Understanding the Factors Behind the Increase in Energy Costs

The demand for energy approaching this winter was volatile and below the 5-year average for natural gas in storage, causing prices to rise. This article will examine the reasons behind the increase in energy costs and discuss steps businesses can take to address this issue.

Several factors can contribute to rising energy prices. Here are five key considerations:

1. Fuel costs: The price of the raw materials used to generate electricity or power vehicles can fluctuate significantly. For example, the price of crude oil, natural gas, and coal can all impact the cost of energy.
2. Infrastructure: Building and maintaining energy infrastructures, such as power plants, pipelines, and transmission lines, can be costly. These expenses can be passed on to consumers through higher energy prices.
3. Government regulations: Governments can regulate energy prices through taxes, subsidies, and other policies. For example, if a government imposes a carbon tax on fossil fuels, the cost of energy produced using these fuels will likely increase.
4. Natural disasters: Natural disasters, such as hurricanes, earthquakes, and wildfires, can disrupt energy production and distribution, leading to temporary price increases.
5. Market dynamics: Energy prices are also influenced by supply and demand in the market. If energy demand is high and supply is limited, prices may rise. Conversely, prices may fall if supply is abundant and demand is low. Today, natural gas storage is in line with the 5-year average, according to the EIA Weekly Natural Gas Storage Report.

All organizations must manage their energy costs to maintain financial stability and remain competitive. Energy expenses make up a significant portion of many budgets, so it is essential to ensure that you receive the best possible energy prices. However, it can be challenging to determine the most cost-effective energy options without a thorough understanding of energy procurement and commodity markets. While locking in at the lowest price may seem like the best choice, it is equally important to make sure your energy bills are accurate and billed according to the rules, regulations, and tariffs.

It is important to note that energy prices have decreased as we closed out 2022 and entered 2023.  Tenurgy’s energy consultants have expertise in regulatory changes and energy market trends and can help you navigate the energy landscape and identify the best suppliers for your business. We can also assist with budgeting, forecasting, and energy bill reviews to ensure you make informed decisions about your energy costs. Contact us to learn more about how an energy consultant can benefit your business. We’ve helped hundreds of companies throughout multiple industries optimize their energy costs and bring money back in the door.