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What Factors Affect Prices In The Energy Market?

Written By: Warm Thoughts Communications on January 11, 2021

energy market changes new englandIf you’ve been responsible for paying for electricity or natural gas at your place of residence—or for your commercial operation—you’ve probably noticed that the price you pay can vary from year to year (or even bill to bill)—and sometimes that variance can be pretty substantial. Have you ever taken a second to wonder why exactly that is? Well, in short, it’s because the cost of energy depends on a number of factors that are in constant motion.

The good news is that with a better grasp on the factors that impact the energy market, you’ll be able to make smarter decisions and better preparations for your home or business. Let’s take a look at some of those factors now.

Factors That Influence The Cost Of Energy

The cost of energy is determined by a number of factors that weave together to form a complex and unpredictable mix. The three most important of these factors include the following:

Electricity And Natural Gas Dynamics

In addition to the larger price drivers mentioned above, some factors more specific to each form of energy can also have an impact. Here are other elements to consider when you need to take in the big picture of energy market dynamics.

Electricity: Because electricity must be generated and consumed at the same time, electricity pricing can fluctuate dramatically during extreme weather conditions. This is not as common with natural gas, since it can be produced during low-demand periods and stored for later use (see natural gas section below).

Much more common and predictable, however (and more useful for you to know about as a consumer), are seasonal patterns that the markets tend to follow. For example, summer heat drives an increased use of air conditioners for a sizable swath of the United States, which raises demand for electricity (and therefore, prices). During winter, the need for heat rises, and with it rises the demand for electricity (and natural gas—more on that below). Increases in demand usually translate to price spikes. Conversely, prices tend to drop during periods of lower demand, that is, when weather is moderate during the fall and spring.

Another important pricing dynamic to consider is timing of energy use. Utilities tend to charge “peak” and “off-peak” rates for power—the latter usually falling during nights and weekends, the former during weekdays and business hours.

Natural Gas: Natural gas prices also tend to follow seasonal, demand-driven trends. However, because natural gas production can meet or exceed demand in all but the peak heating months, and because natural gas can be stored and used later (unlike electricity), pricing swings tend to be less extreme with natural gas.

One thing to consider with natural gas pricing is that it can be affected by market and production expectations. So if less gas is held in reserve than what was forecast, it can drive up the price. (The price can also deflate if there is a surplus of supply on hand, compared to predictions.) For example, during the polar vortex in January 2018, extreme cold depleted natural gas reserves, leading to soaring prices for this fuel.

Your Energy Bill: The Bottom Line

While you can’t predict every condition that will impact energy markets, knowing the rhythms of the seasons will help you prepare and budget for peak seasons before they arrive.

The fluctuations also point to the importance of pricing plans in managing your energy bills: If you don’t want to ride the roller coaster of market rates, for example, you can choose to lock in your energy rates for a few months—or even a few years!

Right now, Discount Power offers exactly that. By enrolling in a Price Protection Plan, you can lock in a 12-month fixed rate up to 11% lower than your current utility’s higher price! * You’ll enjoy price certainty and flexibility—with no termination fees—and you can cancel or change your plan at any time. Plus, enrollment in select plans can get you a $50 Visa digital gift card reward once your service begins!

When it comes to choosing an energy provider, choices matter. With Discount Power, you get to have it your way! Whether you want to lock in your rate for electricity or natural gas, or pay market prices as you go, there’s a plan for you. Contact us today to learn more, or skip the intro and enroll online with Discount Power today!

*Savings based on MA National Grid’s current supply rate effective from 11/1/20 – 4/30/21.

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