Whenever we hear the term “volatile,” it never conjures up good images. Well, the same can be said about price volatility. In the energy industry, supply and demand affects the price we pay for energy. When supply is high and demand is low, the price drops. When demand is high and supply is low, the price skyrockets. These changes occur every day, and the prices will fluctuate up and down accordingly, hence, they are volatile.

Most of the time, supply and demand is relegated to just that, but other major incidents can cause prices to change drastically in a short amount of time. Major hurricanes and flooding can affect the production and distribution of electricity, which can drive up prices. A couple years ago, major snow storms in the northern part of the US caused energy prices to skyrocket because of an increased need for heating and energy production.

Likewise, some major incidents can drastically lower prices. This occurred in the oil and gas industry in 2015 after trade sanctions against Iran were lifted, and the nation began exporting large amounts of oil. When the right mixture for fracking fluid was discovered in the US, natural gas production increased exponentially, making it one of the cheapest sources of fuel for producing electricity.

Price volatility can affect consumers by causing your electricity rates to go up or down. This is much more noticeable on a variable rate plan, as your price changes every month. With a fixed rate plan, your rates are locked in for the duration of your contract, so no matter what happens to the market, you’re protected from the price volatility up until it’s time to renew.