Electricity Pricing – What to Expect

Electricity prices are notoriously difficult to predict and are affected by factors such as weather, economic conditions, required investments in aging grid infrastructure, and resource availability. In the past several years, the economic recession stifled demand for electricity. At the same time, an abundance of natural gas resources available by new drilling techniques such as hydraulic fracturing (fracking) and horizontal drilling led to increased supply. Both of these factors contributed to a significant dip in overall wholesale energy prices in recent years. However, the general trend is that energy prices, like the prices of other goods, rise over time. In our grid region (called PJM), there is an added upward pressure on prices right now as a result of record high capacity charges to finance improvement to the regional grid (Learn more about Capacity Charges). This impacts everyone – even those selling wind power.

So what does it mean for your business?

1.) Choosing a fixed priced electricity contract – where the rate you pay per kwh is locked in for 1-3 years – can help with budgeting electricity costs, or you can go with a variable rate product to try to maximize savings.

2.) When your contract comes up for renewal, your renewal quote will be based on where current electricity prices are. If you are coming off a contract that started when the market was low (see the dips), you should expect rates to increase over time which means your renewal quote will likely  be higher. As shown in the graph below, electricity prices in this region increased steadily from 2002-2008 until the economic recession in 2008, when they took a deep dive. Price fluctuations from 2008-2012 were the result of the recession and the influx of natural gas resources. The EIA estimates that prices will increase in the future.