Electricity Rate Inflation and Solar ROI: What the Trend Actually Shows

Solar proposals often bake in 3??% annual rate escalation. The EIA historical average is closer to 2.3%. That gap moves the 25-year savings figure by 20??0%.

Rate escalation is real. The disagreement is how fast. We look at EIA historical data, explain the difference between nominal and real rate increases, and show how the assumption changes payback math.

Key takeaways

undefined should be judged with conservative payback assumptions, not a single optimistic quote number.

Check the strongest assumption against public sources, current rates, and the homeowner's bill context.

Use the next-step links to compare rankings, rerun the calculator, and verify the methodology before treating the estimate as final.

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Electricity rates rise ??slowly, inconsistently, and differently by state

From 2003 to 2023, the national average residential electricity rate rose from about 8.7Â¢/kWh to 16.2Â¢/kWh (EIA). That is a 2.9% compound annual growth rate ??but not every state follows the national average, and the trajectory has had multi-year flat periods and sharp spike years.

Solar proposals that use 3.5% or 5% annual escalation are not lying ??rates probably will be higher in 25 years. But the assumption inflates the savings projection meaningfully, and homeowners should know how sensitive the number is to that assumption.

What EIA historical data actually shows

EIA publishes monthly average retail electricity prices by sector and state. Looking at residential rates over the past 20 years nationally: the 2003??023 compound annual growth rate is approximately 2.9% nominal. Adjust for CPI inflation and the real rate increase is closer to 0.3??.5%/yr. In real dollars, electricity has barely gotten more expensive.

State variance makes the national average misleading

California's residential rates have grown faster than the national average, driven by utility infrastructure charges, wildfire liability costs, and grid upgrade investments. Pacific Gas & Electric rates increased roughly 60% from 2018 to 2023 alone ??that is an outlier, not a national baseline.

States like Texas and states with regulated coal-heavy utilities saw flat or minimal rate growth through 2022. If you are in a historically low-rate state, projecting 3??% annual increases in your solar payback model is optimistic.

How the escalation rate changes 25-year savings

For a system saving $2,000/year in year one, the cumulative savings over 25 years at different escalation rates:

Rate caps, restructuring, and deregulated markets

Regulated utility markets have rate caps requiring Public Utility Commission approval for increases. Deregulated markets (parts of Texas, Illinois, Ohio) have market-rate electricity where prices can move more sharply in either direction. If you are on a variable-rate plan, the rate escalation assumption in a solar proposal has extra uncertainty.

Community solar and fixed-rate utility plans add another layer: if you lock in a rate, your escalation exposure is reduced, which also reduces the option value of solar production.