The following is my commentary on recent energy-related articles published in the Wall Street Journal on August 22nd (“Why Solar and Wind Power Can Thrive Without Subsidies” – by Jinjoo Lee) and in Barron’s on August 25th (“Electricity Prices Are Surging. How the Political Fallout Could Hit Companies, Too” – by Avi Salzman). Although they address different issues, the discussions reveal a profound misunderstanding of the economic drivers impacting electricity prices.
Electricity prices are driven by two components: (1) the cost to produce, transmit, and deliver electricity to customers; and (2) the amount of electricity produced and consumed.
Rising infrastructure costs are clearly driving higher electricity prices. However, contrary to the misconception that recent policy changes by President Trump are the cause, the real cause of the increases is decades of new infrastructure investment primarily focused on maximizing the addition of wind and solar generation. This includes the installed costs of the generators themselves (which are very capital intensive) and the transmission infrastructure (poles, towers, conductors, transformers, etc.) to move the power from the generators to load centers. Because many renewable projects are sited in remote areas, the latter costs are not trivial. The same size transformers, poles, towers, and conductors are required to support every megawatt of generation, regardless of the technology.
Thus, there are several cost drivers specific to renewable resources that have directly impacted electricity prices.
First, unlike dispatchable (nuclear, gas, coal) generation, wind and solar produce energy only when the wind is blowing and the sun is shining. Every megawatt of wind/solar nameplate capacity can produce 2,200 to 4,000 megawatt-hours per year. By contrast, dispatchable generation can produce up to 8,000 megawatt-hours — two to four times the amount of energy for every megawatt of nameplate capacity. Thus, the infrastructure costs supporting wind/solar generation come with prices that are two to four times the cost per megawatt-hour produced from dispatchable generation.
Recognizing these simple realities, it is clear that wind and solar generation will place more upward price pressure than electricity produced from dispatchable generation. But, that’s just the beginning.
Second, unlike dispatchable generation, wind and solar generation cannot supply electricity when it is most needed – during peak periods. A reliable grid depends on having sufficient firm or “accredited” capacity that is capable of meeting the expected peak demand of electricity consumers. In addition to meeting peak demand, the grid must also have a 15% to 25% reserve margin to account for outages and resource availability. However, only a small fraction (less than 20%) of wind and solar nameplate capacity is accredited. By contrast, between 75% and 95% of nameplate capacity for dispatchable generation is accredited. The problem is further exacerbated because grid managers have had to significantly raise their target reserve margins in response to the growing penetration of renewable resources. This has prompted utilities to procure additional (backup) capacity. This extra capacity further increases electricity prices.
All of these factors explain the fallacy of simplistic cost per kilowatt-hour comparisons between different generation technologies. These simplistic comparisons do not account for intermittency, low-capacity accreditations, the required infrastructure to support the full nameplate capacity, and the extra capacity required to back-up renewable resources while also providing additional reserves.
Third, unlike dispatchable generation, wind and solar have enjoyed generous tax subsidies for decades. These tax subsidies, which artificially lower the cost to produce energy, make dispatchable generation less cost-competitive. This is why Michigan is complaining about the high cost of keeping the Campbell coal plant in operation. Because of its clean energy mandates, Michigan utilities have been quickly adding renewable resources that make Campbell much less cost competitive. The impact of renewable mandates is to effectively “crowd-out” dispatchable generation making them appear more costly to operate and less cost-competitive to replace. As a consequence, these early retirements have reduced the amount of reliable capacity to the point that the grid is becoming unreliable.
Pro-renewable advocates will argue that dispatchable generation is more expensive because it is impacted by potential wide swings in commodity prices, especially natural gas, whereas renewable generation is fuel-cost free. They will also cite the swift phase-out of these subsidies as the driver for higher electricity prices. However, in some cases higher prices are temporary because production tax credits are temporary.
