EIA: U.S. electricity production costs rose 6 percent in 2021 due to rising fuel prices

Due to the rise in fuel costs that year, the U.S. Energy Information Administration (EIA) recently reported that the costs of producing electricity rose 6 percent in 2021 among major utilities, including inflation.

The most staggering hit came from purchasing electricity due to a 17 percent rise – or extra costs of $66 billion. This area was already the largest production cost component, accounting for the electricity purchased when utilities do not own the generators or generate enough electricity from their facilities to satisfy customer demand. At the same time, natural gas, capital, labor, and building material costs also rose.

However, spending on new power plants fell 21 percent, to bring spending to about $21.7 billion in that area in 2021. Most new sources went to renewables, which accounted for 65 percent of investment that year. Natural gas-fired generators followed at 22 percent of investment spending, followed by nuclear (9 percent) and hydropower (4 percent).

Moving beyond production costs and into delivery, costs to transport electricity across transmission and distribution lines remained steady throughout 2021 – but only after increasing by 12 percent the year before. Spending has been increasing for years to build, operate and maintain the wires, poles, towers, and meters needed to make that transmission and distribution system work as old systems age out and new infrastructure demands and technological capabilities arise. Spending on infrastructure rose 1 percent on the distribution system and fell 3 percent on the transmission system in 2021.

Before 2021, electricity production costs had decreased for several years as natural gas prices fell and lower-cost renewable generators entered the market.