Why do energy prices change so much?

Energy prices can be quite volatile, and several factors affect the fluctuating costs.

1.       Wholesale Energy Prices: The biggest reason for variations in energy costs is the wholesale price of gas. The economics of its supply and demand creates the fluctuation as well as geopolitical events, and changes in production capacity. For instance, a worldwide squeeze on energy supplies, a cold winter, or a windless summer can impact gas prices significantly.

2.       Supply and Demand: There are two factors here

a)       Gas Storage Shortages: Europe has limited gas storage facilities and so in high demand, the prices may spike and the need to use liquid gas (which is more expensive) further exacerbates price volatility.

b)      Most economies are still recovering from the effects of the pandemic and businesses may not be back to pre-COVID rates of operation. Therefore there is a continued increase in demand for energy and if there a supply issue then prices can surge.

3.       Energy Price Cap: In Britain, the Energy Price Cap, which was introduced during 2019 provides a regulated maximum price suppliers can charge consumers. It is reviewed every three months and if prices are to change, this is announced beforehand so that  notice can be given. Therefore there can be a time lag and the energy unit prices are still higher than before the pandemic. Read more about this here

4.       Increases in Standing Charges: Whilst the Energy Price Cap restricts the maximum per unit pricing, it has no influence on the monthly standing charge that a supplier can charge. Therefore, even if you reduce your power consumption, it is likely that some costs could continue to rise.

Shopping around for the best tariff is essential in today’s market. With smart technology, one way that solar panels and battery storage can help is that you can ‘time shift’ your energy to consume power from the grid at the time of day when your provider if offering a cheaper rate. We can offer you free advice to help you get the best out of your system. Contact us today for more information.