You may not realize it, but natural gas prices have a significant impact on the electricity prices we pay. In fact, natural gas is the single biggest driver of electricity prices, even for renewable electricity. Unfortunately, our dependence on natural gas is increasing.  In the Texas market for example, as natural gas prices go, so go electric power prices. In fact, there is a 90%+ correlation between natural gas prices and electricity prices in the ERCOT region. This means, especially in a market with excess supply such that generation is readily available, that the cost of natural gas will be the predominant determinant of the cost of electricity at both the wholesale and retail levels.

Retail electric providers must purchase all of our supply in the competitive market, and the market price is established by natural gas generation. Electricity sources include natural gas, coal, nuclear fuel, wind and water. Although natural gas prices generally fluctuate more than other fuel prices, natural gas-fired generation is still considered the most economical generation to build in Texas.  

Pricing has continued to increase because of the rapid depletion of gas resources, lack of access to more promising gas reserves and the financial risks associated with gas exploration. Why then, do we use natural gas as a primary electricity source? There are many reasons. Most new electricity generators run on natural gas, because gas is cleaner than many other conventional electricity sources. Most new housing construction has included natural gas heating, in large part because gas has historically been cheaper than oil for home heating.

Why does natural gas have such an impact on electricity prices, even on renewable electricity markets? The short answer is, because it can. All energy markets move up and down together, in part because all forms of electricity — coal, nuclear, wind or natural gas — sell into the same market. All electricity sells into the same power pool and all retail suppliers buy out of that power pool.

While you can’t control natural gas prices, there are plenty of things you can do to lower your business’ energy usage.