Is Renewable Energy Cheaper Than Coal?

Rising energy demands and climate change concerns are major factors driving the growth of renewable energy sources globally. As the world’s population increases and developing nations industrialize, energy consumption is projected to rise by 50% by 2050 according to the International Energy Agency (IEA). At the same time, the urgent need to reduce greenhouse gas emissions from fossil fuels like coal and natural gas puts pressure on nations to transition to cleaner energy alternatives.

Renewable sources like solar, wind, hydroelectric, geothermal and biomass offer a path to meet energy needs while also mitigating climate change impacts. The costs of renewables have fallen dramatically, making them economical alternatives in many markets. Government incentives and emission reduction policies also aim to accelerate the energy transition. However, integrating variable renewables onto electrical grids alongside legacy systems poses technical challenges requiring modernized infrastructure and energy storage solutions.

This article will analyze the costs, market forces, government policies and integration challenges affecting renewable energy growth. It will weigh the economic factors determining if renewable energy is becoming cheaper than coal power. The long-term potential for renewables to overtake fossil fuels globally will also be assessed.

Cost of Coal

The cost of producing electricity from coal has three main components – capital costs of the equipment, transportation costs, and costs associated with environmental regulations. According to the U.S. Energy Information Administration (EIA), the average cost of coal in 2021 was around 3.2 cents per Kilowatt hour (KWh) The Real Costs of U.S. Energy. This is often viewed as a bargain compared to other energy sources.

However, coal power requires substantial upfront capital expenditures. A typical coal plant costs around $3 billion to build, with coal-handling equipment, boilers, and environmental controls making up the bulk of costs. Operating and maintenance costs account for about half of the total cost of coal power. Transporting coal via rail from mines to power plants is another significant cost, estimated at around 24% of delivered cost of coal How much coal, natural gas, or petroleum is used to generate a kilowatthour of electricity?.

Coal power is also burdened by regulations aimed at limiting environmental impacts like air pollution, ash disposal, and water use. For example, regulations around mercury emissions increased capital costs by 3% and operating costs by 1% at some plants. Overall, environmental regulations account for around 14% of the cost of producing electricity from coal The Real Costs of U.S. Energy.

Cost of Renewables

The costs of renewable energy sources like solar and wind have declined dramatically in the last decade. According to Our World In Data, the global weighted-average levelized cost of electricity (LCOE) for utility-scale solar PV decreased 88% between 2009 and 2020, from around $0.37/kWh to $0.039/kWh. The LCOE for onshore wind declined 70% in the same period, from around $0.085/kWh to $0.053/kWh.

A 2022 report from the International Renewable Energy Agency (IRENA) found that as of 2022, newly commissioned utility-scale solar PV costs between $0.03-0.07/kWh globally, while onshore wind costs between $0.03-0.06/kWh. In comparison, new coal-fired power plants cost $0.05-0.14/kWh. This places the best renewable energy projects at or below the lower range of new coal power. The IRENA report credits technology improvements, economies of scale, and competitive supply chains for the falling costs.

Market Forces

The market forces favoring renewable energy over coal have grown substantially in recent years. According to the EIA, U.S. coal-fired generation is expected to decline by 6% in 2022 compared to 2021. This continues a long-term decline as coal has faced increasing competition from cheaper natural gas and renewables. In contrast, renewable energy generation has grown steadily. The IEA forecasts that global coal demand will decline through 2026 while renewable energy sees continued growth. The ongoing addition of renewable energy sources to electric grids around the world has made their output cheaper and more reliable. With the continued decline in costs for wind and solar power technology and sources like natural gas, they have become more cost-competitive than coal power in most markets. The market-driven decline of coal looks likely to accelerate in the coming decades with market forces increasingly favoring cleaner and cheaper alternatives.

Government Incentives

Government subsidies and tax credits have a significant impact on the costs of coal and renewable energy. According to the U.S. Energy Information Administration, federal support for renewable energy more than doubled from $7.4 billion in 2016 to $15.6 billion in 2022 (https://www.eia.gov/analysis/requests/subsidy/). The largest renewable energy subsidies are for wind, solar, and biofuels. In comparison, subsidies for fossil fuels were around $5.9 billion in 2022, having declined in recent years.

