Do We Want Cheap Energy?

Why cheap, abundant energy is problematic—even if it's renewable.

Cheap energy sounds like an obvious win. Who wouldn’t want lower bills and extra cash? But there’s a hidden cost to cheap energy. When something is cheap, we waste it. We take it for granted. Sometimes, we use it in ways that are not just unnecessary but harmful.

Let's look at the pros and cons of cheap energy—not just in economic terms, but in how it shapes human behavior, industry, and the environment. Like any resource, energy is most valuable when its price reflects its real cost. Too cheap, and we abuse it. Too expensive, and we stifle progress. The question is what the cost of energy should be

Benefits of Cheap Energy

Cheap energy drives economic progress. Industry can run long hours and use more robotics and energy-heavy/labor-light processes, data centers can process more information, and households can spend less on energy and more on other stuff. Historically, affordable energy has fueled industrial revolutions, from coal-powered steam engines to modern electric grids.

Businesses benefit enormously from low energy costs. Steel mills, semiconductor fabs, and AI-driven data centers all rely on vast amounts of power. When electricity is cheap, production scales up, prices of goods fall, and industries thrive. Countries with abundant, inexpensive electricity (like Iceland, thanks to geothermal energy) attract energy-intensive industries, creating jobs and economic growth.

Energy is fundamental to modern life. Lower costs mean families can heat their homes in the winter and cool them in the summer without financial strain. Developing regions, where exosomatic energy is still a luxury, gain access to refrigeration, lighting, and communication technologies. Cheap energy lifts people out of poverty and expands access to modern amenities.

Problems with Cheap Energy

The Waste Problem

When something is cheap, we don’t value it. When it’s free, we don’t think about it at all.

Cheap energy encourages waste. Lights stay on in empty buildings, devices are left plugged in 24/7—and then there's Las Vegas. Large-scale industrial processes that might otherwise be optimized for efficiency instead consume power recklessly. Gasoline and diesel trucks are left running to keep the AC on while the driver shops at the store.

In many parts of the U.S., particularly in the South, electricity is cheap compared to Europe or Japan. As a result, air conditioning is often overused, with buildings and houses cooled to unnecessarily low temperatures, even in rooms that are unoccupied.

American vehicles are massive and inefficient because fuel is cheap. And people drive a lot and can afford long commutes for the same reason. The same is true for EVs. If electricity is cheap, drivers may not care as much for the efficiency of their EVs. A Hummer EV uses about triple the electricity of a Tesla Model 3 per mile.

Bitcoin mining operations cluster in regions with the cheapest electricity, using immense amounts of energy to solve cryptographic puzzles. If power were more expensive, these operations might be forced to innovate more for efficiency. Instead, they consume entire power plants worth of energy simply because they can afford to.

Unnecessary Uses

Cheap energy doesn’t just power useful things; it powers things that wouldn’t exist if electricity were more expensive. Cities are now littered with huge bright LED screens playing advertisements around the clock. If electricity were costly, we might still use static billboards or only illuminate them selectively. But since power is cheap, these digital distractions multiply.

The Mall of the Emirates in Dubai has an indoor ski slope, complete with artificial snow, inside a shopping mall—in the middle of a hot desert. This is possible because energy costs are heavily subsidized in the UAE. If electricity were expensive, maintaining a ski slope in a scorching climate would be economically unviable.

Or take household gadgets. Do we really need WiFi-connected egg trays, always-on voice assistants, smart refrigerators with built-in screens, or AI bathroom mirrors? The cheaper electricity gets, the more asinine things we find to use it for.

Environmental Consequences

Not all cheap electricity is clean. In many parts of the world, electricity is cheap because coal is cheap, and externalities are not paid for. Subsidies and outdated energy policies keep fossil fuels artificially affordable, leading to excessive pollution.

In 2023, governments – especially in emerging and developing economies – continued to heavily subsidise the use of fossil fuels, spending $620 billion. This amount is significantly above the $70 billion that was spent on support for consumer-facing clean energy investments including grants or rebates for electric vehicles, efficiency improvements or heat pumps. – IEA

Cheap power from dirty sources slows down the adoption of renewables by making them seem unnecessary or economically uncompetitive.

Many people believe that clean energy sources must be cheaper than fossil fuel sources. They think this is the primary consideration for deciding whether to switch to less polluting sources of energy. From an economic perspective, this is true because the economy ignores Earth's life support systems—clean air, clean water, fertile soil, biodiversity, the carbon cycle, etc. But if every new form of energy humanity uses must be cheaper than its predecessor, doesn't that mean electricity will just keep getting cheaper? Until it's free?

Even clean energy, when too cheap, can cause problems. Solar and wind power, for instance, sometimes produce electricity at near-zero marginal cost. In regions with an abundance of renewable energy, power prices can collapse to almost nothing during peak generation. This seems like a good thing—until it discourages investment in the energy storage and grid upgrades needed to make renewables more reliable. If electricity is too cheap, the incentive to improve the system disappears.

