In recent years, global energy prices have risen at an alarming rate and low-income households are feeling the pressure. With almost 20% of their income being spent on electric bills, these families have less disposable income for daily expenses or saving for the future. With non-renewable energy sources becoming scarce and less popular due to their impact on the environment, there is now more than ever an urgent need to shift to cleaner, more cost-effective methods of energy production like solar energy.
Here are 5 factors creating the rise in energy prices and why a shift to solar energy offers a promising solution.
What’s causing these rapid increases in the price of energy?
Seasonal demand
Energy capacity (the demand for energy) fluctuates depending on the season. There is a higher need for cooling during the warm summer months and a higher need for heating during the winter. These seasonal changes are worsening with climate change, leading to a higher demand for electricity to power households’ heating and/or air conditioning systems. This results in a spike in fuel and electricity prices.
Grid infrastructure
The electric grid is in constant need of upkeep. As energy demands rise, upgrades to the grid are needed to keep up with this increased capacity. The newer shift to electric vehicles also requires massive modernization of the grid to withstand the large volumes of electricity needed to power the vehicles.
The advent of AI has also added pressure to the electric grid. Data centers’ energy usage is expected to rise from 3% in 2022 to 8% by 2030, according to research from Goldman Sachs. Yes, tech giants like Google, Meta and Microsoft are pushing for a comeback of nuclear plants to meet these AI energy needs, but grid costs will undoubtedly still be passed to consumers in the form of higher energy prices.
Shut down of coal plants
A growing number of coal plants are closing due to stricter emissions regulations along with natural gas replacing them as a slightly cleaner, non-renewable energy option. Household energy demand is growing, compounding with the lower available energy supply to make prices soar.
Inefficient transmission
Electricity is not always distributed efficiently from its source to homes and businesses and this can lead to consumers paying the price, literally. Sometimes, transmission lines do not have the capacity to meet growing demands for electricity in a region, causing prices to rise.
Poor management of transmission is also a factor. For example. PJM Interconnection, a regional transmission organization that oversees the movement of electricity in 13 States and D.C., has come under fire for the staggering 833% increase in capacity prices since its July 2024 auction. The organization was not accounting for reliability must-run power plants in its auction, limiting available capacity for consumption and forcing consumers to bear the cost for it.
Global forces
Energy prices are extremely sensitive to world events. Russia is one of the world’s top energy exporters, as a result, the Russia-Ukraine conflict caused energy prices to skyrocket worldwide. According to the Bureau of Labor Statistics, electric prices rose by 14.3% compared to 2021. The uncertainty regarding the outcome of the conflict further contributes to the instability of global energy prices.
What this means for low-income households
Given the ongoing rise in energy prices, lower income households will feel significant financial strain over the coming year. As they determine how to face this burden, they shouldn’t have to decide between heating their homes or putting food on the table.
Nevertheless, these changes in prices highlight the need for a renewable, financially sustainable energy source like solar energy. Thanks to solar financing options for rooftop solar and community solar farms that make solar accessible to households with a discounted monthly subscription, low-income individuals now have alternatives to help them tackle the volatility of energy prices, save money long-term, and eventually become self-reliant when it comes to their energy generation.
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Written By Alfreda Adote | Edited By Lauren McGregor