Pricing & Markets

As many consumers and ratepayers know, the price of energy fluctuates with organic, market-driven demand, but also speculation, infrastructural and supply chain bottlenecks, and regional and temporal scarcity. Examples of pricing and cost fluctuations can be found with fossil fuel commodities, notably petroleum products and natural gas, but also grid electricity. Market speculation, particularly in futures, can drive up spot prices and new contracts for petroleum and natural gas, as scarcity is perceived in future markets.

Reductions in production volumes for oil can also lead to higher prices, as has been the case with political disturbances in oil-producing economies as well as politically-motivated embargoes. Similarly, supply gluts and falling demand can dramatically reduce market prices. For example, both factors affected plummeting natural gas prices in North America in the past few years as shale gas production increased and demand fell in a recessionary economy. Damaged or inactive refinery capacities can also affect petroleum product pricing down the supply chain, as has occurred in the US following the closure and debilitation of refineries along the Gulf Coast following natural disasters.

Similar to commodity supply chains, disturbances in transmission and distribution (T&D) infrastructure and lower available capacities for energy transmission can increase prices in spot, day-ahead and contract electricity. Similarly, premiums are paid for renewable energy electricity due to higher generation costs and regulatory mechanisms like feed-in tariffs (FIT). Fuel costs can also drive up prices for electricity, particularly with gas turbines. Seasonal and daily demand spikes or load peaks greatly increase prices or rates for electricity.