Overview of Energy Markets
Energy markets at the end of 2024 through the first two months of 2025 have shown a marked divergence in trends observed over the prior 12-month period. Depending on how you’ve managed your energy costs, energy managers and financial decision makers may experience significant cost increases, and may be feeling the impact of those increases right now. The best way for you to address energy volatility in natural gas and power markets is to communicate clearly and ensure you have access to cost forecasts and analytics.
For most of 2024, both forward and index power and gas markets were remarkably calm and not particularly volatile. In fact, through November 2024, index power markets in New York City (one of the nation’s highest cost locations) averaged just over $36.00/MWh (or $0.036/kWh). In contrast to 2024, the day ahead price of power in NYC through March 3, 2025 is $102.28/MWh (or more than $0.10/kWh). Customers are starting to see power rates of over $0.18/kWh for the month of January.
(For a refresher on how power costs compare to the rest of your supply costs, take a look at this article, titled “Supplier Invoices & Cost Components, part 1: Energy Cost Management Questions”.
These price increases began in mid-December, with the onset of colder-than-expected temperatures across North America. Both power and natural gas markets increased and grew more volatile.
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Near-Term Energy Market Trends
As we have explained above, we have seen significant recent price surges in both the day-ahead (index) and forward markets. The 12-month forward cost of electricity in New York City, for example, has increased significantly as you can see from the following graph.
The factors that have driven the increase in index prices have also impacted forward energy markets. These include:
- A colder than usual start to winter.
- Increased European demand.
- Concerns over energy reliability.
Long-Term Energy Market Trends
Forward markets in latter years (2026-2029) tend to be less affected by these near-term pressures. Energy prices in 2027, 2028 and 2029 show moderate increases compared to near-term markets. There is significant volatility in these latter periods, but the underlying influences on these markets differ. In fact, in these out years, there are cross-cutting bullish and bearish factors at work.
- Bullish factors:
- Global natural gas demand.
- Weather disruptions and increasing energy needs from data centers and tech.
- Marginal transmission improvements.
- Bearish factors:
- Delays in renewable energy projects.
- Ample natural gas supplies and infrastructure upgrades.
- Postponements in regulatory changes affecting gas “peaker” plants.
What can you do about power and gas market volatility?
During periods of market volatility, we typically hear energy managers and financial decision makers say “There’s nothing we can do. These factors are beyond our control.” The most successful professionals, however, find that they can navigate volatility energy markets successfully. Here are some steps to regaining control of your energy costs and budgets.
- Get a forward-looking view on how the current market run-up impacts your costs and budgets. The Megawatt Hour can conduct that review using our cost forecasting software.
- Once you know how markets impact your costs, develop a cost management strategy. Determine how much risk you can take.
- Ensure on-going transparency around your cost and usage.
- Be prepared to make the most of market movements– create realistic budget targets and act on purchasing opportunities when they arise.
Bottomline for energy managers and financial decision makers. Wishing, hoping, worrying and willing markets to change are not strategies. Be proactive, use data-driven energy strategies (forward curve, real cost forecasts, a pricing model of your own—we can help!), proactive management, and integrated solutions to address cost challenges.
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