Energy management is a complex series of activities, from making sure that you choose the right retail energy provider to optimizing your lighting and HVAC options. One thing that you may have noticed is the propensity for these prices to fluctuate, leaving you subject to dealing with variations in your fixed costs from month to month. Whether it’s your electric bill or the price of natural gas, it would be nice to have a reasonable amount of consistency, or at least understand why these prices can’t just stay the same. Here are some of the tips from our energy management company on how you can understand energy pricing (and what to do about it).
High Supply + Low Demand = Lower Prices
It’s just a basic economic principle that high supply and low demand creates a condition that tends to drive prices down. For this reason, energy suppliers are making a certain amount of effort to not produce more electricity than they will be able to sell. Surplus electricity becomes something that they end up having to sell at wholesale prices to the highest bidder. Due to the auction-like nature of these energy sales, it’s a market that fluctuates constantly, even on a daily basis.
What to do about it
Buy your electricity from a retail energy supplier who can make sure that you are always getting the best prices when an energy surplus creates low prices. Your local utility company might not pass these savings on to you, but the right retail energy supplier will. It’s how they do business.
Low Supply + High Demand = Higher Prices
When supply is low and demand is high, purchasers are willing to spend more to ensure that they get a share of the scarce—but needed—energy. For instance, in the summer, people go on vacation, and the surge in driving creates a seasonal increase in gasoline demand. In the autumn, that demand drops again. This seasonal fluctuation will cause futures traders to purchase or sell barrels of oil in anticipation of what they can predict the market will do next.
What to do about it
To some extent, you will be subject to the driving forces of the market, but there are ways to insulate yourself from high electricity prices. Going solar is one option that can allow you to harvest your own energy from the sun rather than depending on the utility companies to generate electricity from finite natural resources, such as fossil fuels.
Supply and Demand Aren’t The Only Players In Energy Prices
Supply and demand are major economic forces that drive the price of oil, but these factors by themselves aren’t enough to explain the volatility of oil prices. Supply and demand are relatively inelastic, because it’s difficult to adjust the production of oil in the short run, and there are long lead times between production and sale of the finished product. There are a number of other factors that also contribute to the volatility of oil prices, such as speculation, OPEC decisions, fluctuations in oil investment, and the development of new techniques, such as fracking.
Energy prices are unpredictable, but saving money doesn’t have to be
It’s important for you to have reliable ways to save money on energy, and that’s why the helpful energy management consultants are here for you. Contact us today to get in touch with your consultant and start saving money.