The 10-year backward look (2014-2024)
According to EIA data, average US residential electricity rates rose from ~$0.125/kWh in 2014 to ~$0.165/kWh in 2024 — a compound annual growth rate (CAGR) of ~2.8%. State-by-state variance is huge:
- California: ~$0.16 in 2014 to ~$0.31 in 2024 — CAGR ~6.8%
- Hawaii: Roughly flat at ~$0.32–$0.42
- New England (MA, CT, RI): ~3-4% CAGR
- Texas: Volatile due to deregulation; ~2-4% on stable baseline plans
- Pacific Northwest (WA, OR, ID): Lowest rates in country, ~1-2% CAGR
- Florida: ~3% CAGR
- Midwest (MN, WI, OH, MI, IA): ~3% CAGR
What's driving the next 5-10 years of increases
- Data center load growth. AI training and cloud-data-center expansion is forecast to add 50-200+ TWh of US electricity demand by 2030 — roughly 1-5% of total US consumption. Utilities are filing rate cases to recover the transmission + generation investments needed to meet this demand. Customer rates fund those investments.
- Grid hardening / undergrounding. Wildfire-driven undergrounding (PG&E in California), hurricane-resilience hardening (Florida, Gulf Coast), and ice-storm hardening (Texas, Plains) all flow through to rate base. PG&E is undergrounding 10,000 miles of distribution lines — the customer pays.
- Transmission expansion. Inflation Reduction Act (IRA) funded transmission lines connecting renewable energy zones to load centers. Expensive to build; recovered through rates.
- Coal plant retirements + replacement capacity. 80-100 GW of coal capacity retiring 2024-2030. Replacement (natural gas, solar, wind, battery) plus the stranded-cost recovery of retired plants flows into customer rates.
- Methane regulation + gas price volatility. Natural gas remains a major generation fuel; price spikes during cold snaps directly hit customer bills.
- EV adoption. Some grid stress, more so in TOU-light regions. Utilities are spending on distribution capacity upgrades to handle EV charging.
Forecast (2026 baseline through 2035)
Reasonable scenarios for residential rates 2026-2035:
| Region | 2025 baseline | Conservative (3% CAGR) | Moderate (5% CAGR) | Aggressive (7% CAGR) |
|---|---|---|---|---|
| California | $0.31/kWh | $0.42 by 2035 | $0.50 by 2035 | $0.61 by 2035 |
| New England (MA/CT/RI) | $0.30/kWh | $0.40 | $0.49 | $0.59 |
| Hawaii | $0.40/kWh | $0.54 | $0.65 | $0.79 |
| NY (downstate) | $0.27/kWh | $0.36 | $0.44 | $0.53 |
| Texas (Oncor) | $0.13/kWh | $0.17 | $0.21 | $0.26 |
| Florida (FPL) | $0.14/kWh | $0.19 | $0.23 | $0.28 |
| Pacific NW (WA/OR/ID) | $0.11/kWh | $0.15 | $0.18 | $0.22 |
| Midwest avg | $0.15/kWh | $0.20 | $0.24 | $0.30 |
What this means for solar payback math
Most installer payback calculations assume 3% annual rate escalation. If actual rates rise at 5% or 7%, your solar saves you significantly more than projected:
- 3% CAGR over 25 years: 1$ today → $2.09 in year 25 — rate doubles
- 5% CAGR over 25 years: 1$ today → $3.39 in year 25 — rate triples
- 7% CAGR over 25 years: 1$ today → $5.43 in year 25 — rate quintuples
Since solar production is roughly fixed (panels degrade ~0.4-0.7%/yr but rate inflation typically outruns it), faster rate growth means solar saves more cumulative dollars over the system life.
What could SLOW rate increases
- Faster solar + storage adoption — reduces utility transmission/peaking spending
- Natural gas price collapse — would lower fuel cost
- Demand response / VPP / managed EV charging — shifts demand off-peak; reduces peak-capacity build
- Distributed energy resource (DER) integration — reduces transmission costs if managed efficiently
What could ACCELERATE increases
- Major data-center electricity demand surge beyond current forecasts
- Major grid resilience event (Texas 2021 deep freeze; California 2024 heat dome; Florida/GA hurricane recovery)
- Carbon pricing at federal or state level
- Coal/gas plant accelerated retirement beyond current schedule
- Trade restrictions on inverter / battery components driving up replacement-equipment costs
Frequently asked questions
How does electricity price forecast affect whether solar makes sense?
Hugely. Solar economics depend on what you would have paid the utility over 25 years. If rates double, solar saves twice as much. The bias in forecasting is to be conservative (3%); the actual decade-ahead reality may run higher.
What's the most reliable source for forecasts?
EIA Annual Energy Outlook and your specific utility's most recent integrated resource plan (IRP). These show the baseline; recent rate cases show near-term trajectory.
Should I assume 3% or 5% in my own payback math?
3% is conservative. 5% is moderate for high-growth states (CA, NE, NY metro). For Midwest / Texas / Pacific NW, 3-4% is reasonable. Always model two scenarios so you understand sensitivity.