This is a general guide for identifying broadly what might be causing the electricity prices to increase and decrease in different countries and States worldwide.
(We say broadly, because usually a detailed in depth assessment or study is required to uncover the specific reasons for electricity price variations over a certain period)
1. Get An Idea Of Current Electricity Prices, & The History Of Electricity Prices In A Particular Country Or State
This guide outlines the average electricity price globally, and also some of the most expensive and cheapest countries for electricity. It also includes links to resources that list average electricity prices for many other countries.
Finding out current and past prices can give you an idea of how prices in a particular place compare to global or national averages (and figure out whether it appears affordable or not).
Note, there is a difference between wholesale, retail, and industrial and commercial electricity prices. Most people are interested in retail – what households pay.
2. Understand The General Factors That Cause Electricity Prices To Increase & Decrease
Some factors might include:
- the supply, and demand of total electricity, or specific energy sources providing electricity at any one time (high demand and low supply can lead to higher prices)
- the energy mix supplying electricity – renewables (and the types of renewables … solar, wind, hydro, etc.), fossil fuels, nuclear, bio energy etc. Electricity is a service – the energy mix needs to complement each other, but also be competitive and provide a good service at an affordable cost (renewable variable energy may not always do this by itself without other energy sources, batteries, or stored energy)
- the cost of power generation (how cheap or expensive each energy source is)
- network costs for transmission poles and wires, and investment in other electricity infrastructure
- quality of the electricity network (it’s a ability to provide electricity to the end user to a certain level consistently)
- government activity (regulation, energy portfolios and standards, taxes, subsidies, energy support and development schemes, and so on)
- how national and State governments regulate, and interact with each other, and how good their policies are
- local weather patterns (particularly relevant to solar and wind)
- profit/revenue motive for retailers, and desired return on investment for suppliers (this makes up a certain % of the final bill)
- admin and sales costs of retailers
- the economy (impacts investment, supply, demand, etc.)
- how much electricity is imported and exported (imported electricity can sometimes be more expensive, and having to export electricity can be expensive when there is too much of a surplus)
3. Understand The Electricity Related Factors/Variables For A Specific Country Or State
Further to the general factors that can impact electricity prices, you have to understand the unique situation and variables of each country and State.
They all impact prices differently.
For example, in America or Australia, you have to know the energy sector and electricity sector makeup up of a specific State – like California, or South Australia for example. Each has it’s own variables.
What we can see is that in some European countries, higher electricity prices might be due to high taxes and support schemes for renewable and green energy. It may also be because of a flaw in the way that that country’s electricity market is set up from government policy or regulation. In a place like South Australia, electricity prices might be caused by a range of factors like poor government policy, high investment in network infrastructure, inefficient and old existing fossil fuel power plants, lack of supply of cheap energy sources, and other factors (so a mix of factors overall).
You also have to consider that some countries have natural advantages and limitations to consider. For example, Iceland is said to have maxed out their cheap sources of renewable energy already. Australia a spread out country with a lot of land – which may mean significant investment in transmission lines in the future.
In each country, State, city or region, run through the general factors and try to apply them to a specific location e.g. what is California’s supply vs demand in total and during different times of the year and day, what is California’s energy mix, how do California’s government’s energy policies impact electricity supply and demand, and so on.
4. Consider The Time Span Over Which Prices Have Changed, & Try To Link Causes To The Relevant Time Span
Electricity prices can change daily, weekly, monthly, annually, and over a period of years.
Sometimes you can link certain factors with a sudden or continued price increase or decrease over a particular period of time (sometimes, sometimes not).
For example, several countries have seen consistent price increases year on year since increasing renewable energy share, and introducing renewable energy support schemes and taxes.
Some countries also see prices increase as cheaper energy sources are shut down or phased out in favor of newer more expensive ones.
These are just two of many examples.
Try To Remove Bias Or Subjectivity In The Process …
Trying to find causes for electricity prices can be a bit like ‘he said, she said’ – it’s easy to go around in circles with finger pointing from different sides.
So, try to examine all factors and be open minded, and stick to facts and figures where possible.
Finder.com.au puts it a good way:
- Electricity prices have become a political hot potato, and the blame game has been running unchecked for more than a year.
- Electricity retailers find fault with governments, and renewable energy advocates point the finger at the nasty old fossil-fuel generators. The right-wing commentariat blames renewables, while the federal government blames everyone but itself.
- The truth is there is no silver bullet. No single factor or decision is responsible for the electricity prices we endure today. Rather, it is the confluence of many different policies and pressures at every step of the electricity supply chain.