The Hidden Costs of Geopolitics in Your Energy Bill

The promise of deregulated energy markets in the United States has always been choice, competition, and, ultimately, lower prices for consumers. Businesses operating in these markets have enjoyed the flexibility to select energy suppliers and plans that best suit their needs, theoretically benefiting from the forces of supply and demand. However, the reality of today's energy landscape is far more complex. Factors beyond the traditional supply-demand equation are significantly impacting energy costs, creating volatility and upward pressure on prices.

At RateWise, we closely monitor how global forces and domestic policies affect energy prices, and in 2025, two key factors stand out: geopolitical instability and US tariff policies. This article will explain how and why these external factors are driving up energy costs in US deregulated markets, and why proactive energy management is more crucial than ever.

---

The fundamental difference between deregulated and regulated energy markets lies in price determination. In regulated markets, prices are set by regulatory bodies, providing a degree of stability and predictability. In contrast, deregulated markets operate on the principle of market forces. This offers the potential for lower prices through competition and innovation, but it also introduces inherent vulnerability. Deregulated markets are highly sensitive to fluctuations in supply and demand, and external factors can significantly exacerbate this sensitivity. They are, in essence, price-takers, reacting to global events and policy decisions.

Geopolitical events, often occurring thousands of miles away, exert a powerful influence on the global energy supply, and consequently, on prices in US deregulated markets. The interconnected nature of the global energy market means that disruptions in one region can have ripple effects worldwide. The Russia-Ukraine war, for example, has profoundly impacted natural gas prices, particularly in Europe. While the US is a major natural gas producer, the disruption of European supplies and the increased reliance on liquefied natural gas (LNG) have had knock-on effects on global LNG markets, including those in the US. Similarly, instability in the Middle East, a critical region for oil production and transit, creates immediate concerns about potential supply disruptions and drives oil price volatility. The US-China relationship, characterized by trade tensions and competition for resources, also plays a significant, albeit less direct, role. This relationship impacts the supply chains for critical minerals essential for renewable energy technologies, adding another layer of complexity. These are not isolated events; they represent a broader trend of increasing global instability, creating a persistent state of uncertainty in energy markets. This uncertainty also manifests in another less pronounced way: major disruptions of energy infrastructure components delayed by supply chain issues.

Tariffs, imposed by the US government, add another layer of complexity and cost. While often intended to protect domestic industries, tariffs act as a direct increase on the cost of various energy-related goods. The most prominent examples are the tariffs on solar panels, steel, and aluminum. Solar panel tariffs, particularly those targeting Chinese imports, directly increase the cost of solar installations, making solar energy less competitive in deregulated markets. Steel and aluminum tariffs raise the cost of building and maintaining essential energy infrastructure – everything from power plants and pipelines to the electricity grid itself. The potential for future tariffs on imported fossil fuels, such as crude oil and natural gas, looms as a significant threat, with the potential to directly increase fuel costs for consumers.

The mechanisms within deregulated markets amplify the impact of these external cost pressures. Wholesale electricity markets operate through auctions, including day-ahead and real-time markets. Prices in these markets are determined by the marginal pricing principle: the most expensive generator needed to meet the current demand sets the price for all electricity sold. This means that even a relatively small increase in fuel costs, driven by geopolitical events or tariffs, can lead to a significant jump in wholesale electricity prices. These higher wholesale costs are then passed through to businesses and consumers by retail electric providers (REPs). Similarly, locational marginal prices (LMPs), which reflect transmission congestion and local supply/demand conditions, can exacerbate price spikes in areas with high demand or limited infrastructure.

The US Energy Information Administration (EIA) data provides concrete evidence of these trends. The EIA projects an increase in natural gas prices, noting a significant 24% increase in the cost of natural gas delivered to power generators. Given the substantial reliance on natural gas for electricity generation in many deregulated markets, this price increase will inevitably contribute to higher electricity costs. The EIA also forecasts an overall increase in electricity sales, further indicating upward pressure on prices.

Beyond the direct impact on fossil fuel prices, geopolitical instability and tariffs also affect the renewable energy sector. Critical minerals, essential for solar panels, wind turbines, and batteries, are often sourced from countries with geopolitical risks. Disruptions in the supply of these minerals, whether due to conflict, trade disputes, or export restrictions, can drive up the cost of renewable energy projects, hindering their deployment and potentially slowing the transition to a cleaner energy future.

In conclusion, the energy landscape for businesses operating in US deregulated markets is increasingly complex and volatile. Geopolitical instability and tariff policies are creating significant headwinds, driving up energy costs and undermining the promise of competitive pricing. These are not abstract concerns; they are tangible factors impacting bottom lines today. The interconnectedness of global energy markets and the inherent sensitivity of deregulated markets to supply and demand fluctuations mean that proactive energy management is no longer optional – it's essential for your business to save money before it is too late.

At RateWise, we help businesses in deregulated markets develop customized energy plans to mitigate risk, optimize costs, and secure the most favorable terms. Contact us to learn how we can help you navigate this challenging environment and gain a competitive edge.

The time to act is now.