Wind Energy FAQs: Electricity Unit Cost vs Bill Price

Cost of Electricity vs. Electricity Bills: Analysis by State

There is a tendency to assume that if a household has to pay more for each unit of electricity, then it will also have a higher electricity bill at the end of each month. In fact this is not the case.

As one might expect, there is a strong correlation between electricity use and the cost of electricity. However, and because the unit cost of electricity varies nationwide, the same correlation does not exist between electricity price and electricity bills.  The following scatter plot shows this relationship: for each of the ‘Lower 48’ states, it shows – for each state – the average electricity price paid by residential consumers on the horizontal axis and the average monthly residential power bill on the vertical axis.

The chart is quite ‘busy’ so a brief explanation may help.

We’ve labelled a few states to illustrate. The U.S. average residential electricity price is 12.9 cents per kilowatt hour (c/kWh) and the average monthly bill is $117.7 and there is substantial variation about this average. The most expensive power price in the Lower 48 is in Massachusetts (21.6 c/kWh) but the second-highest monthly power bill ($150.5) is paid by residential consumers in Alabama despite the fact that they pay less than the national average for their power (12.2 c/kWh). Homes in California have the fifth highest electricity cost in the nation (18.8 c/kWh) but pay significantly less than the national average in power bills. Massachusetts residents have to deal with the second highest electricity prices in the country (21.6 c/kWh) but pay monthly electricity bills that are significantly less than those in Tennessee, Mississippi and Alabama.

In short: there is no correlation between the unit price of electricity and the typical monthly residential electricity bill across states.

Looking to Europe: renewable energy critics frequently cite high power prices in Denmark and Germany – European leaders in renewable energy – as an argument against the greater uptake of renewables. In 2018, Denmark’s average household electricity consumption was 3.23 MWh (page 34 of the Danish Energy Agencies ‘2018 Energy Statistics‘) and they paid an average of €0.29/kWh or, at current exchange rates, 33.9 c/kWh. In other words, the average Danish residential electricity bill was $91.2/month which is significantly less than the US average of $118. In Germany, the the corresponding figure is €80.6 monthly or $94.3. Once again, this is significantly less than the US average.

Of course one might argue that a higher electricity price tends to depress economic activity. However, as the following scatter plot of average residential electricity price vs. per capita GDP (by state) shows, no such relationship exists. In fact, the opposite applies.

Although the relationship is only weak, the data indicates that states with a higher electricity price tend to have higher per capita GDP.