Your small business may be feeling the effects of rising energy costs in 2025. Higher utility rates combined with temperature extremes that lead to increased air conditioner and heater use are causing noticeable energy cost increases for many businesses. If you have tight margins, dealing with the slightest uptick in your energy bill can be challenging.
You may be wondering what is behind these rising costs. Aging infrastructure, shifting energy policies, climate change and general inflation all affect what you pay as a business or residential user. Understanding what’s driving energy prices can help you adapt and better manage these costs.
Did the cost of electricity go up in 2025?
Yes, the cost of electricity is increasing this year for many small businesses. Government projections put electricity price increases between 2022 and 2025 at 13%. Upward pressure on prices is partly driven by growing demand — U.S. commercial electricity consumption is expected to grow by 3% in 2025 and by 5% in 2026. The predicted increases vary by region.
Competitive markets that have been deregulated are likely to have more stable prices, but every market will be affected.
Why are energy prices increasing in 2025?
A combination of factors is putting upward pressure on energy prices. These include:
- Energy-hungry innovations
- Weather disruptions
- Infrastructure issues
- Global instability
Increased demand due to data centers, EV charging and more
Technology innovations are causing electricity demand to surge. The rise of AI and cloud computing in data centers is creating an unprecedented energy demand. Building use for commercial computing is projected to rise faster than any other end use. Individual computing-related activity in small businesses is also on the rise. Add in widespread adoption of EVs and the need for commercial and at-home charging stations.
Rising capacity costs
The PJM Interconnection, which serves Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia, holds capacity auctions each year to ensure there will be enough supply to meet energy demand at peak hours. Because of the increase in demand, capacity prices are projected to cause energy bills that are 29% higher.
These increased prices send signals to the market that encourage investment in new power plants and energy resources to meet the PJM region’s growing demand.
Extreme heat and weather disasters
Intense weather, from storms to high heat and bitter cold, is also putting strain on power grids. These climate-driven price pressures are affecting energy markets. You may see steep price increases and more price volatility in your energy costs.
For example, the New England grid operator issued an alert and activated emergency measures when temperatures soared above 100 degrees this year. That caused prices to top $1,500 per MWh in some places. In California, wildfires destroyed transmission infrastructure and impacted generation. Utilities cut power to prevent sparking that could further spread forest fires, which impacted the grid.
Infrastructure upgrades
Improving and modernizing the electrical grid is vital for providing a reliable and efficient power supply to residential and commercial customers. However, the cost of building and maintaining the power grid to meet demand, especially at peak times, is rising sharply. Demand is growing faster than capacity, and utilities are scrambling to build the infrastructure to meet that demand.
In addition to replacing aging transmission lines, transformers and substation infrastructure, utilities are adding smart-grid AI technologies. These help predict and prevent outages by metering and monitoring the system.
Unstable natural gas prices
Natural gas still powers many power plants, so the price of electricity tracks with the ups and downs of the natural gas market. Foreign demand is high, driving the growth of natural gas exports. That means supply is tightening in the U.S.
The natural gas market is also subject to weather-driven price spikes. Interruptions due to hurricanes and demand spikes around heat waves cause higher natural gas prices.
The government predicts wholesale natural gas prices to increase from about $2.20/MMBtu in 2024 to $3.70 MMBtu in 2025 and $4.40 MMBtu in 2026. Higher natural gas prices mean it costs more to generate electricity. Unless you’re on a fixed-rate plan, you may see unpredictable electricity bills, and your business may need to absorb the sudden price increases.
What 2025 energy prices mean for your business
Small businesses in 2025 and beyond are facing a changing energy landscape. You can expect climate-driven volatility, rising demand that strains the grid and unstable fuel markets.
Predicting energy prices with confidence is more challenging now. However, you can learn more about what factors influence your small business’s energy costs and also get the specifics as to how your small business’s energy pricing is determined.
Here’s how energy volatility can affect your small business:
- Unpredictable costs and expenses. Wild swings in electricity rates make planning tough, but you should still learn how to estimate utility costs for a small business.
- Challenges forecasting budgets. Because forecasting your budget is much harder when prices are volatile, add a cushion for energy pricing ups and downs.
- Difficulty planning operations. If your business is heavily reliant on electricity, it may be worth changing production and operation schedules to times of the day when energy demand is lower.
- Changing customer spending. High energy prices can also affect your customers. When customers experience high energy bills, they may reduce spending, cutting into your sales.
How to keep your energy costs manageable
Lowering your business’s energy costs is a smart way to increase its efficiency and profitability. You can protect your margins and be ready for unexpected cost increases if you decrease your small business energy consumption and find ways to lower your small business utility bills.
Here are the best ways to do this:
- Lock in your energy rate. The easiest way to fight volatility is to lock in your electric and natural gas rates. Find out if your utility offers fixed-rate energy plans.
- Switch your energy plan or provider. If your business is located in a retail electricity market, learn how to shop for an energy plan and how to choose an energy supplier. You may save money by finding the supplier with a plan that best fits your business.
- Purchase energy-efficient appliances and equipment. If you’ve been thinking of upgrading, now is a good time to invest in energy-efficient office equipment. You may find that the savings from ENERGY STAR® devices that use less electricity will quickly cover their purchase price.
- Share energy-saving practices with employees. Being mindful of your business’s energy use habits can help curb waste. If you can get employees engaged in energy-saving practices, you can capture savings that add up over time, no matter what happens in the power markets.
- Explore incentive programs and tax credits. Your business may qualify for programs that make energy-efficient upgrades more affordable. Check the Database of State Incentives for Renewables & Efficiency (DSIRE). Local utilities and government programs are also worth looking into. You may be able to deduct $5.81 per square foot of a commercial building you own by making certain efficiency improvements. Tax incentives designed for homeowners may also apply to your business, and you may be eligible for clean-energy investment tax credits.
Instead of just wondering why energy prices are increasing, take steps to cut usage and find the most cost-effective options. Explore and compare small business energy options in your market to take control, despite energy price volatility.