However, commodity prices have always been cyclical – sometimes rising, sometimes falling. But once a utility has invested in the generation and infrastructure to support wind/solar plants, these costs are fixed for the long term. This is why new infrastructure causes rising electricity prices. As more dispatchable generation is added, it should help to regain the economic advantage – by spreading the higher infrastructure costs over more megawatt-hours produced.
Contrary to many industry experts, the bottom line is:
- Wind and solar generation and the related infrastructure costs are the primary drivers of higher electricity prices. Further, the accelerated retirement of dispatchable generation has both tightened capacity reserves and made the grid more vulnerable to outages. Don’t take my word for it, the North American Electric Reliability Corporation (NERC) reached the same conclusion as reported in several of its recent long-term reliability assessments.
- Taking into account all of the costs required to support wind and solar generation, removing the generous tax credits will not make them cost-competitive with dispatchable generation.
Going forward, unmitigated load growth – particularly from data centers and hyper-scalers – is forcing utilities to grow by leaps and bounds. Utilities are not equipped to address such rapid growth. The demand for equipment has already strained supply chains, resulting in delayed/extended delivery times, thereby driving up equipment costs. This trend has not gone unnoticed, which is why many consumer groups are advocating for new rate design policies to insulate the impact of very rapid and large load growth on electricity prices.
In summary, or new meeting this growth will drive electricity prices even higher unless the hyper-scalers (which are in effect energy companies disguised as data centers) bring their own generating resources to the grid rate designs for very large loads are implemented, thereby alleviating the upward price pressures that electric utilities are experiencing.
Electricity Prices Are Surging. How the Political Fallout Could Hit Companies, Too.
By Avi Salzman
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Aug 25, 2025, 1:00 am EDT
Residential electricity rates have been climbing higher. (Brandon Bell/Getty Images)
Rising electricity prices are a growing problem for Americans, and a political problem for the Trump administration. Residential electricity rates have risen about 30% since 2021—and 5.5% in the past year alone, twice as fast as overall inflation in the same span. The Energy Information Administration projects that residential rates will rise by roughly 6% in 2026.
The fallout could be a problem for almost every player in the electricity ecosystem—from renewable energy developers like NextEra Energy, to power plant owners like Vistra, utilities like Duke Energy, and even natural gas producers like EQT.
All of those industries have benefited over the past couple of years from growing electricity use, particularly because of rising demand from AI data centers. But someone has to pay for all that new infrastructure to serve those plants—and some of the costs are already hitting consumers. The political backlash could curb the profits of the companies generating that power. States in the mid-Atlantic region, where prices are rising, have already advocated for the regional grid operator to make changes that will cap certain payments to power plant operators.
Renewable energy is the most exposed sector, because the companies are in the president’s crosshairs. President Donald Trump campaigned on cutting electricity prices in half—a goal that was never practically achievable and has only gotten more out of reach.
Lately, Trump has been blaming rising prices on renewable energy sources, such as wind turbines and solar panels. “Any State that has built and relied on WINDMILLS and SOLAR for power are seeing RECORD BREAKING INCREASES IN ELECTRICITY AND ENERGY COSTS,” he wrote on Truth Social last week, vowing to stop approving wind and solar projects. In particular, Trump wrote that New Jersey’s electricity rates are soaring because of wind turbines.
Trump’s claim doesn’t stand up to evidence: New Jersey has only six operating wind turbines, which collectively generate about 0.03% of the state’s electricity, according to the American Clean Power Association. Several other states that do depend on large amounts of renewables—such as Texas and Iowa—have relatively low electricity prices. And some states with low amounts of renewable resources, such as Connecticut, have very high electricity rates.
Trump is pushing an “energy culture war” that is disconnected from the reality of costs, says Tyson Slocum, director of Public Citizen’s energy program.
“He’s targeting wind and solar because he perceives those to be the favorite energy source of liberals and Democrats,” Slocum told Barron’s. “There’s no credible argument that they’re increasing costs.”
