8 Key Factors That Impact Electricity Prices

 

As you watch the period increases in your bill year after year, you may be wondering what causes the change. The truth is that electricity is a complex commodity the same as natural gas or oil, and prices can continuously change, especially since they can also be influenced by something like global markets. 

 Besides flipping the switch to turn on your lights, there is a lot that goes into the process itself from the equipment that is used to generate your power to the delivery system. This means that there are a couple of different factors, both small and large, that could impact the price of the electricity you pay, even if you are charged based on the seasonal demand.

 Supply and their Costs

No matter the type of materials that are used to generate your electricity, such as nuclear, coal, or oil, it comes down to the supply and the price of that supply. As with any other commodity, the amount that is available for public use can vary from one day to the next, which will cause the prices to fluctuate along with it. Simply, the less supply there is, the higher the cost of the product will end up being.

 Equipment Costs

A power plant, unlike any other business, has costs associated with running it. All of the equipment and buildings need to be purchased and then maintained in order for the power plant to run efficiently and without interruption.

 This will include not only day to day running of the power plant, but the repairs that must be undertaken to ensure the supply of power is not interrupted. Such repairs could be as a result of the age of the equipment or parts, and possible damage due to external events such as inclement weather. 

 Distribution Costs

Before you are able to flip the switch and turn on the lights, the power plant needs to build and maintain a distribution system.  Though the initial cost of the setup may appear quite expensive, it is the maintenance and repairs of the system that cause prices to fluctuate.

 Weather

The weather has an enormous impact on our lives in general, but inclement weather does especially. Though there are situations where specific weather patterns may help such as rain or snow will help with hydropower generation, that is not always the case. Inclement weather such as subzero temperatures force more people to use already dwindling resources to heat their homes, and in turn, raising the prices.

 Seasons

Same as with the weather factor, the current season will determine the price for your electricity. The change here will not be as drastic as from one day to the next but may change as you go from more mild seasons such as spring or fall into summer or winter. The more brutal the temperatures, the more money it will take to generate enough power for everyone that will need it.

 Regulations

Every state has its own regulations that govern utilities where some may have utility commissions controlling the prices. These various regulations set down by committees could potentially alter the amount you end up paying for your utilities as a whole with electricity included.

 The reason for this price adjustment is that some regulations are more involved with the power plant and delivery system. Commissions that have been designed to oversee these utilities have the power to enforce any rules that could cover anything from safety to the product and its reliability. They could potentially have a hand in enforcing fines, which would raise the overall cost.

 Location

This factor may come as a surprise, but the location of your home will affect the price that you pay for your electricity. Location is a culmination of whether your state of residence has different regulations than others, whether you have all four seasons or if you live in an area with more extreme temperature fluctuations. The location will also determine the type of power supply your power plant uses and how much of this raw supply there is available.

 The location could also mean something as simple as the different types of cities you might be residing in. A city that is considered more industrialized will have their prices rise higher than any other because of the demand. An industrialized city will have a more dense population that will be in need of services more or less at the same time, causing a higher demand at a higher price. 

 Consumer Type

The price can also vary based on whether you are an industrial, commercial, or residential customer. In general, an industrial consumer is known for needing a larger delivery of power at one time. That fact alone will make the price a little less because the overall delivery of power ends up cheaper.

 Commercial and residential customers usually require a lower amount of power over a more prolonged period of time. In the end, this makes delivery and generation of power more expensive for those customers. Not only does it require more raw supply to transform into power, it requires more employees and maintenance of the power plant and delivery system.