What Inflation Rate Should I Use for the Cost of Electricity? How Much Does Electricity Go Up Each Year?

Unfortunately you can’t just set a budget once and use it for years. The costs of budget items keep changing even if your usage stays the same. As we approach retirement, I keep trying to get a clearer picture of what our costs will be not just for year 1 but for 20-30 years, should we be so lucky. Recently, I decided to check into how much our cost for electricity has been going up each year above the so-called rate of inflation.

What Total Amount Do We Pay Per kWh for Electricity Including the Taxes, Surcharges and Other Costs?

In Ontario, we pay a high rate for home use of electricity. Partly that’s because we’re still paying off all sorts of costs related to setting up and maintaining our nuclear reactors, shutting down our coal-fired generating stations, and paying huge amounts per kWh to people who set up solar arrays.

I took a look at our annual total spending on electricity divided by our total annual usage to see what our historical annual charge per kWh has been.

Year    $/kW         % Change

2015    0.156         6
2014    0.147         7
2013    0.137         7
2012    0.129       24
2011    0.103        -3
2010    0.107      -10
2009    0.119         8
2008    0.111        -6
2007    0.118      -21
2006    0.149         8
2005    0.138         9
2004    0.127         7
2003    0.119      -13
2002    0.137       22
2001    0.112

What Percentage Did Our Electricity Costs Go Up Per Year for the Past 10 Years?

If you look at the chart above, you’ll see it jumps around a lot. That’s because some of the rates were before “time of use” billing. And some years we used less or more electricity depending on the weather. And various government incentives and penalties came on and off.

You can see it’s going to be very difficult to pick a number to use for our rate of inflation. Some years our hydro rate per kWh actually decreased substantially, even though our usage has been fairly constant. That’s because this rate includes all those “non-variable” costs like delivery charges and debt retirement fees.

For planning purposes, I’m going to use 7% for the annual rate of increase in hydro costs. It’s probably wrong but I have to use something!

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Join In
What do you use to estimate the increase in the cost of electricity per year in your budget? Have you ever had to cut from other budget categories because your hydro costs rose faster than you expected? Please share your experiences with a comment.

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