During periods of intense geomagnetic activity, strong electric fields and currents penetrate from the magnetosphere into the high‐latitude ionosphere, where they dissipate energy, form electrojets, and excite plasma instabilities in the E region ionosphere. These instabilities give rise to plasma turbulence which induces nonlinear currents and strong anomalous electron heating (AEH) as observed by radars. These two effects can increase the global ionospheric conductances. This paper analyzes the energy budget in the electrojet. Employing first principles, this paper proves for the general case an earlier conjecture that the source of energy for plasma turbulence and anomalous heating equals the work by external field on the nonlinear current. Using a two‐fluid model of an arbitrarily magnetized plasma and the quasi‐linear approximation, this paper describes the energy conversion process, calculates the partial sources of anomalous heating, and reconciles the apparent contradiction between the inherently 2‐D nonlinear current and the 3‐D nature of AEH.