Rajan Wilcox
Fossil fuels are a significant source of electricity, with about 60% of electricity in the United States generated from them in 2023. However, the cost of fossil fuels for electricity generation is relatively high compared to renewable sources. Fuel costs are generally highest for fossil fuels and biomass sources, while capital costs tend to be low for gas and oil power stations. Short-term fluctuations in fuel prices can significantly impact the cost of energy generation in natural gas and oil-fired power plants. In contrast, renewable energy sources have zero fuel costs and are becoming increasingly cost-competitive with fossil fuels. By 2020, renewable energy was predicted to be consistently cheaper than fossil fuels, and this trend is expected to continue with further technological advancements. The shift towards clean energy sources is evident, with solar and wind power playing a growing role in the US energy system and pushing fossil fuels out of the mix.
| Characteristics | Values |
|---|---|
| Cost of fossil fuels in the US in 2023 | $3.12 per million British thermal units (Btu) |
| Cost range of fossil fuels in the US in 2023 | $2.36-$16.53 per million Btu |
| Fuel with the highest cost in the US in 2023 | Petroleum |
| Cost of petroleum in the US in 2023 | $16.53 per million Btu |
| Cost of coal in the US in 2023 | $2.36 per million Btu |
| Average price of natural gas at Henry Hub in April 2025 | $3.45 per million Btu |
| Average price of natural gas at Henry Hub in May 2025 | $3.18 per million Btu |
| Average price of natural gas in New York City in April 2025 | $2.92 per million Btu |
| Average price of natural gas in New York City in May 2025 | $2.50 per million Btu |
| Average spot price of Central Appalachian coal in May 2025 | $3.37 per million Btu |
| Percentage of US electricity generated by fossil fuels in March 2025 | 49.2% |
| Percentage of US electricity generated by clean sources in March 2025 | 50.8% |
| Percentage of US electricity generated by wind and solar power in 2024 | 17% |
| Percentage of US electricity generated by coal in 2024 | 15% |
| Cost of electricity generation based on fossil fuels | $0.05-$0.17 per kilowatt-hour (kWh) |
| Cost of electricity generation based on onshore wind | $0.04-$0.06 per kWh |
| Cost of electricity generation based on solar photovoltaic (PV) | $0.10 per kWh |
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What You'll Learn
Fossil fuel electricity costs
Short-term fluctuations in fuel prices can significantly impact the cost of energy generation in natural gas and oil-fired power plants and, to a lesser extent, coal-fired power plants. Coal-fired power plants often use locally available coal, making them less subject to world market influences. A carbon tax or other forms of CO2-pricing can also affect the economic viability of fossil-fueled power plants.
Capital costs tend to be low for gas and oil power stations and higher for coal plants. The cost of electricity generation based on fossil fuels typically ranges from $0.05 to $0.17 per kilowatt-hour (kWh). In comparison, renewable energy sources like onshore wind and solar photovoltaic (PV) are becoming more cost-competitive, with prices as low as $0.06 and $0.10 per kWh, respectively.
The shift towards renewable energy sources is evident, with solar and wind power reaching record highs in the United States in March 2025, surpassing fossil fuel-generated electricity for the first time. This trend is expected to continue, with renewable energy sources projected to be consistently cheaper than fossil fuels by 2020, according to reports by the International Renewable Energy Agency (IRENA).
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$38.22 $150
Fuel costs
Fossil fuels are a significant source of electricity, with about 60% of electricity in the United States generated from fossil fuels in 2023. The cost of fossil fuels in the US electric power industry varies depending on the source, with an average cost of $3.12 per million British thermal units (Btu) in 2023. The cost ranges from $2.36 per million Btu for coal to $16.53 per million Btu for petroleum. Petroleum costs have been highly volatile, while coal costs have been relatively stable. Natural gas prices can also vary by region, with the US having lower prices compared to Europe and Japan due to its domestic production.
Short-term fluctuations in fuel prices can significantly impact the cost of energy generation in natural gas and oil-fired power plants, and to a lesser extent, coal-fired power plants. Coal-fired plants often use locally available coal, reducing their susceptibility to world market influences. Carbon taxes and other forms of CO2-pricing can also affect the economic viability of fossil-fuelled power plants.
In contrast, renewable energy sources, such as solar and wind power, have no fuel costs and are independent of world fuel markets once the infrastructure is in place. The cost of renewable energy has been decreasing rapidly, and by 2018, it was projected to be cheaper than fossil fuels by 2020. These projections have proven accurate, with solar and wind power surpassing fossil fuels as the primary sources of US electricity in March 2025.
The shift towards renewable energy is driven by various factors, including technological advancements, competitive bidding processes, and government preferences. These factors contribute to the declining tariffs for renewable energy projects, making them increasingly cost-competitive with fossil fuels.
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Capital costs
The capital costs of fossil fuel electricity refer to the expenses incurred in building and establishing power plants and generation facilities. These costs vary depending on the type of fossil fuel and the technology used.
For gas and oil power stations, capital costs tend to be relatively low. This is due to the efficient use of these fuels in generating electricity and the established infrastructure for their extraction and transportation.
On the other hand, coal plants have higher capital costs. The cost of coal as a fuel is relatively stable, but it requires more extensive infrastructure for extraction, transportation, and storage. Additionally, coal-fired power plants face higher emissions costs and are subject to carbon taxes or other forms of CO2-pricing, which can impact their economic viability.
Petroleum, which includes various types of oil, has the highest capital costs among fossil fuels. The prices of petroleum products used for electricity generation can be volatile and are influenced by global energy market dynamics.
