh, or a set price per month) for the entire duration of the contract, or your solar rate will be subject to an ‘escalator’, which causes the rate you pay for solar to increase by a set percentage (e.g. 2.5%) every year. This means that if your electric utility’s rates go down instead of up, you may temporarily find yourself paying more for solar than you would have if you had stuck with purchasing your power from your utility. This is particularly likely if the rate the solar company promises you is only slightly lower than your current utility rate.

The widespread psyche towards solar power was the result of subsidies. Many believed the industry could not survive without government help. However, this point of view is quickly becoming antiquated. In geographical locations where the sun is strongest, solar power actually beats fossil fuel electricity in terms of price, even without subsidies.

Even in countries where the solar energy industry needs subsidies to operate (such as the United States), costs are getting cheaper. This has sparked American utility companies to enter into 20 year agreements to purchase solar power at prices roughly 5 cents per kilowatt-hour – in some instances even lower. These price points are in some cases low enough to compete with electricity generated from natural gas, an American staple. If gas prices rise in the future, which is not an unlikely scenario, solar will be that much more competitive.

There are several reasons why the old arguments against solar power are brittle. It used to be that solar power was too inefficient given its price point. However, recent technological advances have made solar cells much more productive in converting sunlight into power. Moreover, as the manufacturing scale of the industry as a whole has increased, the cost of producing the individual components has fallen. Lastly, more and more locations are taxing energy production that also produces greenhouse gas – solar does not have to deal with this added cost.

These factors alone, however, are not enough to grow the industry to where it needs to be. Expanding solar to account for 1% of global energy required much investment and technological advancement – neither of which come in unlimited quantities. Given what has been required to reach 1%, making solar big enough to make a true environmental difference would cost astronomical figures. There are essentially three things that need to be done: (1) increase the amount of solar panels installed, (2) increase the ability to store intermittent energy produced by solar panels by producing batteries or other methods of energy storage, (3) increase transmissions lines to transport energy from where it is produced to where people live (which very often is far apart).

To effectively accomplish these things, economic efficiency is pivotal. Current policy standards are either unfeasible or else completely unsustainable. To make matters worse, some policy decisions lack foresight and are contradictory in nature. Take for example two recent developments in United States policy. The government is attempting to lower the costs of solar energy by offering companies tax breaks. At the same time, the government is increasing tariffs on China, the world’s largest producer of solar panels. This is largely due to the government’s lack of attention to renewable energy as a whole so that policy decisions that affect solar do so as an afterthought.

The taxes against the Chinese are motivating those solar companies to establish factories in low-cost countries, as opposed to the United States. Moreover, the Chinese government has decided to levy their own tax against American-made solar goods in response. This quasi-trade war is indicative of how far the industry has come. After the first solar panels were developed by the United States in the 1950s, the production slowed significantly. This speed did not pick up again until China arrived on the scene in the early 2000s and begin imitating the technology at lower costs. Since then, they have been producing and exporting very cheap solar panels.

China still leads the global solar-panel manufacturing market. Estimates released last year (according to HIS Markit), China produced 70% of the globe’s capacity for crystalline-silicon solar panels which is the most popular type. That year, the United States accounted for 1%.

The moment for the US to act, however, is ever approaching. China is now innovating in the solar panel space, whereas before, they simply replicated existing technology at lower costs. Their advancements are creating more efficient ways to transition energy from the sun into electricity, and they are attempting to expand their breadth across the world.