Electricity Prices on the Rise and the Factors Affecting it
If you’ve kept a close eye on your facility’s energy bills over the past few years, you may have noticed a disturbing trend. If it seems that the cost of your building’s electricity has been seeing incremental increases, then you are not alone. Electricity prices across the country are rising – and unfortunately, this trend does not seem to be losing steam.
In fact, many of these cost changes may be permanent. Varying factors include gas pipeline constraints, reductions in nuclear and coal power and an increase in renewable energy to the grid. Fortunately, thermal energy storage can help companies offset these rising utility costs.
Lack of natural gas contributing to rate spikes
One of the major contributors toward the change in business electricity prices is the rising popularity of natural gas. The Los Angeles Times pointed out that environmental regulations updated by the government led to a rapid shift toward natural gas as energy companies decommissioned coal-burning plants. As a result, the price of energy is now tied more closely to the price of natural gas, a resource with far more price volatility than coal.
Additionally, the uptake of natural gas as a means of generating electricity has put extra logistical strain on power companies – including challenges experienced last year due to the polar vortex. In January 2014, coal piles froze and natural gas went scare resulting in a fifth of all power-generating capacity in the PJM Interconnection going offline. (PJM is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia. See if you’re affected). As the costs of wholesale electricity shot up 40 times the normal rate due to the energy shortage during the polar vortex, escalated energy costs were passed along to customers.
Renewable mandates have come with electric sticker shock
Statewide renewable energy mandates have been passed by nearly 30 states, and this green legislation has contributed to the higher cost of electricity as well. According to the Wall Street Journal, some states are even considering a repeal of their renewable energy mandates because the cost of integrating the technology has proven higher than originally expected.
Having on-sites renewables won’t reduce the utility’s capacity charges either, which can make up the majority of the utility bill in the heat of summer. Even with solar panels installed, companies will need power from the grid when the sun is not shining. When the time of grid connection coincides with peak demand periods or coincident peak days, customers are assessed significant capacity charges. In certain regions, these charges are also ratcheted, meaning the charges are applied to the utility bill for an entire year. As a result, commercial buildings with PV installed will need a means of countering the unambiguous rise in energy costs.
Thermal energy storage can help offset rising utility charges
There are two main ways to combat the rising energy costs. First, you can use less energy. Second, store energy at night when it’s the least expensive. Thermal energy storage helps with the latter by storing cooling—the main contributor to peak energy usage in the summer. By freezing water into ice at night and using that ice to cool the building during the day, facilities incorporating thermal energy storage are able to dramatically reduce electrical usage when the resource is at its most expensive and thereby offset rate increases.
Many factors influence electricity prices
Electricity prices generally reflect the costs to build, finance, maintain, and operate power plants and the electricity grid (the complex system of power transmission and distribution lines). Some for-profit utilities also include a return for owners and shareholders in their prices.
There are several key factors that influence the price of electricity:
Fuels—Fuel costs can vary based on the per unit cost, such as dollars per ton for coal or thousand cubic feet for natural gas, and the relative cost, in dollars per million British thermal unit equivalent. Energy generators with relatively high fuel costs tend to be used most during periods of high demand.
Power plants—Each power plant has construction, maintenance, and operating costs
Transmission and distribution system—Maintaining and using the transmission system to deliver electricity contributes to the cost of electricity.
Weather conditions—Rain and snow can provide water for low-cost hydropower generation. Extreme temperatures can increase the demand for electricity, especially for cooling. Severe weather can also damage power lines and add costs to maintain the electricity grid.
Regulations—In some states, prices are fully regulated by Public Service Commissions, while in other states there is a combination of unregulated prices (for generators) and regulated prices (for transmission and distribution).
Electricity prices are usually highest in the summer
The cost to supply electricity actually changes minute-by-minute. However, most consumers pay rates based on the seasonal cost of electricity. Changes in prices generally reflect variations in electricity demand, availability of different generation sources, fuel costs, and power plant availability. Prices are usually highest in the summer when total demand is high and when more expensive generation is added to meet the increased demand.
Electricity prices vary by type of customer
Energy prices are usually highest for residential and commercial consumers because it costs more to distribute electricity to them. Industrial consumers use more electricity and can receive it at higher voltages, so it is more efficient and less expensive to supply electricity to these customers. The price of power to industrial customers is generally close to the wholesale price of electricity. To be sure you are getting the best rates for your consumption category use a business electricity prices comparison broker, as they are industry experts.