What is price volatility?
Price volatility describes how quickly or widely prices can change. In the energy industry this refers to electricity and/or natural gas supply prices, relative to consumer demand.
What causes price volatility?
Energy prices fluctuate based on changes in supply and demand. When energy supply increases, prices tend to go down and when there is a shortage, prices go up. When demand for energy increases, prices increase and when it decreases, prices tend to fall.
The following factors impact supply and demand and contribute to price volatility:
Extreme weather conditions - Extreme hot or cold temperatures will increase energy demand, driving costs up. Likewise, extreme weather conditions such as hurricanes can disrupt supply and also elevate costs.
- Growing economies with increased infrastructure demands drive up energy demand and costs. Poorly performing economies often result in reduced demand and lower costs.
Availability of supply
- The majority of the energy we use is generated from fossil fuels such as coal and natural gas. This is generally the cheapest form of energy generation. When there is a shortage of these fossil fuels, other more expensive forms of energy generation will need to be used resulting in higher energy prices.
How do different energy products help control price volatility?
Variable rate plans mirror market rates. As such, customers on these plans are exposed to market price volatility. A variable rate plan is ideal when rates are relatively stable or expected to decrease.
Fixed rate plans offer customers a set rate for their commodity supply over a period of time. These plans provide protection from market price volatility as your rate is fixed and not affected by changes in commodity prices.
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What does the market look like today?
Commodity supply prices differ by region and face their own market conditions, production challenges and transportation methods. Click here to learn more about the prices we offer in your in your region.