Can you predict your home’s energy costs this season?

First you’ll need the weather forecast, then you’ll need to know how the energy market is doing. And finally, your prediction also depends on how well you know your home.

Mild winter is forecasted.

Psychics, fortune tellers and your local news channel are saying U.S. households will spend less this winter heating season compared to last winter.

After Old Man Winter’s visit and long stay, there is good reason to think the next one would be less severe than the last.

Last year’s winter was 11% colder than the previous 10-year national average. The colder it got, the more we paid for heating our homes. The frequency of snowstorms was out of the ordinary. Old Man Winter was really enjoying himself throwing snowflakes at us.

The extreme frigid temperatures highlighted how much heat leaked out of our homes. As the temperature dropped further and further, we responded by turning up the heat higher and higher. It’s no wonder weather extremes drive energy use. The result is more spending.

Temperature alone plays a large role in energy use. During soaring temperatures of the hot summer, we turn on our air conditioners high. The hotter it gets outside, the higher our indoor setting is. We vary our energy use based on temperature more than 80% of the time. This is magnified by outside conditions coming into our leaky homes.

Fuel oil prices are notably falling.

Oil Price

While the forecast may be true and Old Man Winter does not overdo it this year, homeowners can count on cheaper heating oil this season. Consumers can rejoice in lower gasoline prices at the pump as a result. This translates to dollars saved on fuels. More dollars are redirected elsewhere for consumer spending in the economy.

Deutsche Bank economists estimate every 1 cent annual change in gasoline prices is worth about $1 billion in annual U.S. household energy consumption. Falling gasoline prices could provide at least $40 billion boost to the economy. Right now prices continue to decline…

What about the price of natural gas?

Historically, natural gas prices and oil prices went in the same direction. That’s because natural gas and oil traditionally have both come from the same geological formations.

Today, natural gas prices are independent of oil prices. This is due to new fracking technology. We’ve been easily employing it to produce large amounts of natural gas from shale formations. Fracking has slashed U.S. natural gas prices over the past few years while oil prices remained high.

The government predicts natural gas price to be lower this season than last. It’s based on the lower expected heating demand again. And higher natural gas production. However, the average natural gas price for U.S. homes are trending upward on a yearly basis since 2012.

The energy market is interested in using more natural gas. And coal is being replaced by it. Demand for it is going up.

Natural gas burns cleaner than coal and oil. It emits less carbon dioxide per energy produced. The use of this lower-carbon energy source is expected to increase for electricity generation. And by and by…

Electricity prices have been steadily rising.

Residential electricity prices in the U.S. have risen from an average of 8.95 cents per Kilowatthour in 2004 to an average of 12.39 cents per kwh in 2014 so far (Source: EIA). This is a 38% increase in 10 years. It’s almost as great as the U.S. jump in healthcare costs during that time frame.

Utility companies are dependent on fossil fuels such as oil, coal and natural gas, which are vulnerable to volatile energy markets.

How volatile? The price of energy is highly volatile and determined by international events as much as domestic market conditions.

For oil, there is less demand and too much supply right now. The economy is weak in Europe, slow to grow in China, and U.S. millennials are not driving cars based on a recent report in part due to constraints of personal income. These conditions have led to 20%+ market price decline since June. Remember when oil prices nearly hit $150 a barrel not too long ago?

For coal, the abundance of natural gas is causing its decline. The War on Coal is not helping it either. Since the U.S. Environmental Protection Agency proposed the Clean Power Plan, regulations are limiting coal-fired power plant emissions, providing caps that are likely to lead to more U.S. coal-fired power plants shutting down in the future.

So with the increase in demand for natural gas to heat homes and to make electricity, the decline of coal to reduce carbon emissions, and our recent experience of the polar vortex last winter, a recipe is brewing for U.S. electricity prices to rise in the future.

So what to do as a homeowner?

In terms of finance, both the supply and cost of energy (and water) are NOT predictable. Costs may go up and supply may go down… unreasonably. It’s essential to reduce the use of energy in our existing homes. It’s time to transform your home to support your household sustainability.

The most reliable way to reduce the drag of high energy costs on your personal economic growth and safeguard your family from future energy price volatility is to improve the efficiency with which energy is consumed. And there is no better place to do that than in your home.

You must have the ability to control your own indoor climate. Start by making it your business to know your home and understand where the leaks are happening. Then learn practical home weatherization techniques.

You can protect your home from the weather by making it tighter. Every house has holes in it. Find them. Then plug them. Plugging holes is an energy efficient measure to reduce your consumption. Why?

You need to make sure that your home has very small indoor temperature variations no matter the weather outside.

When energy prices are up, efficiency offers a way to get them down. Achieving a 30% efficiency improvement in existing residential buildings would save the average household $163 a year, net of investment costs. It’s about how much the average household spends on groceries or clothing for their children.

Make your house as tight as it gets. Then and only then can you think about switching your home to solar power. It’s the next step to lock in low, predictably priced power.

Solar thermal energy will greatly reduce the dependency from other sources of energy production. Thus helping to create the basis for a stable economy, and securing a safe and sound investment with a great cost/benefit bottom line.

To avoid rising energy cost is becoming a growing investment opportunity. No more predictions. Only more comfort in your home.

Reliable, clean power is a product that is worth a considerable effort. Don’t leave it to the “market” to make that decision for you. They are mostly motivated by short term money-making. You want long term wealth for generations to come.

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