Why Are Energy Prices Increasing?

 Why Are Energy Prices Increasing?

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You may have noticed your energy bill has risen, but do you know why?

As the global economy recovers from the COVID pandemic, energy prices have rebounded by a dramatic amount. This has affected households all over the world as the demand for energy has only increased. 

Interested in learning more? Here are a few of the reasons energy prices have risen so much.

Rebound in Energy Consumption

During the early months of COVID, global energy consumption plummeted. This led to many fuels—including gas, coal, and electricity—to drastically drop in price.

As COVID dragged on, the global economy began to recover. Shutdowns were lifted, stores and restaurants began to open, and the demand for energy increased.

However, the global economic recovery occurred at such a fast pace, the prices of these fuels rebounded and are now the highest they have been since 2008. Natural gas prices have especially surged to be more than triple in price since late 2020.

While this rebound is partially due to the recovering economy, it has also been affected by increased demand due to weather-related events in many locations around the world, including:

  • Winter freeze in parts of the Northern Hemisphere
  • Hurricane Ida
  • Droughts in Brazil and similar areas that rely on hydropower
  • Lower rates of wind generation in Europe

Because of the increase in natural gas prices, many have switched to coal as a fuel source. The increased demand for gas and coal has also led to higher electricity prices.

Supply Constraints

Because of the decrease in demand that occurred during the beginning of COVID, oil and natural gas decreased in price, as seen by gas prices for cars.

Because of this dramatic decrease in cost, investments in oil and natural gas also declined. This affected energy prices and has led to tighter constraints on supply, to the point of production not being able to keep up with demand.

Alongside this, some of the plants and refineries processing these fuels had unplanned outages and needed repairs which has led to more supply issues and delays.

Alternate Energy Sources

Many governments do not have strong enough policies regarding alternate energy sources and technologies that are clean and renewable. By increasing the use of renewable energy, the demand for natural gas and coal will ideally decrease to a level that better matches fuel production. 

Solar energy is one such way to do this. With a custom solar system design, you can lower your energy bill to a more reasonable level.

Managing the Increase in Energy Prices

The lack of supply and increase of demand have combined to make energy prices soar.

This constrained energy supply could potentially be alleviated by alternate, renewable energy sources. Alternate energy sources could decrease the demand for oil and natural gas enough to meet supply and bring down energy prices.

If you found this article informative, be sure to check out some more of our quality posts.

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