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In 2021, the average nominal retail electricity price paid by U.S. residential electric customers rose at the fastest rate since 2008, increasing 4.3% from 2020 to 13.72 cents per kilowatthour (kWh), according to data from our latest Electric Power Monthly. This increase is similar to the change in the U.S. Consumer Price Index, which was 4.7% in 2021.

Prices for most types of energy commodities rose significantly in 2021, including the cost of power generation fuels, especially natural gas, which helped push electricity prices higher in 2021. The cost of natural gas delivered to U.S. power plants in 2021 averaged $4.98 per million British thermal units (MMBtu), more than double the $2.32/MMBtu average recorded in 2020.

Severe weather events in 2021, including a major winter storm in Texas that led to significant energy disruptions, also contributed to higher average electricity prices. The extreme cold weather in Texas and other parts of the Central United States restricted the flow of natural gas for power generation, and many wind turbines froze, constraining energy supply. The constraints on electricity supply created price spikes in the wholesale electricity market in Texas and throughout the United States, raising electricity retail prices for some customers.

Although the nominal average price of 13.72 cents/kWh that residential electric customers paid in 2021 was the highest on record, retail electricity prices adjusted for inflation have been slowly declining over the long run. The real price of electricity last year was at the lowest level since just before 2006, when the real U.S. electricity price, measured in 2021 dollars, averaged 13.99 cents/kWh.

In our latest Short-Term Energy Outlook, we forecast that residential retail electricity prices will continue to rise in 2022, although at a slightly slower rate. In 2022, we expect the average nominal price will increase by 3.9% to 14.26 cents/kWh. This expected increase in nominal electricity prices would be at a similar growth rate to our assumption for inflation next year (4.0%), which is based on macroeconomic data from IHS Markit.

Principal contributors: Tyler Hodge, Elesia Fasching