It is worth noting that the capital costs of fossil fuel electricity are compared unfavourably to renewable energy sources. The cost of renewable energy, particularly solar and wind power, has been decreasing rapidly. As a result, renewable energy sources are increasingly becoming more economically viable than fossil fuels. This trend is expected to continue, with further reductions in the cost of renewable energy technologies anticipated in the coming years.
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Operating costs
Fossil fuel electricity has various operating costs, including fuel, maintenance, operation, waste storage, and decommissioning. Fuel costs are generally highest for oil-fired generation, followed by coal, gas, biomass, and uranium. Fuel costs for fossil fuels are unpredictable and subject to the global fossil fuel market, which can be influenced by global events and political factors. For instance, in 2022, during the energy crisis, petroleum prices peaked. In 2023, the cost of fossil fuels in the US electric power industry was about $3.12 per million British thermal units (Btu), with coal at $2.36 per million Btu and petroleum at $16.53 per million Btu. The US has lower natural gas prices compared to Europe and Japan due to being a significant producer of domestic natural gas.
The operating costs of fossil fuel electricity are compared to other energy sources using levelized costs (LCOE) or the levelized avoided cost of energy (LACE). LCOE considers the expected cost of commissioning plants in the future, assuming moderate carbon costs. LACE, recommended by the US Energy Information Administration in 2014, considers the economic value a source provides to the grid, taking into account dispatchability and the existing energy mix in a region. Nuclear plants are expected to be more affordable than coal-fired plants, with lower fuel costs and carbon emissions. However, nuclear plants have higher capital costs, and their competitiveness depends on carbon prices and natural gas prices.
The cost of electricity generation from fossil fuels is also impacted by carbon taxes or other forms of CO2-pricing, which can affect the economic viability of fossil-fuelled power plants. Additionally, the cost of electricity from fossil fuels must consider the externalities of burning fossil fuels, which contribute to global warming and extreme weather events. These events have resulted in significant financial costs, with climate disasters costing the US $595.5 billion in the last five years.
While critics argue that renewable energy is more expensive than fossil fuels, onshore wind and solar are now the cheapest sources of energy, with costs as low as $0.04 per kilowatt-hour (kWh) compared to fossil fuels, which can cost up to $0.22 per kWh. Renewable energy costs are independent of fuel markets once the infrastructure is built, and solar energy can provide direct savings on power bills through solar credits.
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Clean energy alternatives
Fossil fuels, such as coal, oil, and natural gas, are the largest contributors to global climate change, accounting for over 75% of global greenhouse gas emissions and almost 90% of carbon dioxide emissions. The cost of fossil fuels in the US electric power industry is about $3.12 per million British thermal units (Btu), with coal costing $2.36 per million Btu and petroleum costing $16.53 per million Btu.
To combat the climate crisis, it is essential to transition to clean and renewable energy sources. Here are some clean energy alternatives that can help reduce our reliance on fossil fuels:
Solar Energy
Solar energy has been used since the 7th century BC, and modern solar cells were invented in the mid-1900s. Solar power is a clean energy source that does not emit greenhouse gases or air pollution. Solar farms have dominated new power plant builds in the US in recent years, and a report by the US Department of Energy outlined a path to exponentially increase solar energy use in the country. The Stanton Solar Farm in Florida produces enough electricity to power about 1,200 homes.
Wind Energy
Wind energy is another clean energy source that has gained traction in recent years. In 2019, wind energy represented 9.1GW of new generating capacity in the US, and wind turbines are estimated to last about 20 years.
Hydroelectric Power
Hydroelectric power, generated through the use of water and dams, is also a renewable energy source that can be used as an alternative to fossil fuels.
Nuclear Power
Nuclear power has been a significant source of electricity, generating about 20% of the nation's electricity since 1990. However, many people worry about the problems associated with nuclear energy, such as radioactive waste disposal.
Batteries and Energy Storage
The use of batteries can provide backup power and reduce the need for fossil fuel-based standby generators. While batteries with shorter discharge times may not meet all power system requirements, long-duration storage options are being developed to create a more reliable, affordable, and low-carbon power system.
By investing in these clean energy alternatives and transitioning away from fossil fuels, we can reduce greenhouse gas emissions, create more jobs, and build a healthier and more sustainable future for generations to come.
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Frequently asked questions
Fossil fuels are fuels made from the remains of dead plants and animals that existed millions of years ago. Examples include coal, natural gas, and petroleum.
The cost of fossil fuel electricity varies depending on the source. In 2023, the cost of fossil fuels in the United States was about $3.12 per million British thermal units (Btu), with coal costing $2.36/million Btu and petroleum costing $16.53/million Btu. In 2018, the cost of electricity generation from fossil fuels was estimated to range from $0.05 to $0.17 per kilowatt-hour (kWh).
The cost of renewable energy has been decreasing over the years, and in 2018, it was predicted that renewable energy sources like onshore wind and solar photovoltaic (PV) would be consistently cheaper than fossil fuels by 2020. As of 2025, renewable energy sources such as wind and solar have become the fastest and largest growing sources of electricity in the US, surpassing fossil fuels.
The cost of fossil fuel electricity is influenced by various factors, including capital costs, fuel costs, and operating and maintenance costs. Fuel costs for fossil fuels tend to be high compared to nuclear and renewable energy sources. Additionally, short-term fluctuations in fuel prices can significantly impact the cost of energy generation for natural gas and oil-fired power plants.
