The Price of Energy Explained

The price of energy is a hot topic right now. You may not realize the number of different factors that go into the cost of supplying your energy. Our blog explains those impact items as well as how and why the price is ever changing.

Factors that impact and make up energy costs

• Fuel Prices – Electricity is generated by processes that require energy supplied by fuels, such as natural gas. When the cost of fuel goes up or down, the cost of electricity does the same.
• Power Plant Expenses – The cost of operating and maintaining power plants is included in the price of the energy they generate.
• Transmission and Distribution Costs – Electricity is distributed over a system of power lines which need to be built and maintained. The cost of upkeep is another factor in your electric bill.
• Regulations – Regulatory rules vary by state. Some states have utility commissions, such as Public Utility Commission of Ohio (PUCO), which controls costs.
• Seasons and Weather – Depending on where you live, the seasons can impact the price of energy. Extreme heat and cold create greater demand for energy to heat and cool, which increases the cost. Likewise, extreme weather can work for or against the demand on the grid. For example, a heat wave can bring about full solar power availability and heavy winds turn wind turbines. However, rain and storms can also damage power plants and power lines, making energy costs go up.
• Consumer Location – The cost of local fuel and power plant availability also plays a part in the cost of electricity.
• Type of Energy Consumer – Because of the amount of electricity consumed, commercial customers usually pay less per kilowatt hour (kWh) than commercial and residential customers. This is because they can be supplied a larger amount of electricity at one time, making delivery and generation quicker and cheaper. It goes without saying that getting power to consumers who use smaller amounts takes more effort, time, and ultimately, money.

Other factors impacting the market

There are outside issues that impact the cost of the different factors we discussed above, which also raise or lower the cost of energy. As the world continues to recover from the impacts of the pandemic, you might be noticing significant changes to everyday expenses, including the cost of gas, food, construction materials and more due to supply chain issues and other factors such as the war in Ukraine.

These rising costs are affecting electricity, too. Natural gas and coal prices are higher than they’ve been in more than a decade and, as a result, monthly bills are increasing. In Ohio, customers have a choice as to who provides their electric supply generation. Customers can choose a competitive retail energy supplier (CRES) like AEP Energy to provide competitive fixed-price plans to protect their energy bills from fluctuating rates. Learn more about how switching works.

Globally, the natural gas supply has been tight due to the labor shortage resulting from the pandemic, and U.S. exports of liquid natural gas (LNG) have more than doubled compared to 2020 to help combat the current energy crisis in Europe. These increases in demand combined with diminished production are causing the price of electricity to go up. As the labor shortage recovers and production of natural gas and other fuels ramp back up, that portion of the cost should begin to decrease.

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