Rising Electricity Prices: The Missing Link

By Jonathan Lesser

There have been numerous recent debates about the causes of rising electricity rates. Among other causes, the blame has been assigned to data centers that are increasing electricity demand and traditional rate regulation that supposedly awards utilities guaranteed profit margins that are too high. Still other studies have claimed that rising retail prices are being driven by subsidized wind and solar generation, a claim vigorously denied by wind and solar advocates. A recent study by researchers at Lawrence Berkeley National Laboratory also exonerated wind and solar generation and claimed that subsidized, customer-installed solar generation was driving up electricity rates.

The reality is that many factors are contributing to rising electricity rates, especially the rapid increases that households and businesses have experienced over the last five years. But the various studies have overlooked a key factor: the changing mix of generating resources, as traditional fossil-fuel and nuclear plants have been replaced by wind and solar ones.

Between 2010 and 2024, U.S. generating capacity increased by about 200,000 megawatts (MW), or just over 16%, from about 1.14 million MW to 1.33 million MW. Over that same period, electricity sales increased only by about 5%. Basic economics suggests that increasing supply more than demand tends to lower prices. But the opposite happened.

Here’s why. Fossil and nuclear plants are “dispatchable” electric generating resources; they operate on known schedules and, in some cases, can be controlled by electric grid operators to ensure that the electricity supply always exactly meets demand. While nuclear and most coal plants typically run continuously, 24 hours a day, many natural gas plants, by contrast, can be quickly switched on and off.

Wind and solar generation, however, are not dispatchable; they run intermittently, only when the sun shines and the wind blows. That’s a problem because grid operators cannot count on wind and solar being available when needed and, consequently, more back-up generation—usually natural gas plants—must be available to step in.

Between 2010 and 2024, over 80,000 MW of dispatchable generation was retired. Over that same period, wind and solar generation increased by about 240,000 MW. Over the next two years, another 20,000 MW of dispatchable generation will retire, replaced by more wind, solar, and battery storage.

The loss of dispatchable generating capacity is due to at least three factors. First, some states have forced dispatchable generators to close prematurely, such as the Oyster Creek Nuclear plant in New Jersey, which was shuttered in 2019, and the Indian Point Nuclear Plant in New York, which closed in 2021. Second, many states have adopted “zero-emissions” mandates that are forcing their electric utilities to retire their coal and natural gas plants. Third, generous federal subsidies for wind and solar plants have distorted electricity markets. Oftentimes, there is so much wind and solar generation available that wholesale electric prices fall below zero, forcing unsubsidized generators that cannot shut off to actually pay to supply their electricity to the market. As the frequency of those below-zero price hours has increased, many generators have been retired because they are no longer profitable to operate.

But retiring dispatchable generation means that grid operators have fewer resources to call on when needed, electricity prices in capacity markets—which pay generators to be available when needed and penalize them if they are not available—have soared. For example, in its July 202X auction, the capacity market administered by PJM Interconnection—the grid operator that oversees 13 Mid-Atlantic states plus the District of Columbia and serves over 65 million people —market prices jumped almost tenfold, from $29/MW-day to $270/MW-day. In its July 2025 auction, prices rose still further to $329/MW-day and over $400/MW-day in the DC-Maryland region. These higher capacity market prices mean retail customers will pay billions of dollars more. Although it has been convenient to scapegoat PJM, that organization doesn’t make policy; its mission is to keep the lights on.

The net-zero “grid-transformation” envisioned by wind and solar proponents will not occur if it results in unaffordable, unreliable electricity. That’s why data center owners are relying on nuclear, natural gas, and even coal generation to meet their growing electricity requirements. If wind-solar-battery systems were a less costly alternative, they would undoubtedly rely on those.

As electricity costs take larger bites out of people’s wallets, policymakers must confront the physical and economic limitations of a “green” electric grid. And soon.

Jonathan Lesser is a Senior Fellow with the National Center for Energy Analytics. His new report, “What’s Driving Higher Retail Electric Rates?” was just released.

This article was originally published by RealClearEnergy and made available via RealClearWire.