When Cheap Power Gets Expensive: How Policy Built Today’s High-Cost Grid

To my surprise, it’s been over half a year, 27 weeks to be exact, since I’ve written about soaring electricity prices. DNYUZ, “an Armenian website that plagiarizes content word for word from major news sources,” according to mediabiasfactcheck.com (a mouthful), reports Your utility bills keep going up. Here’s everyone you can blame—AI data centers included. Well, certainly, this is worth an investigation and breaking a 27-week electricity-price Rant drought.

Back in September, I reported electricity prices were 5.5% higher than a year ago, and the Energy Information Administration projected prices would increase 6% in 2026. I also wrote that “we can put a fork in the electrify-everything movement. It’s well done.”

The DNYUZ article reports that “Electric [sic] and piped natural gas bills became the two largest drivers of inflation last year—rising 7% and 11%, respectively, in 2025—and they’re projected to keep increasing this year and beyond.” As a source for that information, they link to a November Fortune article that says, “electricity costs are up more than 6% in 2025 from the prior year, while piped natural gas costs jumped close to 13%, according to the U.S. Department of Energy.” That’s not “7% and 11%, respectively.“ Maybe DNYUZ makes things up as well as “plagiarizes“ content. They’re close, but differences will expand as prices compound over time. My sources from back in September agree with the Fortune article: electricity prices increased 5.5% over the last 12 months, 6% in 2026, and 30% since 2021.

Fortune notes that electricity and natural gas prices are “even exceeding food and grocery costs, according to the latest Consumer Price Index data.“ Ouch! Charles Hua from PowerLines is quoted as saying, “This is a new political force that is here to stay, and all politicians and policymakers will need to have a response for how they’re going to lower utility bills.“

This should be interesting because politicians are clueless about how to fix rising electricity costs. They are the primary cause. Read on!

Load Growth Returns to a Grid Built for Decline

First, prices are going to rise, period, because we’ve had virtually no load growth over the past 25 years ending in 2025. Thousands of megawatts of zero-fuel renewable electricity were brought online during that period, displacing a significant portion of the dispatchable (call-as-needed) thermal generation rate base. Electricity prices remained steady. But now, thermal power plants are reaching the end of their useful lives and are becoming increasingly uneconomic to operate. This is not because of fuel costs, but because they can’t sell enough to cover fixed costs (wind and solar flood the grid with electricity at a marginal cost of zero when the wind blows and the sun shines). Thermal power plants, including coal plants, must remain hot and churn out kWh at a loss or low volumes when marginally profitable, just to preserve the asset and stay in business.

The Renewable Cost Paradox

I already mentioned the second issue, which leads to the first issue. The second issue is the political blind ambition to force the energy transition and electrify everything. I had to do a double-take when I read quotes from New York Governor Kathy Hochul. She said, “Back in 2019, there were very ambitious goals.“ Really? And “Wind and solar became too expensive, so they were abandoned by people.“ What? I’ve read over and over that electricity produced by renewables has reached parity with natural gas and is much cheaper than coal and nuclear.

Dollars Leaving Consumer Pockets

The WGRZ article that includes those gems also quotes the New York State Energy Research and Development Authority (NYSERDA), a very reputable organization that:

• “existing climate goals could push gasoline costs to more than $2 a gallon above existing prices at [the] time of enactment,“ and
• “all electric conversion of heating systems costs for households with natural gas or oil heat could face hit [sic, sounds painful] an additional $4,000.“

It’s always interesting when natural gas prices are blamed for high electricity prices. Meanwhile, electricity costs $4,000 more to heat a home compared to natural gas, if I’m reading that correctly. How could this be? Answer: Electricity prices are decoupling from fuel costs. Natural gas is the cheapest space-heating fuel available for most applications, particularly in northern climates where heat pump efficiencies take a hit during the coldest weather, especially for single-family homes.

Redundancy Costs

A reason heavy doses of renewables and storage are expensive is that their capacity factors are only around 25%, at best, 24/7. Batteries are generally good for 4 hours, except for iron-air, which has a long discharge time, but a miserable round-trip efficiency[1], meaning electricity suppliers need 2X the generating capacity to charge and use that technology.

Rising Price Summary Comparison

The DNYUZ article summarizes the cause of rising prices as follows, with my comments in parentheses:

• AI and data-center load growth (significant)
• Aging grid infrastructure requiring upgrades (nebulous blame bucket)
• Retirement of coal and gas plants (significant)
• Higher fuel and equipment costs (minor)
• Extreme weather and resilience spending (another nebulous blame bucket)
• Utility business model encouraging capital spending (nothing new here)

I had AI draw distinctions between the DNYUZ article and my analysis, shown in Table 1.

Table 1 Symptoms and Drivers of Soaring Electricity Prices

 

The Policy Choices Driving Higher Costs

AI summarizes, my take is that policy choices are forcing a high-redundancy electricity system, which dramatically increases the full cost of electricity (FCOE). Other institutions have subsequently realized points it selects from Rants.

• I argued that retiring dispatchable plants while replacing them with intermittent resources raises system costs and reliability risks. From the North American Electric Reliability Corporation, AI summarizes, “Grid operators are warning that retirements are outpacing reliable replacement capacity.”
• AI notes that PJM reported significantly higher capacity auction prices due to a “large number of generator retirements, combined with increased electricity demand.“
• AI summarizes MIT’s findings that “Large-scale renewable deployment requires substantial energy storage or dispatchable backup resources to maintain reliability.”
• Finally, AI summarized this from the Nuclear Energy Agency: “All power technologies have system costs, but those imposed by variable renewables are far greater. Nuclear power’s key economic advantage is its dispatchability. [i.e., available 24/7, not requiring multiples of expensive generating and storage redundancy]

Note: not all renewable locales are equal. In Iowa, for example, the wind blows all the time. However, how long can MidAmerican Energy hang onto its coal plants to backfill gaps in wind energy for the three days of wind vacation every year? We may need to wait decades to find out!

Expect More Electricity Price Increases

Policy and lawmakers drove us down this dark cul-de-sac. Don’t expect to get out without a few dings, scratches, and cracked windshields. Utilities play within the margins, sidelines, and rules of the game to provide returns for their investors. Get ready for a few more years of rapid increases in electricity prices.

 

 

[1] https://pv-magazine-usa.com/2023/12/14/form-energy-awarded-30-million-for-100-hour-iron-air-battery-project-in-california/