Price volatility

Most people are aware that market prices move due to buying and selling. Electricity and natural gas markets are no different as these commodities are capable of being bought, sold and traded. There are however many factors that play key roles in the supply and demand for electricity and natural gas that lead to markets that can have quick price changes over large ranges.

The most obvious contributor to fluctuations is the supply of the commodity. The major sources of energy in the U.S. are natural gas, coal, nuclear and renewables. The market will demand the cheapest form of energy, but when supply is short, more expensive alternatives close the gap and with more expensive supply options come higher energy prices.

The economy also plays a role in the price of electricity and natural gas. Generally, when an economy grows, there is more demand for energy, leading to higher prices and when economic growth slows or shrinks, demand also decreases, leading to lower prices.

The last major factor that effects energy prices is the weather. Weather is the most surprising contributor in the price of energy at first glance, but plays a significant role in supply and demand for electricity and natural gas. Extreme temperatures, unusual seasonal weather conditions and majors storms like hurricanes can very quickly increase or decrease the supply and demand for energy.

This volatility is a main reason why taking control of your energy future is so important. If a market is stable or heading down, choosing an energy plan that is market based will allow you to benefit from these conditions. This does however come with risk as conditions can change in as little as a single day and a market based plan exposes you to this volatility.  The other alternative is a fixed rate plan. These plans fix the commodity price for a specified period of time allowing you to avoid market volatility.