Have you ever considered the correlation between your gas and electric bills? As the cost to heat your home rises, so do your electricity rates. Why is this? It’s all about supply and demand.
Let’s go back to your high school economic class for a moment (as much as you may not want to). Consider the supply and demand model you probably saw there. The law of supply is the idea for any given market price, a producer will supply a certain quantity, and as this price increases, producers are willing to supply more. Conversely, the law of demand states that for any given market price, consumers will demand a certain quantity, and as this price increases, consumers demand less. In any market, there is a supply curve and a demand curve. Where these curves intersect is the equilibrium market price, and is where the price for any good is determined.
Okay, back to the real world.
During the spring and fall, the days get a little warmer, so you can turn off your furnace, and open the windows. In turn, you’re using less natural gas to heat your home, electricity prices are lower. When more natural gas is demanded, and the supply remains the same, electricity prices will increase due to the market conditions. When we are using less natural gas to heat our homes, in times when temperatures are milder, electricity prices are lowered.
Think about during the summer when it’s a really hot day, and you’re blasting you’re A/C just to cool down. Many of your neighbors are doing the same exact thing. The whole market for electricity is suffering from an increase in demand from a preference to cool down. How does the market support this? By using more natural gas, to then produce enough electricity to sustain the demand. Consequently, natural gas prices go up.
This change in market conditions affecting supply and demand of energy is: input costs. During peak grid hours, natural gas generation is the marginal fuel, also known as the price determinant. Simply stated, natural gas is the input used to satisfy the grid’s peak energy demands. A higher input cost means a higher price at any given quantity supplied. Since natural gas is the marginal fuel input during peak grid hours, the direction of natural gas is one of the most important determinants for electricity rates.
When you are perusing the marketplace for electricity suppliers, pay close attention to the price of natural gas. Try to remember that when the price of natural gas rises, the price of electricity will soon follow.
Matthew Faulkner
BidURenergy, Inc.
Let’s go back to your high school economic class for a moment (as much as you may not want to). Consider the supply and demand model you probably saw there. The law of supply is the idea for any given market price, a producer will supply a certain quantity, and as this price increases, producers are willing to supply more. Conversely, the law of demand states that for any given market price, consumers will demand a certain quantity, and as this price increases, consumers demand less. In any market, there is a supply curve and a demand curve. Where these curves intersect is the equilibrium market price, and is where the price for any good is determined.
Okay, back to the real world.
During the spring and fall, the days get a little warmer, so you can turn off your furnace, and open the windows. In turn, you’re using less natural gas to heat your home, electricity prices are lower. When more natural gas is demanded, and the supply remains the same, electricity prices will increase due to the market conditions. When we are using less natural gas to heat our homes, in times when temperatures are milder, electricity prices are lowered.
Think about during the summer when it’s a really hot day, and you’re blasting you’re A/C just to cool down. Many of your neighbors are doing the same exact thing. The whole market for electricity is suffering from an increase in demand from a preference to cool down. How does the market support this? By using more natural gas, to then produce enough electricity to sustain the demand. Consequently, natural gas prices go up.
This change in market conditions affecting supply and demand of energy is: input costs. During peak grid hours, natural gas generation is the marginal fuel, also known as the price determinant. Simply stated, natural gas is the input used to satisfy the grid’s peak energy demands. A higher input cost means a higher price at any given quantity supplied. Since natural gas is the marginal fuel input during peak grid hours, the direction of natural gas is one of the most important determinants for electricity rates.
When you are perusing the marketplace for electricity suppliers, pay close attention to the price of natural gas. Try to remember that when the price of natural gas rises, the price of electricity will soon follow.
Matthew Faulkner
BidURenergy, Inc.
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