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What will impact business energy costs in 2019?

By Direct Energy Business

Here’s the good news: wholesale energy prices are actually quite low. The bad news? Energy consumers watched their costs increase throughout 2018, and can expect that trend to continue. So why don’t the numbers add up?

Direct Energy Business President John Schultz recently shared what’s missing from that equation:

 


In theory, low wholesale prices translate into lower prices for consumers. But in reality, the cost to consumers has actually risen about 8 percent. Here’s why:

Subsidies

As Schultz previously discussed, government subsidies make some sources of energy financially possible. When there is a federal agenda to support a sector of the industry or a specific energy source (be it wind, nuclear, coal, etc.), the government often offers financial backing in the form of subsidies, to both stimulate development, as well as to stabilize it for the long term.

But we all know that there’s no such thing as free lunch. 

The cost of these subsidies ultimately gets passed on to the consumer in non-energy portions of the bill. (Here’s a refresher on what’s included in the fine print of your energy bill). So while subsidies don’t affect the price of energy per se, they do factor in to the bottom line.

Transmission, Distribution, Reliability & Capacity

Also included in the non-energy portions of the bill are costs like transmission, distribution, reliability, and capacity. While energy itself is quite affordable at the moment, these costs are on the rise, and quite significantly so, in large part due to the abysmal state of energy infrastructure. Utilities are investing around $70 billion annually in transmission & distribution infrastructure, and in many states, utilities are legally allowed to recoup (in some cases with interest) this investment by bundling it into your bill. 

So there’s more to consider than the wholesale price of energy supply when you’re budgeting for energy expenses. Mandatory fees can really add up, and the current trend shows bills inflating significantly despite relatively low wholesale energy prices, with fees consisting of up to 50 percent of the total cost. While the same math will likely hold true for 2019, some suppliers do offer innovative products to help consumers regain control over expenses.

Explore other installments from John Schultz in the series below, or watch the complete interview now.

Posted: January 17, 2019

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