Important Factors that affect Electricity Prices

Important Factors that affect Electricity Prices

You may be surprised that the price you pay for your electric power is a combination of many factors. You can compare electricity plans and choose the best plan for your home. But, still, these factors can upset your electricity budget.

The flipping on a switch is not as simple as it seems, there is a lot behind it. It requires huge infrastructure and regular maintenance. All this comes at a cost that companies extract from consumers. Even a small change in the price of these installations affects the price of electricity and your bill. If you regularly compare electricity plans you will see the prices vary a lot over the months. These prices are very volatile and change regularly.

In this article, we will discuss important factors that affect electricity prices.

Fuel Costs

Generation of electricity is done on huge machines and then delivered to your homes through wires and cables. But, the core of electricity generation is the fuel that is used. A constant supply of coal is required for a coal-based plant. This requires a constant flow of money to purchase the coal. The same happens for nuclear plants.

Even if electricity is generated through renewable sources, huge investments are required to build the infrastructure to tap the energy and convert it into electricity.

Fuel Costs

Cost of maintaining Power Plants

Most of the electricity is generated in huge power plants. Like other things, these plants need to be built and maintained regularly so that the generation and delivery of electricity go on smoothly. All these costs and the plant operating costs [1] also affect the electricity prices.

Cost of Transmission and Distribution

For the quick and smooth delivery of electricity to home and industry, there is a need for a robust transmission and delivery network. This is also a huge investment for a company to build and maintain a transmission and delivery network. With the costs, this network also needs to be repaired when required. All these all to the cost of your electricity.

Electricity Prices


While you compare electricity plans on our website you might have noticed a change in the price based on the weather. This is because cold and stormy weather can adversely affect the production and transmission of electricity. This adds up to the resources the company has to spend for a sustained supply of electricity throughout the season.

State Regulations

Different states have different rules and regulations when it comes to electricity generation and distribution. While some states take the service commission that controls the cost of electricity, whereas others implement regulated and unregulated prices. If your state is charging more utility commission, it will increase the cost of electricity in your area.

Consumer Type

Electricity companies offer better rates to consumers that use more electricity. Having said that, industrial customers get better prices and they pay lesser kilowatt per hour rates. Residential and commercial rates are different and always more than what industrial customers pay. This is because the industrial customers ask for more electricity that is cheaper for the companies to supply to them. On the other hand, it costs the electric companies more to supply to individual customers and hence the prices. Industrial customers are changed on a wholesale basis and the small customers at retail prices.


Read Also: 5 Tips for Electrical Safety at The Workplace

Important Factors that affect Electricity Prices

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