During the three years to 2017, the price of energy and utility consulting services has risen steadily at an estimated annualized rate of 0.9%. Low price volatility is largely due to the diverse range of downstream markets, providing stable demand. It minimizes the risk of extreme price fluctuations and allows buyers to make more accurate price estimations and expense budgets.
Rising demand has been the primary cause of price growth in recent years. In particular, the industrial production index has grown. Growth in this driver indicates expanding production from the manufacturing, mining, electric and gas sectors. Firms operating in these sectors generally use considerable levels of energy throughout their operations, making energy costs a significant concern. As such, the increase in production has been encouraging industrial firms to seek ways to reduce their emissions and cut back on energy costs. These methods contribute to rising demand for this service. Additionally, the number of businesses has been rising due to the expanding economy. Growth in the overall number of businesses indicates a rising downstream market and wider pool of potential buyers. As such, the growth in the number of businesses also indicates rising demand, which has reduced the pressure on suppliers to lower prices in order to stay competitive. This, grants them greater pricing leverage and diminishing buyer power.
Up until 2014, the government was offering various tax rebate programs that rewarded companies for taking steps to reduce their energy consumption. The deadline to apply for many of these programs came at the end of 2013. As a result, buyers purchased these services at an accelerated rate in 2013, despite increasing prices. The end of these programs has resulted in waning demand entering the current three-year period. As such, the subdued demand has helped suppress price growth throughout the three years to 2017. Nonetheless, the rising price of energy and utility consulting services has encouraged buyers to enter contract agreements sooner rather than later to avoid paying higher prices.
In the three years to 2020, the price of services is forecast to rise at an annualized rate of 1.2%. Price volatility is expected to remain low, which will allow buyers to effectively budget their expenses and strategically time their procurement without fear of price spikes. Additionally, because price growth is expected to be slow and stable, buyers will be able to time their procurement based on need, rather than market prices.
As the economy continues to expand, demand for mined commodities and manufactured goods is expected to rise. As a result, the IPI is anticipated to continue growing. With production ramping up, industrial firms will look for more methods of reducing energy consumption to lower their operating costs and reduce their carbon footprint. Furthermore, the value of private nonresidential construction is forecast to rise, indicating growth in the number of restaurants, office buildings, hospitals and other facilities responsible for a large portion of energy consumption. Given that commercial buildings are estimated to account for one fifth of energy consumption in the United States, the growth in these buildings will help drive demand for these services. Rising demand from these factors is, in turn, projected to drive the price of this service further upward and slightly diminish buyers’ negotiation power.
Meanwhile, input costs are forecast to increase slightly during the period. Suppliers are anticipated to face rising transportation costs due to rising fuel prices, namely that of air transportation. This growth will contribute slightly to price increases. However, most suppliers already account for the high volatility of air transport costs by inflating service prices slightly to account for potential movement. As such, the strong growth in this input cost will have a suppressed effect on price growth during the period.