Why energy prices change

How Often Do Energy Rates Change? 

The process of generating and delivering electricity involves many costs, and the kilowatt-hour price is constantly changing as a result. You can lock your rate for some time by getting a fixed rate electricity plan, but otherwise there will always be variation. By understanding the factors that affect kWh prices, you can make better decisions to reduce your power bills.

Electricity price changes can be described based on their timeframe: there are daily, seasonal and yearly changes. Depending on the timescale you are using to analyze kWh rates, the changes can be attributed to different factors.

Texas has a wholesale electricity market where the kWh price is determined by supply and demand, based on the rules established by ERCOT (Electric Reliability Council of Texas).

  • When the Texas power grid experiences a high demand, the price is increased to incentive production. The maximum price allowed is $9,000 per megawatt-hour, which is equivalent to $9 per kWh.
  • On the other hand, when there is surplus production, electricity prices are decreased to incentive consumption.

How Electricity Prices Change Throughout the Day

Electricity consumption is constantly increasing and decreasing. Consumption from the residential sector normally reaches its highest point in the evening, when the population is returning home and using electrical appliances. High consumption also occurs in the early morning when occupants have just woken up. However, the evening demand peak tends to be higher due to lighting loads.

The business sector has a different energy consumption behavior. Electricity usage in commercial buildings depends on the type of business and schedule, while some industrial sectors may consume electricity 24/7.

Homeowners must deal with the highest electricity prices in the evening, and that is when energy conservation pays off the most. Household chores that use electricity have a lower cost if they are performed away from the evening hours, due to the kWh price difference. If you have an electric water heater, turn it off during the evening and use the hot water stored in the tank. 

Since lighting is necessary in the evening, LED lamps are strongly recommended: they consume 30-40% less energy than compact fluorescent lights, and over 80% less energy than incandescent and halogens. You should focus on replacing the lamps that are used every day, since an LED bulb that is rarely used saves little energy.

Seasonal Variations in Electricity Prices

Electricity consumption not only changes throughout the day, and there are also seasonal variations. For example, air conditioning is used during summer, while space heating is used during winter. Most air conditioners are electrical, while most space heaters are fired by natural gas. For this reason, electricity consumption is generally higher during summer.

The electricity price changes throughout the day, regardless of the season. However, the peak prices that occur during summer are the highest of the year due to air conditioning loads. Electricity consumption patterns change depending on the type of building. However, any property that uses air conditioning can expect a high consumption on the hottest summer days.

  • Air conditioning is necessary on hot days, but its operating cost can be reduced by improving efficiency. Energy consultants recommend adequate insulation, airtight construction, high-efficiency AC equipment, and smart temperature controls.
  • Air conditioning is the largest load during summer, but all electrical consumption is billed at high prices during peak demand hours. Therefore, all energy efficiency measures are effective, not only those that focus on air conditioning.

Are Electricity Prices Changed Every Year?

If you compare electricity prices for the same month on several consecutive years, you will notice there are changes. While the US average kWh price has been steadily increasing over time, Texas has experienced both rising prices and falling prices over the past two decades.

Price inflation affects all business sectors, including the power industry. However, electricity prices depend on many other factors.

Population growth and economic development also affect electricity prices, since power companies must invest in new infrastructure to serve the growing load. Power lines and transformers must have enough capacity to serve all the consumers connected to the grid, and the corresponding upgrades are reflected as price increases.

Energy efficiency can help stabilize electricity prices in the long run. If buildings are consuming less electricity, the power grid has more spare capacity. As a result, expensive grid upgrades can be avoided or delayed.