Energy prices impact household spending, especially in poorer households which spend more relative to their income. They also affect consumption indirectly through wages and profits of sectors that use fossil fuels such as construction, mining and manufacturing. If these costs cannot be passed on to the final price of goods and services, households face higher inflation that reduces their purchasing power. This is why it’s so important to have timely and accurate information on current energy prices from the Department of Energy (DOE) and its sub-agency, the Energy Information Administration (EIA).
The price of oil and natural gas are highly influential factors in electricity pricing, but other factors also play a role. For example, events in foreign countries may impact the supply of raw materials for production or shipping to the United States and can drive up energy prices. Market speculation and changing demand for certain commodities also can influence prices. The amount of stored energy reserves can influence prices, as well.
Electricity prices are a complex mix of components, with the price of the commodity itself accounting for 5 to 20 percent of the total cost. Other components include capacity — which ensures there is enough generation available during peak electricity-consumption hours; line loss and ancillary services; and state-mandated renewable energy charges.
Several factors have contributed to the recent surge in energy prices, from the war in Ukraine disrupting oil markets to voluntary historic output cuts by OPEC+ and investors’ reluctance to invest in fossil fuels amid growing climate concerns. But the fundamentals remain unchanged: demand continues to rise and supply remains constrained.
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