The Grid Problem

Cheap electricity often means neglected infrastructure. Power grids need constant maintenance, upgrades, and investment in resilience. When electricity prices are pushed artificially low, utilities may lack the funds to modernize transmission lines or protect against extreme weather. The result is more blackouts, aging grids, and a system vulnerable to failure when demand spikes.

Price vs Usage Examples

When fuel prices spike, people drive less, carpool more, and switch to public transportation. This was evident during the 2008 oil crisis, when high gas prices led to a decline in vehicle miles traveled in the U.S. and an increase in demand for fuel-efficient cars.

When natural gas prices surged in Europe after Russia’s invasion of Ukraine, electricity prices skyrocketed. As a result, many households and businesses reduced energy consumption by lowering thermostats, using appliances less, and switching to LED lighting.

Denmark has some of the highest electricity prices in the world due to taxes and incentives for renewables. This has driven widespread adoption of wind and solar power, as well as a culture of energy efficiency, with homes and businesses carefully managing electricity use.

After the Fukushima nuclear disaster in 2011, Japan shut down most of its nuclear reactors, leading to higher electricity prices. In response, the government promoted energy conservation efforts, with businesses and households reducing air conditioning, turning off unnecessary lights, and implementing energy-efficient technologies.

In the US, higher electricity prices don't necessarily lead to higher bills, since homeowners are incentivized to adopt energy-saving measures like insulation, efficient appliances, and programmed heating and cooling. As Hannah Ritchie pointed out in Sustainability by The Numbers, there is no correlation between energy source and electricity prices in US states, and homeowners in states with high electricity prices per kWh don't necessarily have lower electricity bills.

The US average residential electricity bill is $137/month at an average price of $0.16/kWh, and about 22% comes from renewables.

In California, the average residential electricity bill is $145/month at an average price of $0.30/kWh, and about 54% comes from renewables.

In Vermont, the average residential electricity bill is $117/month at an average price of $0.21/kWh, and nearly all of it comes from renewables.

Finding the Right Balance

As with any resource, high energy prices incentivize using less of it, and low energy prices incentivize finding ways to use more of it.

Expensive energy incentivizes innovating ways to make things and processes more efficient. That is, getting more of what we want with less energy. It also incentivizes less wasteful uses of energy, such as driving more efficient vehicles, not cooling homes when nobody is home, and air sealing and insulating houses better.

Since these practices reduce the demand for energy, they also tend to lower the price. And when energy becomes cheap, we figure out ways to use more of it. It's a classic case of Jevons Paradox, where improvements in the efficiency with which a resource is used often lead to increased, rather than decreased, consumption of that resource.

The dream of electricity being "too cheap to meter" would appear (hopefully) to be a fallacy.

The transition to cleaner renewable energy sources to power civilization most likely will not, and should not, come with the promise of extremely cheap energy. Who wants to see a world free of fossil fuels but entirely covered in wind turbines and solar panels? That's what a world of clean "too cheap to meter" energy could look like. The benefits of renewable energy are cleaner air, cleaner water, fewer toxins in soils, a more stable climate, and less overall pollution and disease—not lower bills.

Yes, we want cheap energy—but only under the right conditions. Cheap energy drives industry, raises living standards, and accelerates electrification. But when it’s too cheap, we waste it, misuse it, require more of it, and damage the very systems that provide it.

Questions for you:

• Should governments subsidize electricity to make it more affordable, or does this lead to unintended negative consequences?

• What’s the most pointless or wasteful use of energy you’ve seen? Would it exist if energy were more expensive or unsubsidized?

• What’s more important: making electricity as cheap as possible for everyone, or ensuring that it’s used efficiently and sustainably? Can we have both?

Resources:

International Energy Agency (IEA). (n.d.). Fossil fuel subsidies. Retrieved February 11, 2025, from https://www.iea.org/topics/fossil-fuel-subsidies

Environmental and Energy Study Institute (EESI). (n.d.). Fact sheet: Fossil fuel subsidies—A closer look at tax breaks and societal costs. Retrieved February 11, 2025, from https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subsidies-a-closer-look-at-tax-breaks-and-societal-costs

Ritchie, H. (n.d.). Data Explorer: US State-by-State Electricity Prices. Retrieved February 11, 2025, from https://hannahritchie.com/us-electricity-prices/

Ritchie, H. (n.d.). Data Explorer: US State-by-State Electricity Sources. Retrieved February 11, 2025, from https://hannahritchie.com/data-explorer-us-electricity/

Ritchie, H. (2023, June 15). Monthly electricity bills across US states. Retrieved February 11, 2025, from https://public.flourish.studio/visualisation/14132120/

Ritchie, H. (2025, February 11). Do US states with more renewable energy have more expensive electricity? Retrieved February 11, 2025, from https://www.sustainabilitybynumbers.com/p/us-states-electricity-sources-prices