The US Bureau of Labor Statistics published the latest Consumer Price Index (CPI) report on June 10, covering inflation rates from May 2022. US inflation reached 8.6% in the 12-month period between May 2021 and May 2022, which represents another 40-year record. The energy sector has suffered the highest price hikes, with a 34.6% increase in the CPI.
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Electricity and fossil fuels have both increased in price, and this has a direct impact on building energy bills and transportation costs. However, homeowners and businesses can now rely on several technologies to reduce their dependence on external energy sources, mitigating the impact of high inflation.
- Energy efficient devices such as LED bulbs and variable refrigerant flow HVAC systems can reduce consumption directly.
- Renewable generation systems can be deployed onsite, reducing electricity consumption from the grid.
- Onsite generation can be combined with electric vehicle chargers, giving building occupants a transportation option that is independent from gas stations.
When there is high inflation in the energy sector, homes and businesses who are fully dependent on gas stations and utility services suffer the most. However, this also means that energy efficiency and renewable generation are now offering a better return on investment.
Breaking Down Energy Prices in the Latest US Inflation Report
As you can see in the US BLS website, energy prices in general have increased by 34.6% between May 2021 and May 2022. However, not all energy products and services have been affected equally.
- Energy commodities are up by 50.3%, and this includes fuel oil (+106.7%) and all types of gasoline (+48.7%).
- Energy services are up by 16.2%, and this includes electricity (+12.0%) and piped natural gas (+30.2%).
Considering only May 2022, there was a 3.9% increase in the energy price index: 4.5% in the case of commodities, and 3.0% for services. Gasoline suffered a 4.1% price hike, and fuel oil suffered a drastic increase of 16.9% in a single month. Electricity prices were up by 1.3%, while piped natural gas prices were up by 8.0%.
In general, energy commodities have been affected more than energy services, and fossil fuels for direct consumption have been affected more than electricity. For a building owner, the increase in energy costs will depend on the sources used. If you compare a building using an oil boiler with a building using an electric heat pump, you will most likely find that heating costs have increased more in the first property.
In the case of gasoline and diesel, price increases have been driven by international oil markets. According to the latest data from the US Energy Information Administration (April 2022), crude oil accounts for 60% of the price of a gasoline gallon, and 49% of the price of a diesel gallon. The rest of the price is divided among refining, distribution, marketing and taxes.
Avoiding Inflation with Energy Efficiency and Renewable Generation
When building owners are fully dependent on utility services, and occupants use traditional gas cars, they suffer the full impact of high-inflation periods like the current one. However, a building can become more resilient with a combination of energy efficiency measures and onsite generation. Owners can also encourage the use of electric vehicles by installing DC fast chargers, which take an EV battery to around 60-80% charge in as little as 15 minutes.
Renewable generation not only offers electricity savings, but also predictable costs over time. For example, the annual maintenance cost of a solar PV array is typically around 0.50% of upfront costs, and it can last for more than 25 years. This contrasts with electricity and gas tariffs, which are impossible to predict over such a long period.
Energy retrofits and renewable generation systems often qualify for low-interest loans and other financial incentives. You can replace unpredictable energy bills with fixed loan payments, which are often much lower than the savings achieved. Depending on the type of energy upgrade and its eligibility for incentives, it may even be possible to complete the project at zero net cost. By getting a professional energy audit and project design, you can make sure your building qualifies for all incentives available.