Energy Transition

For electrification to accelerate, electricity must remain affordable – and prices in 2024 remained stable, albeit high after a large rise in 2022.

Sales of electrification technologies like electric vehicles and heat pumps continued their decade-long rise. While EVs made up one-fifth of total car sales, heat pumps accounted for 57% of new space heating installations in 2024.

Grid modernisation is essential for maintaining supply security and presents a key infrastructure investment opportunity. As more renewables come online, a more interconnected grid and increased cross-border electricity trade could help stabilize prices, allowing high-cost regions to benefit from lower-cost power elsewhere. While intrastate electricity trade remains limited today, plans for greater grid integration are beginning to take shape.

Electricity prices remain steady

Affordable electricity is not only a key driver of economic growth but also a critical enabler of electrification.

Wholesale prices were lower and less volatile in 2024 than the year before. This was mostly driven by low natural gas prices, increased generation from some lower cost renewable energy sources and new battery storage capacity.

Retail electricity prices increased by 3.0% in 2024, in line with economywide inflation, although commercial prices rose 2.1% and industrial prices rose only 1.4%. Prices have steadied after a 10% rise in 2022, triggered by a surge in fossil fuel prices following Russia’s invasion of Ukraine, although they remain higher than pre-war levels. 

There is no evident correlation between the share of electricity generated from wind and solar and overall electricity prices. However, some states with high wind and solar penetration – such as Iowa, South Dakota and Kansas – have some of the lowest electricity prices in the country. 

Conversely, higher electricity costs in states such as California and Massachusetts are influenced by factors including reliance on expensive imported fossil fuels, aging infrastructure and natural disaster damage. These elements play a more significant role in determining electricity prices than the level of wind and solar uptake. 

Electrification has plateaued for a decade, but there are signs it will pick up again soon

Electricity currently accounts for approximately 18% of total energy demand in the United States. While the share of electricity in the energy mix grew steadily for much of the 20th century, the pace of electrification began to slow in the 1990s and has remained stagnant since 2008.

However, there are emerging signs that electrification is about to accelerate again. The rapid adoption of electric vehicles and heat pumps is expected to drive renewed growth in electricity’s share of energy consumption. 

Electric vehicle sales continue to rise

Electric vehicle (EV) car sales in the United States are gaining momentum, setting the stage for a broader shift in road transport electrification. Sales translate into stock turnover, which leads to the electrification of passenger cars — and eventually the entire road transport sector. Road transport currently accounts for 23% of total energy consumption in the US, according to the EIA.

In 2024, electrified vehicles (xEVs) made up 20% of all new car sales, with battery electric vehicles (BEVs) comprising 9%. Sales of pure internal combustion engine (ICE) vehicles are declining since their peak over seven years ago and are continuing to fall as xEVs have absorbed virtually all of the post-COVID rebound in the auto market.

BEV sales growth slowed to 8% in 2024 after exceptionally rapid expansion from 2021 to 2023, when annual growth exceeded 50% per annum. Meanwhile, plug-ins and hybrid electric vehicles sales continued to rise sharply, growing by 31% in 2024. 

Heat pumps continue to outsell gas furnaces

Heat pump sales are rising rapidly, accelerating the electrification of low-temperature heating in buildings and industries, which together account for about 20% of total US energy demand according to NREL. As old systems are replaced, heat pumps are steadily displacing fossil-fuel-based heating, reshaping the U.S. heating market.

In 2021, heat pump sales overtook gas furnaces for the first time – a turning point in the transition away from fossil fuels. Gas furnace sales peaked that same year and have been in structural decline ever since. In 2024, heat pumps accounted for 57% of new space heating installations, growing by 2.3 percentage points from 2023.

This shift is the continuation of an upward trend for heat pumps that began in 2013. After over a decade of growth, heat pump sales continue to surge.

Electricity trade between states remains limited

The US electricity market is primarily composed of regional grids, with many states largely self-sufficient in their power generation. Despite the potential for interregional trade, electricity flows between states have remained relatively stable over the past few decades, with only a handful of states undergoing notable shifts. That will likely change in the coming years.

The latest data on interstate trade shows limited reliance on imports, with only seven states importing more than 20% of their electricity demand in 2023. Most of them had below-average wind and solar shares, including Delaware at the top (7.5% vs. 15.5% nationwide), followed by Maryland, Virginia and Tennessee. In contrast, states with high wind and solar have not relied much on imports to balance supply and demand, partly due to growing battery storage managing fluctuations in renewable generation. 

There were 17 states exporting more than 20% of their demand, most with below-average wind and solar. New Hampshire, which had the highest exports relative to its demand also had less than 5% wind and solar. Since the 1990s, the rise of wind and solar has helped transform three states – Oklahoma, South Dakota, and Iowa – from net importers to net exporters.

Enhanced transmission links are essential to not only support the efficient integration of low-cost solar and wind, but to improve overall security of supply and resilience, especially in a world of rising electricity demand. The US grid is one of the oldest grids in the world, with more than half of its infrastructure over 20 years old, and has been experiencing rising outages. The ongoing grid transformation presents a substantial investment opportunity and the US has the potential to leapfrog from one of the oldest to one of the most modern grids globally. This transition could unlock numerous benefits, including higher efficiency, lower system costs and improved reliability.

Several major grid expansion projects were proposed in 2024 to modernize US transmission infrastructure and integrate more renewable energy. Key initiatives backed by the Department of Energy include the Aroostook, Cimarron Link, Southern Spirit and Southline projects, along with Nevada’s Greenlink West and North lines. Collectively, these projects aim to improve grid reliability and unlock gigawatts of cheap renewable capacity to supply demand centers with elevated prices.