Electricity Prices Are Up in New York. What Are the Drivers?

The blog in brief:

• Electricity prices have risen quickly over the last year and are expected to outpace U.S. inflation in coming years, according to the Energy Information Administration (EIA)’s analysis: U.S. electricity prices continue steady increase. 
• New technologies like air source heat pumps and electric vehicles are contributing to increasing demand for electricity, driving up prices. 
• Data centers are an increasing contributor to greater demand for electricity.
• A lack of new supply to serve rising demand is also impacting consumer costs. 

According to EIA, retail electricity prices have increased by 4.3% over the past year alone—outpacing the rate of inflation for all goods and services—and are projected to climb another 2% by 2026.

Understanding the drivers behind recent increases is essential for making informed decisions about energy use, future policy changes, and grid investments. And it’s also important to understand how wholesale and retail markets operate, and what New Yorkers can expect in the months ahead.

Short-term factors: Extreme weather, gas constraints

This past summer, electricity prices surged, naturally leaving consumers with questions about what is behind the recent increase. But the causes of higher prices are not the result of a single factor and due, rather, to the interplay of macroeconomic conditions, infrastructure supply chain challenges, and policy-driven transitions.

One of the primary elements in determining electricity prices is the cost of fuels used to generate power, particularly natural gas. In New York, gas-fired generators often set what’s known as the market-clearing price, meaning their costs of production heavily influence overall electricity prices. During winter months, natural gas prices tend to rise due to increased heating demand, which can push electricity prices higher even when electricity usage is lower.

Although renewable energy sources like wind, solar, and hydro have lower operating costs and are prioritized when available, fossil fuel-based generation remains necessary to meet demand reliably.

According to recent data by the EIA, in the first half of 2025 natural gas prices averaged $3.66/MMBtu – a 67% increase over 2024. The EIA forecasts that prices will peak at $4.60/MMBtu in January 2026 due to increased winter demand and rising LNG exports.

Long-term pressures: Shrinking supply, rising demand

Demand for electricity also plays a significant role. When demand is low, cheaper and more efficient generators can meet the need, resulting in lower prices. However, during periods of high demand, especially in summer, older, less efficient and more expensive generators are called upon to meet consumer needs, which also can drive supply prices up. The NYISO’s 2025 Load & Capacity Data Report Gold Book forecasts that annual electricity usage in New York will rise by more than 16% over the next decade, indicating that demand pressures will continue to influence prices.

New York’s aggressive push toward electrification—through widespread adoption of heat pumps and electric vehicles (EVs)—is also reshaping the state’s energy demand profile. As part of its climate goals, the state aims to electrify 60% of residential heating systems and put over 6 million EVs on the road by 2040. These technologies, while essential for decarbonization, are significantly increasing electricity consumption, especially during peak periods. NYISO forecasts show that this shift is transforming New York from a summer-peaking to a winter-peaking system, as electric heating loads surge during colder months. Without strategic planning and flexible demand solutions, such as off-peak EV charging and smart heat pump controls, the grid could face reliability challenges and even higher infrastructure costs.

In the future, New York is projected to see surge in electricity demand driven by the rapid expansion of semiconductor manufacturing and new data centers, particularly those supporting artificial intelligence and cloud computing. Massive projects like the proposed $6.3 billion Stream U.S. Data Center at the STAMP industrial site in Genesee County and a $1.5 billion facility in Niagara Falls are just the beginning of a broader trend. These facilities, which can house thousands of servers operating around the clock, require enormous amounts of power – some approaching 500 to 1,000 megawatts (MW), enough to power hundreds of thousands of homes.

Upward pressure on electricity prices is also due in part to a tightening supply of available generation resources. As older fossil-fuel plants retire and new energy projects struggle to come online fast enough, the grid is experiencing a narrowing margin between available and required resources. As highlighted in NYISO’s Power Trends 2025 report, 4,315 MW of capacity have left the system while only 2,274 MW have been added since 2019. Of the 106 projects that have completed the interconnection process over the last six years, the NYISO estimates that just seven, representing 3,493 MW, have begun construction.

Supply chain constraints further exacerbate supply pressures. Delays in obtaining components for power plants, transformers, and renewable energy equipment can reduce generation capacity or slow the deployment of lower-cost resources. 

According to Power Trends 2025, this thinning supply cushion is especially concerning during peak demand periods, when reliability risks increase and wholesale prices spike. Surging demand, from electrification and data center growth drives up prices and prompts calls for accelerated investment in new resources.

Breaking down the electric bill

While the NYISO does not set electricity prices, we administer the wholesale markets where electricity is bought and sold and make sure all market participants are operating according to the governing rules and regulations. We also manage transmission congestion on the electric system by balancing supply and consumer demand, which can mitigate higher prices and maintain reliability.

The markets we administer are competitive and transparent, designed to select the lowest-cost resources first, which requires power generators to compete to supply electricity, helping to drive costs down. The goal is to ensure that the least-cost resources are used to efficiently meet demand while maintaining grid reliability.

Retail electricity prices, which consumers see on their bills, are also rising due to infrastructure investments and regulatory requirements. Utilities are investing heavily to upgrade aging infrastructure, expand transmission capacity, and modernize the grid to support New York’s clean energy goals under the Climate Leadership and Community Protection Act, signed into law in 2019. While such upgrades are essential for long-term reliability and sustainability, they result in short-term cost increases that are passed on to consumers through higher rates on retail electric bills.

In conclusion, rising electricity prices in New York are the result of several interconnected factors of a modern economy and a grid in transition. Fuel cost volatility, increasing demand due to economic development and new technologies, infrastructure upgrades, and supply chain challenges are all contributing to higher costs.