Factors to consider in energy price forecast

With the cost of energy bills steadily increasing year after year, many are wondering if it will ever let up. Energy prices are already rising more quickly than the average salary, and many people are struggling to pay bills as it is.

In an ideal world, we would be able to predict trends, changes and movements in the global energy market that would give us some indication of what to prepare for. Unfortunately though, accurate predictions, especially short term ones are virtually impossible to foresee.

Long term predictions, over, say, a 30 year period, are more attainable, but no one is really able to make an energy price forecast saying what will be in just 12 months’ time. There are too many factors affecting energy, and its wholesale cost, which are prone to change. The best we can do is to look at the trends that these factors have been displaying and construct an energy price forecast based on those.

• The demand for energy not only drives the whole energy system, but is possibly one of the largest factors affecting its price. Energy demand comes from more than just domestic consumers; it comes from across all industries and virtually every aspect of life; consumers, energy generation, fuel and transportation, manufacturing, computers and telecommunication, etc.
• Gas and Oil prices. The price of the raw resources e.g. coal and gas, is a big influencer on the price that consumers pay for their energy. These prices vary frequently on a global and European scale as countries bid to meet demand. As and when prices in the “wholesale” market change, these can very quickly impact smaller supplier prices and equally those from the “Big Six” resulting in changes to the amount we pay for our home energy.
• Electricity prices. Unlike gas and oil, as far as the electricity price forecast is concerned, the outlook isn’t great. However, the popularity of sustainable energy is continually increasing. Wind and solar power are becoming more mainstream, meaning sustainable energy will increase in availability.
• Energy transportation costs. As well as the cost of producing/accessing energy, the cost of transporting it is directly correlated to its overall price. The cost of transporting electricity is predicted to rise by around 8-15%, and gas 5-6% in the future.
• Other factors. Wholesale energy costs, affected by the above factors, make up roughly 46.6% of your overall energy bill, whilst energy delivery accounts for 24.3%. Other factors which affect the price of your energy bills include government policies (10.2%), taxes (5.9%), suppliers’ operating costs (9%), and of course, the supplier’s profit (4%).