The electric utility industry relies on a diversity of fuels for power generation, primarily coal, natural gas, nuclear, and a variety of renewable sources such as hydro, wind, solar, and biomass.
The generation mix is shifting due to a number of factors, including fuel prices and regulatory initiatives. The markets for these fuels are interrelated and supply, demand, and price changes for one fuel have impacts on the others. Factors that can influence a utility's choice of generation include:
- Electric demand: Is it increasing, remaining flat, or declining? What season and what time of day does demand peak? A utility must meet demand at all times.
- Regulations: There are a number of environmental regulations being implemented by the U.S. Environmental Protection Agency that are impacting the economics of electric generation and influencing generation fuel choice. In addition, utilities are regulated by the Federal Energy Regulatory Commission and their state public utility commissions, which oversee the electricity markets, hold them accountable for the reliability of electric system, and determine whether to allow a utility to recover its capital and operational costs from customers.
- Economics: Utilities must make the case to their regulators that they made prudent investments.
- Social and political factors: In many cases, these are intertwined with economic, regulatory, and demand drivers.
According to the U.S. Energy Information Administration (EIA), electricity consumption is expected to increase 23 percent by 2040. To meet this growing demand, a diversity of fuels—as well as increasingly more cost-effective and efficient ways to use and conserve energy—is needed. The industry is developing and deploying a suite of advanced generating technologies to provide a reliable supply of electricity, to reduce emissions overall, and to mitigate the impact of future price increases for any one fuel.