Consumer advocates like Slocum say Trump himself is to blame for some of the increases. His tariffs have raised costs for utilities, and will be passed on to consumers.
The Trump administration has added new costs for consumers by forcing power plant owners to keep old plants running even after they were scheduled to shut down, Slocum notes. The Department of Energy just extended an emergency order to keep a coal plant running in Michigan, and has mandated that an oil and gas plant in Pennsylvania also keep operating to bolster the electricity grid. The Michigan coal plant’s owner, which is a subsidiary of the publicly traded utility CMS Energy, has disclosed that the plant cost $29 million to operate for about five weeks, a cost that will have to be borne by ratepayers.
Michigan Attorney General Dana Nessel sued the Trump administration, saying the order was “an unlawful abuse of the Department’s emergency authority.” Nessel wrote that the state and the utility spent four years figuring out how to replace the coal plant with newer and more affordable electricity sources, and the emergency order was both unnecessary and expensive to consumers. A study by consultant Grid Strategies, funded by environmental groups including the Sierra Club, found that the administration’s plan to stop fossil fuel plants from closing could cost ratepayers $3.1 to $5.9 billion a year.
In response, Department of Energy spokesman Ben Dietderich wrote in a statement that the report was commissioned by “radical left environmentalists” and “is totally out of touch with reality.” He noted that grid operators have warned in recent years that shutting down power plants could cause reliability problems.
“The Department of Energy’s emergency authorizations have been essential in keeping the lights on and the cool air blowing during warm weather and the peak capacity events of this past summer,” he wrote.
The phase-down of solar and wind energy subsidies in the recently-passed Republican tax bill could also lead to higher prices for consumers. Solar power in particular is the largest source of new electricity generation—and wholesale prices are likely to rise after tax benefits are taken away.
Natural gas, the largest source of existing electricity generation, is expected to get more expensive as demand rises and the U.S. ships more gas overseas in liquefied form—and could send electricity prices higher.
Even if the U.S. figured out the perfect mix of renewables and fossil fuels to power the grid, that would only solve part of the problem. The biggest reason for utility rate increases in recent years has been the investments utilities are making in transmission and distribution, including the wires that send electricity from power plants to homes and businesses, according to Charles Hua, executive director of the nonprofit Powerlines, which is focused on regulatory reform in the electricity industry. A shortage of equipment like transformers could boost those costs even more.
Looking ahead, Hua thinks the cost of new electricity generation—like the natural gas plants that utilities are building for data centers—could become the largest driver of rate increases. There are ways to reduce the hit to consumer bills from all those plants, by pushing more of the costs onto the tech companies, for instance.
There are other possible solutions, too. In a recently-published paper, Tyler Norris, a Duke University fellow researching energy, argues that tech companies could reduce the need for more power by shutting down their data centers for just a few hours each year when electricity demand is highest. It’s an idea that is begun to gain traction among data center operators, and could reduce the strain on bills.
“It could bring down costs for everybody—the companies, the small businesses, the industrial and manufacturing plants, and you and I as regular consumers,” Hua told Barron’s.
Write to Avi Salzman at avi.salzman@barrons.com
Why Solar and Wind Power Can Thrive Without Subsidies
Rising electricity demand, in part due to AI needs, along with the increasing cost of alternatives should cushion the impact for green energy
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Aug. 22, 2025 7:00 am ET
Wind turbines and solar panels near Palm Springs, Calif. Photo: Mario Tama/Getty Images
The government delivered a shock to the renewable energy industry when it took away subsidies for solar and wind as part of the One Big Beautiful Bill Act. It’s a shock the industry can actually absorb—and maybe even benefit from in the long term.
The two main tax credits used by the wind and solar industries have been in place since 1992 and 2005, respectively. These have been kept alive through multiple extensions. But the latest tax-and-spending law cuts these tax credits short. Treasury Department guidance, released more than a week ago, also placed stricter guidelines on qualifying for these subsidies.
