Retail Electricity Rates under the Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 (IRA), released on Wednesday, July 27, 2022 by Sen. Schumer (D-NY) and Sen. Manchin (D-WV), contains an extensive set of provisions to promote clean energy technologies, facilitate domestic energy production, and address climate change. The proposed legislation contains many elements that have been considered and discussed in previous RFF analyses, See: https://www.rff.org/publications/journal-articles/supply-side-reforms-to-oil-and-gas-production-on-federal-lands-modeling-the-implications-for-co2-emissions-federal-revenues-and-leakage/ ; https://www.rff.org/publications/issue-briefs/cost-analysis-and-emissions-projections-under-power-sector-proposals-in-reconciliation/ ; https://www.rff.org/publications/issue-briefs/methane-fees-effects-on-natural-gas-prices-and-methane-leakage/. though the details have evolved.In light of the legislation’s title, a key question is how the energy and climate provisions will affect energy prices. To examine effects on the crucial electricity sector, RFF deployed the Haiku Electricity Market Model to project electricity retail rates for a range of potential scenarios that account for variability in future fuel prices, capital and technology costs, and uptake of specific provisions of the legislation.In this initial analysis, we find that under the legislation:Retail costs of electricity are expected to decline 5.2-6.7 percent over the next decade, saving electricity consumers $209-278 billion, given expected natural gas prices.The average household will experience approximately $170-$220 in annual savings from smaller electricity bills and reductions in the costs of goods and services over the next decade.Ratepayers are insulated from volatility in natural gas prices, with electricity rates projected to decrease even under a high natural gas price scenario.2030 electricity sector emissions are projected to drop to 69.8 percent to 74.9 percent below 2005 levels, compared to 48.5 percent below 2005 levels without the policy.