What Affects the Price of Energy?

The cost to generate electricity actually varies minute-by-minute. Throughout a single day, the wholesale price of electricity on the electric power grid1 reflects the real-time demand for electricity. Demand is usually highest in the afternoon and early evening when usage is at a peak (so called “on-peak” hours) which means prices are higher at these times. However, most consumers pay rates based on the seasonal average price of electricity so they do not experience these price fluctuations.

Energy production and use are sensitive to changes in the climate. For example, increasing temperatures will reduce consumption of energy for heating but increase energy used for cooling buildings. The implications of climate change for energy supply are less clear than for energy demand. Climate change effects on energy supply and demand will depend not only on climatic factors, but also on patterns of economic growth, land use, population growth and distribution, technological change and social and cultural trends that shape individual and institutional actions.

Energy use:

Changes in temperature due to climate change could affect our demand for energy. For example, rising air temperatures will likely lead to substantial increases in energy demand for air conditioning in most North American cities (IPCC, 2007). On the other hand, energy needed for space-heating may decrease. The net effects of these changes on energy production, use and utility bills, will vary by region and by season.

There may also be changes in energy consumed for other climate-sensitive processes, such as pumping water for irrigation in agriculture. Rising temperatures and associated increases in evaporation may increase energy needs for irrigation, particularly in dry regions across the Western U.S.

Depending on the magnitude of these possible energy consumption changes, it may be necessary to consider changes in energy supply or conservation practices to balance demand. Many other factors (e.g., population growth, economic growth, energy efficiency changes and technological change) will also affect the timing and size of future changes in the capacity of energy systems.