Rising natural gas prices expected to drive up electricity costs: IEEFA

Wamsted said it’s becoming increasingly difficult for most U.S. electric utilities to avoid higher electricity rates as natural gas prices climb and federal support for renewable energy declines.

“I think this is where things are headed,” he said. “Electricity costs are going to rise for everyone. I don’t see a realistic way to prevent it.”

According to IEEFA, LNG exports consumed roughly half as much natural gas in March and April as the entire U.S. power sector. LNG exports are projected to increase by 84% over the next four years, yet domestic gas production has not kept up with demand. As producers pursue more profitable international markets, basic supply-and-demand economics suggest gas prices will continue to rise, Wamsted said.

Higher gas prices have already begun to shift the U.S. electricity mix. Gas-fired generation fell from 42% in 2024 to 40% by mid-2025 as utilities leaned more heavily on coal, solar, and hydropower, according to EIA data. However, Wamsted does not expect this shift toward coal to last. Many coal plants are aging out, and there is little interest in building new ones.

“They’re extremely expensive to construct,” he said. “And in most regulated markets, regulators would question whether a new coal plant would realistically operate for 40 years. In most cases, the answer would be no.”

Wamsted noted that U.S. gas prices have already proven highly sensitive to global events and LNG market dynamics. Prices surged following Russia’s invasion of Ukraine in 2022 and have fluctuated when major LNG facilities temporarily shut down.

To recover past fuel cost spikes, utilities have implemented rate case settlements that added fuel surcharges to customer bills — charges that are expected to persist for years. If future global disruptions or extreme winter weather cause additional gas price increases, overlapping surcharges could spark significant consumer backlash.

Wamsted said renewable energy — particularly paired with battery storage — offers the most promising path forward. Battery costs continue to fall, and storage systems can capture excess, low-cost solar energy, potentially delivering far more stable electricity prices than natural gas over time.

However, fully realizing the benefits of energy storage will require major upgrades to the U.S. power grid, which is already facing a significant interconnection backlog. At the same time, utilities must rapidly expand generation capacity to meet growing demand from AI data centers. As a result, Wamsted said, higher electricity prices appear unavoidable in the near future.