As Europe struggles through an energy crisis, the United States could very well be on the precipice of our own. Prices are high—that is no secret. Production of oil is lower than it was before Covid, and there are concerns about a cold winter coming. And yet the situation may be worse than that. The U.S. may very well be facing a shocking dislocation of the energy economy.
Electricity prices in the U.S. follow a typical pattern. Prices increase in the summer and decline the following winter. According to data from the Bureau of Labor Statistics, over the last 20 years, prices in summer months (May–October) have averaged $0.007 per kilowatt-hour more in the summer than in the preceding winter months. Prices drop, on average, by $0.004 per KWH in the winter months (November–April) compared to the preceding summer months. Between 2001 and 2020, electricity prices only diverged from this pattern once, with a brief spike in the winter of 2006.
Now, we are seeing a completely new path for electricity pricing. In the winter of 2020–2021, the price of electricity actually rose $0.001 per KWH compared to the previous summer. More disturbing, though, the price is expected to continue to rise this winter as well. If it does, last winter will not be an aberration but a dislocation. The consequences would be significant for both energy and utility investing as well as for Americans who struggle to pay their electricity and heating bills this winter.