Rising electricity prices in 2023: What to expect

Many Americans are seeing a jump in heating bills due to dropping temperatures and rising energy prices. According to the National Oceanic and Atmospheric Administration (NOAA), it's actually slated to be a warmer and dryer winter than usual, with above-average temperatures predicted across most of the U.S. due to LA Niña climate conditions – but you should still be prepared for higher than normal heating and electricity bills due to the rising cost of natural gas (and other fossil fuels) across the world. In this article, we'll explain why energy prices are increasing, where the increases are most dramatic, and how you can protect yourself from the volatility of fossil fuel energy sources (spoiler alert: going solar will help!).

First, it's important to note that we're not economic experts, but understanding what influences the average price of natural gas really boils down to one simple concept: supply and demand. When supply exceeds demand, natural gas prices will drop, but when demand approaches or exceeds supply, you can expect prices to increase. According to the U.S. Energy Information Administration (EIA), natural gas supply depends mainly on a few factors, such as how much natural gas is produced, how much natural gas is currently in storage, and how much natural gas is being imported and exported from the U.S.

On the demand side, winter and summer weather variations – such as extreme cold or heat – will impact how many people need natural gas. Economic growth also leads to higher demand as the commercial and industrial sectors consume more natural gas to produce greater quantities of goods and services. Finally, the cost and availability of other fuel sources will impact the demand for natural gas: if oil prices skyrocket, more people may switch to natural gas, thereby increasing demand.

Over the past few winters, we've had a couple of streaks of really cold days – including the infamous Texas Freeze – and this past summer, we saw heat wave after heat wave! Even though this winter is anticipated to be warmer than usual, we're still paying for these past weather events due to spot prices. Spot prices of natural gas reflect the current price it's being bought and sold at on the market – but the price that's actually passed onto us as consumers is the retail rate. Generally, retail rates only change a few times a year, depending on where you live. So, when these extreme weather events occurred in the last 12 months, the price you were paying for natural gas was already set and didn't account for the dramatic increases in spot prices. Now, to recoup the increased costs utilities paid to procure natural gas, they’re raising retail rates throughout the year.

Another significant factor at play right now is economic growth: more and more businesses are growing, and consumers are returning to more usual behavior after the shutdowns that occurred at the start of the pandemic. Higher demand for goods and services means greater production, which requires more natural gas. However, natural gas production has remained relatively constant, so as demand for gas approaches ever closer to the supply, we see prices increase.

In 2020, approximately 48 percent of U.S. households depended on natural gas as their primary heating source, according to the U.S. Census Bureau. If you're one of these households, you'll likely see heftier natural gas bills this winter (if you haven't already). According to the EIA, households relying on natural gas can expect to pay about 28 percent more this winter than last winter – or about $200 more in gas bills cumulatively between October 2022 and March 2023. However, your location will also impact how much you're paying, with the Midwest seeing the most dramatic price increases.

The price of electricity will also increase this winter due to rising natural gas prices – natural gas power plants are currently the largest source of electricity generation in the U.S., producing about 38 percent of our country's needs. It's used to power steam and gas turbines, which generate the electricity we use in our homes. However, depending on the electricity mix where you live, how much electricity you consume, and if you generate and consume renewable energy (like solar!) at your home, you may be better protected from increasing electricity rates.

Some states consume more natural gas than others – though this doesn't necessarily indicate how much the price will increase in the state. Many states that consume more natural gas also produce more natural gas, meaning their distribution costs are lower and, thus, the retail rates consumers in that state pay are also lower. For example, Texas consumes the most natural gas of any state but produces the most fuel.

On the other hand, Hawaii consumes the least natural gas but doesn't produce any. California has the most residential consumers of natural gas (due to its large population) but has a lower total consumption than Texas. Explore the table below to learn how much natural gas your state consumes and produces and the total number of residential natural gas consumers.

2021 natural gas consumption and production by state

Source: U.S. Energy Information Administration, Natural Gas Consumption by End Use, Natural Gas Gross Withdrawals and Production, Number of Natural Gas Consumers

Natural gas prices vary substantially depending on your energy market. While New England has the highest natural gas prices overall, the largest price increase between 2022 and 2023 will occur in the East South Central region of the U.S. ($2.86/thousand cubic feet), according to the EIA. In 2023, the EIA predicts natural gas prices to rise everywhere except West South Central, where prices are expected to drop by $0.18/thousand cubic feet. Past, present, and future retail natural gas consumer prices by region (in dollars per thousand cubic feet)

Past, present, and future retail natural gas consumer prices by region (in dollars per thousand cubic feet)

Source: U.S. Energy Information Administration, Short-Term Energy Outlook Data Browser

Nobody wants to pay more for the energy you need to power your home – but the good news is that there are steps you can take to protect yourself in the future! In addition to improving your home's energy efficiency, you can also electrify your home, which makes you much less vulnerable to volatile fossil fuel prices. Here are the steps to get started electrifying your home.

1. Install air-source heat pumps

Most heating technologies, such as a natural gas furnaces, modify your home's temperature by generating hot air, which circulates throughout your home. However, air-source heat pumps work differently. Instead of generating heat, they transfer heat from one place to another (with a heat exchanger leveraging the difference between the temperature inside and outside your house), making them highly efficient. Importantly, air-source heat pumps run on electricity, meaning that as long as your electricity comes from a renewable source like solar panels, you can substantially reduce – or even eliminate – your heating bill.

Learn more about air-source heat pumps.

2. Install a solar system

Next, to power your heat pumps, you'll want to install solar panels: unlike natural gas, a finite fossil fuel, solar is a renewable energy, meaning the supply is endless – so you don't need to worry about supply and demand. By installing solar, you can significantly lower your electricity bill, protecting you from the inflation and market volatility associated with fossil fuels. Over 20 years, the average home can expect to save between $10,000 and $30,000 on residential electricity costs if they go solar.

Learn more about solar.

3. Install energy storage

Even with solar, you'll still need to use electricity from the grid when the sun isn't shining – and the grid is still dominated by fossil fuels, with only about 20 percent of the nation's electricity coming from renewables. However, with energy storage (AKA solar batteries), you can store the excess energy generated by your solar panels for use when the sun is down, allowing you to substantially reduce your reliance on the grid and fossil fuels like natural gas.

Learn more about energy storage.

If you're looking to protect yourself from rising natural gas prices (while reducing fossil fuel emissions and combating climate change), consider going solar! When you sign up for free on the EnergySage Marketplace, you'll receive up to seven custom quotes from installers in your area. By comparing these quotes, you can find a system that meets your needs at the right price. Ultimately, you'll be able to save on your utility bills while generating clean energy right at home.