Yet this doesn’t portend doom and gloom for the industry. And that could mean investors might currently have an attractive entry point to the industry.
Stocks of renewable developers such as NextEra Energy and AES have underperformed the S&P 500 so far this year, and their valuations, based on their multiple of expected earnings, are cheaper than the trailing 10-year average. That is a stark contrast to nuclear and natural gas-heavy power producers such as Constellation Energy and Vistra, which are trading at steep premiums to their historical average and are up roughly 40% year to date.
Why isn’t the sky falling for wind and solar? First, they are no longer the nascent technologies they were when they started receiving subsidies. The two renewable sources have been cheap relative to natural gas-fired power without subsidies for at least a decade.
Utility-scale solar today is 84% cheaper than it was 16 years ago; onshore wind costs have come down 56% over that period, according to Lazard. Even paired with battery storage, solar and wind remains cost competitive compared with natural gas, according to Lazard.
The tax credits were “so generous that there wasn’t as much pressure to minimize costs,” said Atin Jain, analyst at BloombergNEF. While equipment costs have declined dramatically for both solar and wind, other costs, such as labor and permitting, have been stickier, according to Jain. There may be opportunities for savings here and the phaseout of subsidies may cause companies to act.
Secondly, getting rid of a complicated form of subsidy might simplify renewable investments going forward—perhaps even opening them up to more investors. “No other major solar or wind market relies on any mechanism as complex and generous as the U.S. tax credits,” a BloombergNEF report noted.
Costs related to monetizing the incentives—hiring an “army of lawyers and project finance specialists”—would disappear with the end of tax credits, the report said.
The reliance on tax credits has led to a limited pool of institutions that can use or even understand them. That has given these investors the ability to add conditions on financing wind and solar that make the economics less appealing for the rest of the investors financing those assets.
Not having to rely on these types of investors would make financing a lot simpler, said Ray Spitzley, vice chairman at Morgan Stanley and co-head of the bank’s energy transition banking.
Most important, the removal of subsidies would bring more stability to an industry that has seen boom-and-bust cycles at the whims of Congress. Wind installations, for example, surged in 2012—the last year those projects were eligible for cash grants instead of tax credits—and then dropped off dramatically the following year.
Installations peaked again in 2020, when developers rushed to finish projects before the pending phaseout of tax credits in 2021. “The uncertainty related to that tax [credit] aspect just creates so much more headache than it’s worth for these investments,” according to an industry banker.
In the short term, of course, there will be some pain. Initially, there will be a glut of solar and wind developers rushing to find power purchasers before the deadline to qualify for subsidies, possibly creating a buyer’s market.
Not all will make it. BloombergNEF estimated that there would be 23% fewer new wind, solar and energy storage installations through 2030 than if the tax-and-spending bill hadn’t passed.
Longer-term, it looks like a seller’s market. Power demand is rising for the first time in a while. Artificial intelligence is one driver. So, too, is the broad shift from fossil fuels to electricity for things such as space and water heating and cars.
Meanwhile, competing energy sources also face obstacles. Nuclear power takes a prohibitively long time to build. And the cost of building a new gas-fired power plant is almost double what it was five years ago, according to Chris Seiple, vice chairman at Wood Mackenzie.
Skilled labor to build out natural gas-fired power has also been scarce. If the U.S. adds more capacity to export natural gas, as the Trump administration wants, that could put upward pressure on the price of the commodity going forward.
Speed is another benefit. Solar and battery storage can take 12 to 18 months to build; wind projects take about two years, according to Seiple. A combined-cycle natural gas power plant takes three to four years, he added.
There could be more turbulence ahead if the current administration places roadblocks on permitting for wind and solar. Ultimately, though, electricity is a scarce commodity, and getting scarcer.
Subsidies can become addictive. Now might actually be a good time to kick the habit.