The price of electricity is impacted by a lot of factors. Depending on where you live, the source(s) of your electricity vary. This means that the prices can vary based on a series of factors that are very hard to see, and may seem completely disconnected from your daily life.
Here are some factors that can affect the price of electricity in your area:
The price of natural gas
More Americans get their electricity from natural gas than from any other individual source. Roughly 34% of American electric plants burn natural gas to create electricity, meaning that natural gas prices can impact the cost of electricity. This can have a seasonal impact, as natural gas becomes less available in the winter months when more of it is used for home heating, and is more available in the summer when heating is not necessary.
Because of regulations in how and when gas is collected and treated, much of the cost of natural gas is fairly consistent, so differences in gas prices only cause a small change in electric prices. Also, the natural gas and other fossil fuels are heavily subsidized by the federal government to help keep prices from rising too suddenly.
The price of coal
Coal is the second-most common source of electricity in the US, as it is the source of 30% of US electricity.
Coal prices can fluctuate based on a wide range of factors, including US environmental policy, international markets, and the prices and availability of other sources of electricity. In 2021 the price has fluctuated more wildly than any time in the past decade.
The price of nuclear energy
Nuclear energy is a sustainable and steadily-priced source of US electricity. Roughly 20% of American electricity comes from nuclear power plants. Because of their heavy regulation, the prices are very steady and output is determined and not exposed to changes in the market.
Renewable electrical sources
According to the EPA, roughly 15% of American electricity comes from renewable sources of electricity. Like the oil industry, the renewable industry is subsidized by the federal government, and it looks as if these subsidies will be expanded over the next decade if the Build Back Better reconciliation plan is passed in the Senate this month.
Because renewables are, well, renewable, the primary costs are upfront, and then the costs drop off dramatically.
In short, much of the inflation we might be seeing as the economy opens and expands might be reflected in the energy market, but that depends largely on the source of your electricity.
Photo by Zbynek Burival on Unsplash