Home/Articles/Are energy costs expected to rise this winter?
Since 1999, the US Energy Information Administration (EIA) has released a Winter Fuels Outlook report forecasting the expected change in winter heating bills for residential households across the country. This year’s report predicts a higher-than-normal rise in total energy expenses per household due to rising retail energy prices and a slightly colder than average winter.
The forecast expects the second biggest annual increase in heating costs across all fuel types in eight years, only surpassed by 2021, without accounting for inflation.
However, after adjusting for energy inflation rates, the real rate of change for energy costs drops, particularly for propane and electricity, which decreased since last year.
While natural gas remains the cheapest energy source for heat, the prevalence and cost of other home heating fuels vary by state and region. Household heating expenditures on heating oils such as kerosene, which are most common in the Northeastern states, are more than double the cost of natural gas.
Along with its baseline forecast of energy prices, the Winter Fuel Outlook gives a range of potential prices for each fuel source depending on whether the winter is warmer or colder than expected.
A supplemental report from the EIA estimates that 27% of residential households are energy insecure, meaning they may not have the ability to meet basic household energy needs. Those households are more likely to endure the brunt of high energy prices this winter.
How much are heating costs for households expected to increase?
The EIA measures this winter season to be between Oct. 1, 2022, and March 31, 2023.
The Winter Fuels Outlook relies on multiple data sources to create its forecast, including prices for each measured fuel source, consumption rates by households, and weather forecasts. As a result, many of the predictions made in the outlook are subject to change.
Costs for natural gas, which generates heat for more than 46% of all US households, are expected to rise by 9% from last winter to $931, after adjusting for the energy inflation rate.
The average cost to heat a home using natural gas last winter was $852, representing a $79 increase between years after adjusting for inflation. Natural gas remains the cheapest heating fuel option measured by the EIA.
The cost of electricity, which serves as the primary heating source for roughly 40% of all US households, is forecasted to drop by 6% to $1,359 for this winter.
About 4% of US households use propane for winter heating. The cost of propane is projected to drop between winters by 13% to $1,668.
Approximately 4% of US households rely on heating oil as their primary source of heat during the winter, mainly concentrated in the Northeastern and Midwestern regions of the country. Heating oil, which has become the most expensive source of heat in the past several years, is projected to rise by 8% from last winter to $2,354, a $167 increase.
Other fuel sources used by the remaining 5% of the population include wood, solar energy, coal, or “other fuels.” Just over 1% of US households don’t use fuel during the winter months.
The Northeastern states also have the highest average household expenditures for all heating fuels due to lower winter temperatures and high rates of energy consumption during the winter months.
The price of natural gas is 13% higher and the consumption of gas for heating purposes is 12% higher in the Northeast compared with the nationwide average. A similar trend follows for both electricity and propane costs.
How might energy costs change depending on the weather?
The EIA gives a range of prices based on whether winter temperatures are either 10% colder or 10% warmer than predicted by National Oceanographic and Atmospheric Administration forecasts. This range shows how volatile energy prices are for each fuel type.
If this winter is 10% colder than predicted, prices for both heating oil and propane are expected to increase by the largest amount, largely due to limited inventories for both fuel types.
The prices for natural gas and electricity are expected to increase by $165 and $123, respectively, with a colder than expected winter.
Conversely, if winter temperatures are warmer than expected, fuel prices should drop.
If this winter is warmer than expected, the projected household costs for propane decrease by 17% compared to the initial outlook. Meanwhile, the cost for natural gas and electricity drops by $69 and $22, respectively.
How many US households are energy insecure?
According to the 2020 Residential Energy Consumption Survey (RECS) conducted by the EIA, 27% of all US households are energy insecure. This amounts to an estimated 33 million households that are potentially impacted by energy problems throughout the year.
Households are considered energy insecure if they are forgoing food or medicine to pay energy bills, keeping the home at an unsafe or unhealthy temperature, using broken heating or cooling equipment, or heat or air conditioning sources being disconnected due to nonpayment issues.
Mississippi had the highest rate of energy insecurity in the country at 40% of all households, followed by West Virginia at 37% and Arkansas at 36%.
In contrast, Vermont had the lowest rate of energy insecure households at 15%, followed by both Nebraska and Minnesota at 17%.
Household energy consumption rates are estimated using the Residential Energy Consumption Survey as a baseline for each region of the country. Weather forecasts and potential temperature fluctuations in each region of the country are provided by NOAA. Additionally, the various prices attributed to each fuel source are pulled from a variety of factors including market spot prices, regulations, physical infrastructure, and nationwide energy inventories.