What moves the Electricity Market?

Just like in the financial market place, electricity is driven by basic supply and demand principles. However, because electricity can’t be easily stored, the market can’t even out fluctuations by drawing down reserves, resulting in more frequent and dramatic price changes. 

The factors affecting the electricity market can be overwhelming. However, shifting conditions are also sources of opportunity for electricity shoppers. The cornerstones to developing a successful energy strategy are understanding the energy options available and your selection of a reliable energy consultant who can offer you good advice.

The Main Factors are:

• Seasons

Electricity generally follows a seasonal cycle, demand for electricity and ensuing prices rise during peak heating (winter) and cooling (summer) seasons and drop during transitional seasons (spring and autumn). The market is affected by a broad variety of factors. Changes in one of the following can intensify volatility and lead to dramatic price changes.

• Source Fuels

​Because source fuels like coal, natural gas, and petroleum account for 71.5% of electricity generated in the U.S. as well as heating and cooling, dramatic movement in source fuels also impacts the electricity market.

• Weather

​Weather is one of the most influential variables on the market place because it directly affects energy consumption (demand). Extreme weather such as hurricanes, floods, and blizzards also create periods of extreme price volatility, especially if they interrupt natural gas production facilities that provide source fuel for electricity generation (limiting supply) or damage electricity transmission and distribution infrastructure (reducing supply and limiting the flow of electricity).

• Geopolitical Events: 

Political unrest, war, hostage crisis or other events in regions that export natural resources can affect the energy market. The events typically impact the market immediately, which can affect short-term prices. Prolonged unrest will produce prolonged uncertainty, which can lead to wholesale market increases over the long-term.