For business people and citizens alike, energy prices are critical data points. Knowing how energy prices fluctuate can help you make better decisions and minimize the impact on your budget.
As the recent escalation of the conflict in the Middle East and the war in Ukraine have shown, geopolitical tensions are driving up energy prices significantly. This is not a fleeting factor; the resulting higher energy prices will persist for quite some time. This is the most severe price increase in recent years and highlights the well-known trilemma of the need to balance security of supply, access to clean energy, and affordable prices that allow economic growth and development.
Other sources of energy price volatility include extreme meteorological phenomena and climate change, which can disrupt the electricity network or create peaks in demand (e.g. air conditioning). The increasing availability of renewable energies also adds to the complexity of price developments as their production profiles often do not match or even overlap with the market demand profile.
In addition, the cost of electricity can vary based on location and regulatory policies. For example, areas that rely on imported energy will have higher costs than those with abundant local resources. Energy prices can also be affected by the amount of taxes and charges imposed. Having an understanding of the underlying factors that drive these price fluctuations can improve your negotiating skills and position in the marketplace. For instance, it’s important to know whether interest is included in total electricity costs.