Tax credits like the Investment Tax Credit (ITC) and Production Tax Credit (PTC) have spurred growth in the solar and wind industries, making them more cost-competitive. The ITC allows companies to deduct 30% of the cost of installing solar panels from their federal taxes. The PTC provides a tax credit per kWh of electricity generated from wind farms. According to the Institute for Energy Research, renewables received over 70% of all energy subsidies in 2022, with fossil fuels receiving under 20% (https://www.instituteforenergyresearch.org/fossil-fuels/renewable-energy-still-dominates-energy-subsidies-in-fy-2022/).

Carbon Emissions Impact

The carbon emissions from coal power generation have a significant negative impact on the environment and public health. Researchers have estimated this cost, known as the social cost of carbon, to be between $51 and $305 per ton of CO2 emitted in 2030 (in 2020 dollars).

This cost is not reflected in the market price of coal power, but accounting for it makes renewables more cost competitive. A 2021 study found that factoring in a conservative estimate of the social cost of carbon makes the lifetime cost of new renewable generation comparable to or lower than the cost of operating most existing coal plants in the U.S. [1]

The U.S. EPA recently proposed updating the social cost of carbon to as high as $190 per ton, which would further tip the scales in favor of renewable energy over fossil fuels like coal. [2] Accounting for the full societal impacts makes the overall costs of coal much higher than renewables.

Grid Integration Challenges

One of the main challenges of integrating renewable energy like wind and solar onto the electric grid is intermittency. Since the sun doesn’t always shine and the wind doesn’t always blow, there can be reliability issues and a need for backup power from more dependable sources like natural gas. This can increase costs.

According to a literature review from Synapse Energy Economics, the integration costs for adding wind and solar are generally quite low, less than $5 per megawatt-hour (Synapse). Another 2012 NREL study found the concept of ‘integration costs’ to be overly simplified, and that intermittency costs are manageable with proper grid planning and operation (NREL).

Overall the research shows that while managing intermittency does add some costs, they are relatively minor compared to the long term benefits of adding renewable energy to the grid. With better energy storage, demand management, and grid modernization, intermittency costs can be further reduced.

Energy Storage Solutions

Energy storage is a critical component for enabling the large-scale adoption of renewable energy sources like wind and solar. Wind and solar power are variable and intermittent, producing energy only when the wind is blowing or sun is shining. Energy storage provides a way to capture excess renewable energy when it’s produced and discharge it later when it’s needed.

Batteries have emerged as a leading storage technology for renewable energy. Lithium-ion batteries in particular can store large amounts of energy and release it quickly when demanded by the grid. The costs of lithium-ion batteries have fallen dramatically in recent years, making them economical options.

Battery storage projects are being deployed to help integrate renewables and provide grid reliability services. For example, the Hornsdale Power Reserve in South Australia is a massive lithium-ion battery system charged by a nearby wind farm. It has helped stabilize the local grid and reduce frequency fluctuations. Various startups are also piloting smaller modular battery systems for homes and businesses.

Beyond lithium-ion batteries, other storage technologies include pumped hydro storage, compressed air energy storage, flywheel storage, and hydrogen storage. Each has advantages and disadvantages in terms of capacity, efficiency, lifespan, and costs. An array of storage solutions will likely be needed to fully transition to renewable energy.

Long Term Potential

The costs of renewable energy, especially solar and wind, are projected to continue declining in the long term. According to the International Energy Agency (IEA), costs for solar PV and onshore wind are expected to fall by 2024 but not rapidly enough to return to pre-Covid levels yet. However, the IEA projects a 15-35% decrease in total installed costs of solar PV and onshore wind between 2020 and 2030 (IEA).

The International Renewable Energy Agency (IRENA) also forecasts continued cost declines for renewables in their long term projections. IRENA estimates solar PV costs could fall over 60% by 2050 compared to 2020 levels. Onshore and offshore wind are projected to see around a 30% drop in costs by 2050 (IRENA report).

With expected innovations and economies of scale as renewables expand globally, most analysts project their costs will continue falling in the long run compared to fossil fuels. This makes the economic case for renewables over conventional energy sources stronger over time.

Conclusion

In summary, while coal remains a major part of the global energy mix, most evidence suggests renewable energy sources like solar and wind are quickly becoming cheaper and more cost-competitive. Market forces and government policies aimed at reducing carbon emissions and promoting renewables have helped drive rapid growth in renewable capacity and precipitous declines in cost. Though coal maintains advantages in baseload power capacity and grid reliability, innovations in energy storage and grid management may erode those advantages over time. Looking ahead, renewables have far greater long-term potential for continued cost reductions and capacity expansions needed to transition the world to a low-carbon energy system. However, realizing that potential on a global scale remains a massive challenge requiring substantial investments and policy support for many years to come.