How Electricity Price Forecasts Are Built

The short answer

Nobody can predict next year's electricity price precisely, but forecasts aren't guesses either. Professional buyers build them from forward prices (what the market will pay today for future delivery), natural gas and heat-rate relationships, known capacity costs, and scenario bands for weather and demand. The goal isn't a single number; it's a range your budget can survive.

This page covers the methods. For the Ohio-specific drivers and where to find the data, see forecasting Ohio electricity prices; for the current outlook, see the 2026–2028 market forecast.

Method 1 — Forward curves

Wholesale power for future months trades at the PJM hubs that price Ohio load (such as the AEP-Dayton hub). A forward curve is the market's current price for each future month. It's the best single estimate of the energy cost a supplier will charge you, because suppliers hedge using those same forwards.

• Use it for: the energy component of a 12–36 month budget.
• Limitations: forwards move daily; they're a market price, not a prediction.

Method 2 — Gas × heat rate

Natural-gas plants often set PJM's marginal price, so power prices track gas prices times a plant's efficiency (heat rate). If gas futures rise, forward power usually follows.

• Use it for: understanding why forwards move and stress-testing budgets for gas spikes.

Method 3 — Known schedules

Some costs are already fixed years ahead:

• Capacity: PJM auctions set $329.17/MW-day for 2026/27, $333.44 for 2027/28 and $325.00 for 2028/29.
• Utility default prices: set through auctions for June–May periods.
• Delivery rates: set in rate cases; HB 15 requires utilities to file every three years, with plans for 2027–2029 already filed by the FirstEnergy utilities and AES Ohio.

Method 4 — Scenario bands

Build three cases instead of one number:

Scenario	Energy assumption	Capacity	Weather/usage
Low	Forward curve −15%	Known auction price	Mild year, usage −5%
Base	Forward curve	Known auction price	Normal year
High	Forward curve +25%	Known auction price	Hot summer/cold winter, usage +5%

If the high case breaks your budget, fix more of your volume now.

Converting a forecast into your budget

1. Estimate usage by month (use last year, adjusted for changes).
2. Apply forward energy prices plus your supplier's typical adder.
3. Add capacity: capacity tag (kW) × $/MW-day × days ÷ 1,000.
4. Add delivery and taxes from your current tariff.
5. Compare the total to your fixed-price quotes — that's your decision.

FAQ

How do energy brokers forecast electricity prices?

Mostly from wholesale forward prices, adjusted for supplier costs, plus scenario ranges for weather and gas.

Are capacity costs part of a forecast?

Yes — and in Ohio they're known through May 2029 from PJM's auctions, which removes one source of uncertainty.

How accurate are electricity price forecasts?

Forwards can move 20–30% in a volatile year; that's why budgets should use ranges and fix a share of volume in advance.