Two-thirds of the energy used by the electrical generation and distribution system never reaches the end user.
The unit cost of electricity is high because most of the energy that must be purchased to generate it does not actually reach the end user but is expended in creating the electricity and moving it to the point of use. In 2000, for example, approximately 40 quadrillion Btu of energy were consumed by the electric power sector to generate electricity in the United States, but only 12 quadrillion Btu worth of electricity were actually used directly by consumers. Where did the other 28 quadrillion Btu go? Energy is never destroyed but it does change form. The chemical energy contained in fossil fuels, for example, is converted at the generator to the desired electrical energy. Because of theoretical and practical limits on the efficiency of conversion equipment, much of the energy in the fossil fuels is “lost,” mostly as waste heat. (The overall energy efficiency of a system can be increased through the tandem production of electricity and some form of useful thermal energy. This process, known as cogeneration, reduces waste energy by utilizing otherwise unwanted heat in the form of steam, hot water, or hot air for other purposes, such as operating pumps or for space heating or cooling.)
In addition to the conversion losses, line losses occur during the transmission and distribution of electricity as it is transferred via connecting wires from the generating plant to substations (transmission), where its voltage is lowered, and from the substations to end users (distribution), such as homes, hospitals, stores, schools, and businesses. The generating plant itself uses some of the electricity. In the end, for every three units of energy that are converted to create electricity, only about one unit actually reaches the end user.