Electricity Generation Cost – How it Relates to Renewable Energy Resources

Electricity is a key commodity across all sectors and regions of the world. This is because electricity has the capacity to make a lot of cash for its producers, while also creating a lot of potential for consumers as well. However, the prices of electricity in the wholesale market can be difficult to understand. It also makes it hard to judge the feasibility of solar and other alternative forms of energy production on the grid. To clear up these issues, an understanding of the electricity price structure is necessary.


supply demand and taxes

The wholesale electricity price structure is based upon three major factors: supply, demand, and taxes. When it comes to supply, two factors come to play. These are supply chain factors and grid demand. Understanding the relationship between these factors will help you better understand the electricity prices you pay.


Supply chain factors affect electricity prices

First, the longer it takes for an energy resource to be generated, the higher the electricity fee. Secondly, while some energy resources are more abundantly available than others, certain energy resources are more difficult to mine. Finally, when an energy resource is generated, it requires a certain amount of fuel to provide power to industrial park users. In most cases, this represents a percentage of the industrial park’s electricity fee.


Grid demand is a much easier concept to grasp

This is primarily because it directly influences electricity prices by acting as a limit to growth. It is the cap on how much electricity a utility company can generate from any given megawatt-hour of capacity. While some sources like coal or petroleum are commonly referred to as “grid demand,” others like the sun, wind and geothermal energy can also be considered “grid controllable resources.” A utility company may use these as part of its grid management strategy to avoid a sudden overload that could harm the market share of the company.


the wholesale market is affected by changes in the wholesale price

The wholesale market plays a huge role in setting the electricity generation price of a particular company. While the wholesale market may control a company’s profits by acting as a demand control mechanism, it can also affect the costs and revenues of a utility. If the wholesale market is affected by changes in the wholesale price of a power generation resource, it can indirectly affect the cost and revenue of a utility. This is especially true if the market price of one power generation resource varies by more than 10% on the wholesale market.


federal government policy initiatives

While changes in the wholesale power markets can significantly affect the cost of electricity, it is difficult to predict changes in the power markets shortly. Changes in the electricity grid demand and supply due to federal government policy initiatives can affect the generation, transmission, and distribution of green energy resources. Many companies have already launched new renewable energy projects to reduce their dependence on traditional fossil fuel resources. However, many of these initiatives have been met with resistance from a skeptical public that remains skeptical about the long-term impacts of green energy projects on the electricity grid. For this reason, more companies are starting to look for alternative ways to make their profit.

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