How Energy Market Trends Affect Energy Procurement, Pricing and Risk Management
On the heels of the 2008 Global Economic Crisis, much of the country enjoyed falling prices for electricity and natural gas. The low-cost energy anomaly was largely driven by very weak demand from a slow economy, combined with dramatic growth in the domestic supply of natural shale gas. For many companies, this offered a welcome spot of relief in their third- or fourth-largest business operating expense.
After hitting decade lows in early 2012, spot and futures prices for both wholesale electricity and natural gas have climbed steadily in all US regions as economic recovery and rising use of natural gas for electric generation have begun to take up the slack. Through 2016, significant shifts in regional energy fundamentals will drive new price dynamics that bear close attention.
As of mid-2013, the overall outlook for U.S. average retail electricity price increases is a relatively mild 2% to 4% ($0.003 to $0.004/kWh [kilowatt hour]) from 2012 to 2013, continuing into 2014. However, that prognosis masks regional issues that will drive some sites to a year-over-year increase of as much as $0.01 to $0.015 per kWh where capacity prices, grid congestion, deregulated contracts or regulated fuel cost pass-throughs allow retail prices to move more abruptly.