Tag Archives: natural gas

Unraveling the Electricity Pricing Mystery

Many people ask “How is electricity priced” and “What makes the price of Electricity move up and down so frequently and many times seasonally?” Without getting entirely too technical, we’ll try and explain this pricing and free market mechanism in Layman’s terms.

First of all electricity has been and always will be produced by a generator consuming some type of fuel source.  Today, numerous fuel sources exist that can be used to generate electricity.  All of these fuel sources; solar, wind, coal, natural gas, fuel oil, or lastly uranium in nuclear units, have differing costs.

 Wind Turbines

Wind that turns a wind turbine, the sun that heats a solar panel, or water that turns a turbine at a hydroelectric dam, we might call FREE sources of fuel.  BUT, these wind turbines, solar panels and dams have costs to manufacture, install and commission the equipment that must be paid back over time.  This capital is returned to the investors by the generator selling electricity into the wholesale power markets.  The idea is to hopefully sell the power above the cost it took to: produce the power and the other costs involved to keep the generator continually in good operating condition so it can generate and sell electricity.

The price of power in the wholesale market is determined by the demand for the electricity.

  This supply/demand relationship is why in the summer months in Texas, consumers tend to see higher electricity prices.

These higher electricity prices, in August versus March, are a direct result of the generators that are being called upon, or dispatched, into what is called the market generation stack.  In March there is not a great demand for air conditioning, but in August, the electricity demand to keep Texans cool is significant!  Also, as consumers, we use electricity differently during different parts of the day.  During the night we are sleeping and not demanding as much electricity but when we return home from work at 5:30 in the evening we may want the house cool, so our electricity consumption rises with the air conditioning load.

 

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As the demand for electricity rises the stack begins to get taller as more and more units are called upon and dispatched.  Below is a graphic of a generation stack from a U.S. power market other than Texas, but the illustration applies to Texas, as well.

Market Price Graph_Lyman Wilkes

As the graph above shows, the greater the demand for electricity, the more generation units must increase output or come online as can be seen by the Peaking (purple) line adding to the amount of electricity generated and so the price of electricity will rise.  As the less efficient generation units that require higher prices for their generation and investment return to their investors come online, the market heat rate rises.  Simply put, heat rate is a measure of the efficiency of a generation unit to convert fuel into electricity.  A nuclear generator or a Qualified Facility (QF) are generators that are running almost constantly so they are what is called baseload and are some of the lowest cost generation in the stack and generation that cannot move up or down easily with changes in demand.

Being smart about how we use electricity and how we shop for electricity, is the best way to get the lowest electricity price.

In conclusion, it is the demand for electricity that affects the market prices whether it is the time of day or time of the year.  The graph above shows hypothetical prices for electricity occurring over a 24 hour period ranging from $28 to a high of $49 per megawatt hour.  As consumers, we buy electricity by the kilowatt hour, or 1/100 of a megawatt, so this equals 2.8 to 4.9 cents per kilowatt hour.  Also, the steepness of the valleys and peaks will also change during the different times of the year. We hope this blog helps you understand this component in the electricity market.  Stay tuned for more.

(More) About Shop My Power

Shop My Power OfficeWe Do the Electricity Shopping for You. Since deregulation across the nation, shopping for power has become very complicated. Shop My Power is dedicated to simplifying the process for consumers by shopping for them while contributing to the energy industry in a positive way though charity outreach, social media and education and empowerment of its consumers. We are committed to the customer, never forcing you to create an account with us to find great rates for your home or office. We seek to educate and protect home owners as well as commercial business managers so they can make informed decisions about all aspects of the buying power process.

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About who we are – Shop My Power INC is an unbiased one stop shop for both residential and commercial electricity and natural gas since 2012. Here are some folks you can reach if you want to:

 Lyman Wilkes, CEO can be reached at lwilkes@shopmypower.com

Terra Ray, VP Sales can be found at tray@shopmypower.com

Carlos Ochoa, Web Project Manager carlos.ochoa@shopmypower.com

About where you can find us – Shop my Power INC is based in Texas with the main office in Allen. Come on by and see us at:

 Shop My Power INC

400 N. Allen Drive STE 303

Allen, TX 75006

 Or you can visit our website at www.shopmypower.com to shop or learn. Commercial shoppers can call us toll free at 855-KWH-SHOP to get started on a quote for their business.

About who we can help - We help home owners and business owners find the right suppliers in Georgia, California, Illinois, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, and of course, Texas.

About how we get paid- Shop My Power INC are primarily brokers. There is no cost to get started and no obligation to the customer if they request a quote. As with any electricity broker, we help shop the providers for you and once a contract is signed, the supplier pays us for the deal. It works like this: For residential sign ups on our site we mirror our competition and are paid a small prearranged amount per confirmed deal from the supplier. For commercial deals, we are paid a fraction of a penny that is worked into the electricity rate you pay each month. This fee is either paid to the suppliers’ representatives (that is who you would talk to if you called them directly) or that fee can be paid to a broker like us – and that is how it works! As members of TEPA, we are bound by ethical limits on all fees and are proud to disclose that information upon request to any potential client.

Shop My Power is a broker. We get paid by the suppliers we pair businesses with. In fact, the payment is rolled into your price. It is a fraction of a penny per kWh and we work very hard to earn that fraction of a penny. This fraction of a penny per kWh (or therm) payment will go to either to the supplier’s direct sales rep, the door knocker, straight back into the retailer’s pockets, to some desperate guy who you will never hear from again (usually a door knocker or multi-level marketer) or to someone like us, the power broker. The amount will be the same no matter which supplier I pair you with so that keeps me unbiased in the arena of commission. Of course I am biased against money grubbing jerks but will still present you with their offers if you want them. You should do business with good brokers because that is where your money is best spent. I can generally get you better rates, terms, and contract language than you could ever hope to get on your own. Plus, if you have any trouble, credit issues, want to add locations, move, or have trouble making ends meet? I am here for you. We are customer advocates.

About our vision – Shop My Power INC is working hard to create a website that customers feel good about browsing around in and a shop they feel good about stopping by at. We offer real content, informative articles, a genuine online presence, and actual people you can ring up if you want to talk about power. We want to touch our customers’ lives in a positive way. If by referring residential folks to great suppliers or maintaining a smaller and well managed book of commercial businesses, we want our cake and to eat it to: to offer all the luxuries of online convenience to the online community, while offering good ole Texas hospitality in our office. Come by and have a coffee or click to say hello today.