Fuel is one of the main factors that determine the price of electricity. The price of fuel is relative to what kind of source is used to generate electricity. Coal, natural gas, solar and wind power all generate electricity, however, they generate it at different costs and vary in popularity. Natural gas, for example, is becoming a more popular option as prices have dropped. Fuel costs vary based on per unit cost, such as dollars per thousand cubic feet for natural gas or dollars per ton for coal.
Weather impacts energy consumption and the cost of electricity because different conditions affect electricity generation. Rain and snow, for example, can provide water for low-cost hydropower generation. On the other hand, in severe weather conditions such as heavy rainfall and wind, transportation routes and power lines can be damaged, resulting in added costs to fix the electricity grid.
In order for power plants to operate properly, they incur construction, maintenance and operating costs that affect energy prices.²
Transmission and distribution system
The transmission and distribution system is responsible for delivering electricity from power plants to residences and businesses. Maintaining and operating this system to deliver electricity contributes to the overall price of the commodity.
In 2013, the EIA reported that generating electricity was the largest component of the price of electricity. Generation was responsible for 58 percent of the average retail price of electricity, whereas distribution was responsible for 31 percent and transmission was responsible for 11 percent.²