What causes energy costs to go up and down? One of the biggest variables that can impact the cost of energy is of course, the weather. And this is in part down to the basic economics of supply and demand.
Supply and Demand
Think of wholesale energy being bought in blocks. Energy suppliers attempt to predict what demand will be in future months and purchase blocks accordingly. During the colder months (generally October-March), we get through a lot more energy here in the UK. We don’t venture out of our homes as often, we crank up the heating and our electricity use goes up too. Energy is more in demand and prices follow suit.
Generally speaking, unless weather is extreme, we use less energy in the spring and summer months. And while the cost of wholesale energy is lower as a result, this may not be reflected in bills. This is because non-commodity costs associated with networks and electricity delivery can account for over half of your energy bill. Furthermore, these costs have been rising steadily over the last few years. Other external factors such as the wider political landscape also have an influence on wholesale energy prices.
Optimal Power Supply
To say that the weather’s impact on energy costs is all down to basic supply and demand would be a little over-simplistic. Sure, it’s a massive part of the picture, but we also need to factor in how weather influences where we draw power from and how easily. Production of renewable energy via wind turbines and solar panels is weather dependent. Turbines need wind to spin, but if it’s too windy, it can be dangerous to use them. Solar panels need hours of sunshine, and while they can still produce energy on cloudy days, they’ll be far more effective during sunnier periods. Conversely, power plants run better in cooler weather when it takes less energy to stop equipment from overheating.
And when the weather is very hot, it’s not practical to run some power plants or they need to run at a lower capacity. This means that depending on the type of weather we experience, we may need to draw more electricity from traditional or renewable energy power stations during certain times and rely on them less during others. Short-term weather predictions are therefore important when it comes to sourcing energy.
Seasonal Patterns and Extreme Weather
While we generally expect energy demand to rise in the winter months and fall in warmer months in the UK, long-term weather predictions are important to energy suppliers as weather falling outside of seasonal patterns or extreme weather will have a knock-on impact on demand.
A milder winter like we have experienced in recent weeks means we’re not ploughing through stored gas quite as quickly. Whereas during 2018’s ‘beast from the east’ energy demands surged as temperatures dipped. It’s not just cold weather that can drive up prices though. If temperatures change we may need to rely on production from more expensive power plants. Plus, in hot temperatures we are increasingly relying on products such as air conditioning units to keep us cool. This means that as the temperatures rise, the cost of energy can be driven up.
Will you be watching the weather a little more closely after reading this post? Switching to a fixed tariff ahead of weather changes could help to shield you from price rises. Speak to an Electric Board consultant today on 0800 254 5054 to help future-proof your energy expenditure.