Does Renewable Energy Save Money?

Renewable energy sources such as solar, wind, and geothermal have seen tremendous growth over the past decade as costs have declined and technology has improved. Unlike fossil fuels, renewable energy harnesses naturally occurring resources that are constantly replenished. The major renewable energy sources include:

Solar power from photovoltaic panels or concentrated solar plants

Wind power from onshore and offshore wind turbines
Hydropower from dams and tidal energy from tidal barrages
Geothermal power from underground heat

Biomass power from organic plant and animal waste

As renewable energy capacity expands globally, an important question arises: Does renewable energy save money compared to conventional power sources over the long term? This article will analyze the costs and benefits of renewable energy to determine if it provides net economic advantages.

Table of Contents

Upfront Costs

The upfront costs of building renewable energy systems like solar and wind farms can be quite high. According to How Much Investment Do You Need For A Solar Farm?, the typical cost of building a solar power plant is between $0.89 and $1.01 per watt. So for a 5 MW solar farm, the upfront investment could be $4.5 – $5 million. How Much Does a Solar Farm Cost? (2024) notes that a 100 MW solar farm could cost over $100 million in initial investment.

The high capital expenditures for renewable systems can deter some investors and project developers. However, as technology improves and scale increases, the upfront costs are coming down over time. Financing options are also expanding, which can help mitigate the upfront cost barrier.

Operating Costs

Once renewable energy systems like solar and wind are installed, they have very low operating costs compared to fossil fuel power plants. Fossil fuels require continual purchasing and burning of coal, natural gas, or oil. The fuel costs are volatile and account for a large portion of total operating expenses. However, the “fuel” for renewable energy is free after installation. For example, the wind and sun are available at no additional cost. This means operating costs are quite low for renewable energy systems. According to the Inspire Clean Energy blog, the average operating cost per kWh for renewable energy like solar and wind ranges from $0 to $0.02, while fossil fuel power plants range from $0.04 to $0.08 per kWh. This significant difference demonstrates why renewable energy has lower operating costs than conventional sources. Over time, these compounded savings from lower operating costs make renewable energy highly cost competitive.

Source: Is Renewable Energy Cheaper Than Fossil Fuels? | Inspire

Grid Parity

Grid parity refers to the point at which renewable electricity has become cost-competitive with conventional sources of electricity like coal and natural gas on a per-kilowatt-hour basis. This is an important milestone, because once renewables reach grid parity, they become more financially attractive for widespread adoption.

Many types of renewable energy have already reached grid parity in certain areas. For example, wind and solar power have achieved grid parity in regions with strong wind resources or high levels of solar irradiation. In places like parts of the U.S., China, and Europe, building new wind or solar is now cheaper than building new fossil fuel plants. This trend is expected to continue spreading as technology improves and renewable costs continue falling.

Reaching grid parity is a major step towards renewable energy being able to outcompete conventional sources on cost alone. As more places reach this milestone, it will accelerate the global transition towards a clean energy system.

Government Incentives

Federal, state, and local governments offer tax credits and other incentives to help make renewable energy more affordable. At the federal level, there is an investment tax credit (ITC) that allows consumers to deduct 26% of the cost of installing solar panels from their federal taxes through 2022. This credit will increase to 30% starting in 2023 (U.S. Department of Energy). Many states also offer additional tax credits and rebates for installing renewable energy systems. For example, homeowners in New York can claim a 25% state tax credit on the costs of installing solar panels, up to $5,000 (U.S. Energy Information Administration). Local governments and utilities often provide rebates and incentives as well to make renewable energy more affordable for homeowners and businesses.

Carbon Pricing

Putting a price on carbon emissions through carbon taxes or cap-and-trade systems makes fossil fuels less economically competitive compared to low-carbon or zero-carbon alternatives like renewable energy. According to the International Energy Agency, carbon pricing shifts investment incentives towards clean energy, fostering short- and long-term sustainable economic growth (IEA, 2020). Research shows that carbon pricing increases renewable energy deployment and abatement. One study found that carbon prices increase solar-induced abatement by around 8%, while wind-induced abatement remains largely unaffected (Lilliestam et al., 2021). Overall, carbon pricing makes renewable energy more cost-competitive with fossil fuels, driving adoption.

Corporate Procurement

Large corporations have been increasingly procuring renewable energy to power their operations and achieve sustainability goals. According to research by S&P Global (https://www.spglobal.com/commodityinsights/en/ci/research-analysis/corporate-renewable-procurement-announcements-reach-30-gw.html), in the second quarter of 2023, corporate renewable energy procurement jumped 60% compared to the previous quarter. Many major companies like Google, Apple, Amazon, and Walmart have pledged to eventually power their operations with 100% renewable energy. They are signing long-term contracts with wind and solar farms to lock in lower, fixed prices for clean power. This allows them to mitigate risk from energy market volatility and reduce operating costs over time.

A key driver behind this trend is renewable energy achieving cost parity or even becoming cheaper than conventional fossil fuel power in many areas. Corporations are realizing they can cut electricity costs and improve profit margins by tapping into affordable solar and wind power. According to the CDP (https://www.cdp.net/en/articles/companies/renewable-energy-procurement-trends-and-strategies), renewable energy procurement has surged globally as businesses aim to control energy spending and become more sustainable.

Resilience

Renewable energy sources like wind and solar can improve the resilience and reliability of the electric grid. According to the National Renewable Energy Laboratory (NREL), renewables are becoming leaders in providing grid resilience. Renewable energy systems with advanced inverters have the capability to provide essential grid services and continue operating even when there is a disruption to the grid. This makes the overall electric system more resilient and able to quickly recover from extreme weather events or cyber attacks. The American Progress organization also notes that renewable energy resources are well-equipped to maintain and improve grid reliability. Their inherent distributed and modular nature allows renewable systems to isolate grid disruptions and sustain operation. Increasing renewable energy generation enhances the decentralization and diversification of power supply. This provides greater adaptability and security for the grid during disruptions.

Job Creation

The renewable energy industry has become a major engine for job growth and economic development. According to the International Renewable Energy Agency (IRENA), worldwide employment in renewable energy reached 13.7 million in 2022, nearly doubling over the past decade (IRENA, 2022). This includes jobs in the solar, wind, biofuels, geothermal, hydropower and other renewable sectors. The U.S. Department of Energy reports there are over 8 million jobs in renewable energy in the United States today, with energy jobs overall growing faster than the overall economy in 2021-2022 (DOE, 2022).

Building and operating renewable energy systems is often more labor-intensive than fossil fuel plants, creating many skilled jobs in construction, manufacturing, operations, maintenance and more. Renewable energy investments strengthen local economies by providing new opportunities in rural areas and previously struggling communities. The transition to clean energy is spurring innovation and new industries while supporting high-quality careers.

Conclusion

In summary, the cost of renewable energy has declined dramatically in recent years, reaching parity with fossil fuels in many cases. Key factors driving this trend include improving technologies, economies of scale, competitive procurement policies, and falling costs for solar panels, wind turbines and batteries. Government incentives have also helped accelerate adoption. Meanwhile, the externalities of fossil fuels, from air pollution to climate change, are exerting increasing costs on society.

Looking ahead, renewables are poised for continued growth as costs drop further. Emerging innovations such as hybrid renewable systems, renewable hydrogen, smarter grids and energy storage solutions will unlock greater efficiencies. Market forces and policy support are aligning globally to drive the energy transition. While upfront costs remain a barrier in some areas, renewable energy is increasingly the low-cost option. The long-term economic case for renewables is compelling, with the potential for significant consumer savings and job creation over the coming decades.