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The Price of Electricity
October 30, 2019

4 Things That Impact the Price of Electricity

Electricity prices depend on several factors, all of which are deeply interconnected. To help you better understand what’s behind the price you pay to keep your business’s lights on, here is a brief outline of these factors and how they impact energy costs.

Contract Length

Electricity contract prices are strongly influenced by the overall energy market. When choosing a contract length, it’s important to know how prices vary between time periods. If market prices are trending downward into the future, it’s smart to choose long-term contracts to take advantage of as much of the lower-priced periods as possible. If market prices are trending upward, it might be better to choose shorter contract lengths and avoid the higher prices in future time periods. The energy market is currently trending downward, so if an electricity contract is for a longer period of time, the contracted price will generally be lower.

Supply and Demand

How your business uses energy directly impacts how much you will pay for electricity. Overall electric use follows a bell curve, with the peak occurring around 5 PM. If your business follows this same curve, you will use the most electricity when market prices are highest. Therefore, your contracted price will be higher because it will be more expensive for your provider to supply your business energy during that time.

Distribution Costs

There are three basic categories of delivery voltage for electricity: transmission, primary, and secondary.

Transmission customers receive their electricity straight from the grid. These customers have their own substation and transformers to convert this high voltage electricity into the lower voltages their business uses. Transmission customers pay the lowest price for electricity because there is little extra cost to the utility company to provide power to this type of consumer.

Primary customers own the transformers and the lines that run from the transformers to their business. Their power does not come straight off the grid, but from a substation owned by the utility company.

Secondary customers do not own any power equipment. Most small businesses fall into this category. They pay the highest price for electricity because they are not absorbing any of the costs to convert electricity from the high voltage used to transmit electricity along power lines to the low voltage used in most buildings.

Location

Where your business is located can have a big impact on the price you pay for electricity. Because power generation plants are not always located near densely populated areas, it can be very expensive to supply energy to certain regions. For example, most wind turbines in Texas are located in the sparsely populated western portion of the state, whereas most electricity customers are located in other parts of the state.

Major cities rarely have power generation plants located within or even near city limits, so customers located within metropolitan areas often pay a premium to offset the significant costs utility companies incur to supply power to these high demand areas (known as congestion).

Control Your Commercial Energy With Priority Power Management

Navigating the complicated energy market can be frustrating. That’s why we at Priority Power Management stay on top of market trends so we can help our customers get the best prices possible. Contact us today to learn more about how we can help your business save money on energy costs.

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