Is Renewable Energy Really More Expensive?

Energy costs are at the forefront of many people’s minds today. Electricity rates have risen across the United States, with the average residential price per kilowatt hour increasing over 30% in the last two decades. At the same time, there is growing concern about the impact of fossil fuel energy generation on climate change and public health. This has led to increased interest in renewable energy sources like solar and wind power as potential alternatives.

Some claim renewable energy is too expensive compared to conventional power generation methods. But is that actually true when all costs and benefits are considered? This article will analyze the facts around energy prices and production expenses for different energy sources. We’ll look at historical trends and projections for various technologies, as well as key factors like government subsidies, grid integration expenses, and geopolitical dynamics. The goal is to provide a comprehensive understanding of the costs and benefits of renewable energy compared to fossil fuels.

Current Energy Costs

According to a recent report from the International Renewable Energy Agency (IRENA), renewable energy sources like solar and wind are now the cheapest forms of newly built electricity generation across much of the world, often undercutting even the operating costs alone of existing coal plants. Fossil fuel power generally requires more inputs and thus higher ongoing fuel costs compared to renewables like solar and wind which are free after the initial equipment installation.

The IRENA report states that between 2010 and 2022, the global weighted average levelized cost of electricity (LCOE) of utility-scale solar photovoltaics (PV) fell by around 90% to $0.04/kWh. Onshore and offshore wind dropped by around 56% and 67% respectively to $0.03-0.06/kWh. In comparison, new coal-fired power costs between $0.059-0.109/kWh and the operating cost alone of existing coal plants averages around $0.04-0.12/kWh.

Historical Trends

The costs of renewable energy technologies like solar and wind have declined significantly over the past few decades. According to the Wikipedia article on Cost of electricity by source, the levelized cost of onshore wind energy declined by 71% between 2009 and 2020, while utility-scale solar PV declined by 90% in that period. Data from Our World in Data shows that onshore wind and solar PV were over 3 times more expensive than gas and coal back in 2009, but are now cheaper than those traditional sources.

These declines are largely attributed to technology improvements, manufacturing scale and experience building projects. With increased deployment, developers have refined techniques and supply chains to substantially cut soft costs like permitting, financing, installation and maintenance. Performance improvements in wind turbines and solar panels have also boosted capacity factors, meaning they can generate more electricity for the same capital investment.

Government Subsidies

Government subsidies play a major role in distorting the true costs of energy sources. According to the U.S. Energy Information Administration, most federal energy subsidies in the United States go to renewable energy producers, primarily biofuels, wind and solar power https://www.eia.gov/analysis/requests/subsidy/. The International Energy Agency estimates global fossil fuel consumption subsidies amounted to $300 billion in 2020, while renewable power generation subsidies were around $150 billion https://www.iea.org/topics/energy-subsidies.

Fossil fuels like oil, gas and coal have historically benefited from significant government subsidies. Renewable energy has started receiving more subsidies in recent years as costs have declined and adoption has grown. According to the Institute for Energy Research, renewable energy received 53% of all U.S. energy subsidies in 2022, up from 41% in 2021 https://www.instituteforenergyresearch.org/fossil-fuels/renewable-energy-still-dominates-energy-subsidies-in-fy-2022/.

Without subsidies, the true costs of fossil fuels would likely be higher compared to renewables. More transparent pricing through reduced subsidies could better reflect the competitiveness of renewable energy.

Health and Environmental Costs

When evaluating the costs of energy sources, it’s important to consider not just the direct costs of production, but also the externalized costs related to health and environmental impacts. Fossil fuel pollution is linked to premature deaths, respiratory illness, heart disease, and cancer, with an estimated health cost in the U.S. of up to $886.5 billion per year. Renewable energy has minimal externalized costs in comparison. Burning fossil fuels also contributes to climate change through greenhouse gas emissions, which leads to extreme weather, forest fires, rising seas, mass extinctions, and more environmental destruction over time. Transitioning to renewable energy is critical for reducing these enormous health and environmental costs that are not reflected in the market price of fossil fuels.

Grid Integration Costs

Integrating variable renewable energy sources like wind and solar into the electric grid comes with unique challenges and costs. As the percentage of renewables increases, grid operators have to account for their intermittent nature and ensure continued reliability of electricity supply.

According to a literature review by Synapse Energy Economics, integration costs for wind and solar are commonly less than $5 per megawatt-hour (Synapse). However, costs can vary significantly depending on the grid’s flexibility, transmission infrastructure, and ability to balance supply and demand.

A key cost is in building out transmission lines to areas with the best renewable resources. Upgrades are also needed to manage two-way power flows as decentralized renewables feed into the grid. Advanced power electronics, forecasting tools, demand response technology, and energy storage can help smooth out renewable generation but add to integration expenses.

Per a 2012 National Renewable Energy Laboratory report, integration costs are manageable and not unique to renewables. Conventional power plants also incur costs related to transmission, cycling, ramping, and maintaining reliability (NREL). With proper planning and grid modernization investments, intermittent renewables can be integrated cost-effectively.

Cost Reduction Potential

The costs of renewable energy technologies like solar and wind have fallen dramatically in the past decade, but they still have significant potential for further reductions. According to a 2021 study by researchers at MIT, improvements in solar panel efficiency, manufacturing, supply chains, and installation could lower costs by an additional 24-32% by 2030 (Grant, 2021).

Similarly, a 2016 report by IRENA predicts that with supportive government policies, the costs of electricity from solar and wind could decline 26-59% by 2025 compared to 2015 costs. They attribute these cost reductions to economies of scale, manufacturing improvements, supply chain development, and technology advances that increase capacity factors (IRENA, 2016).

The modularity and decentralization of renewables also opens up opportunities to reduce soft costs like permitting, financing, and installation. Streamlining these processes through standardized practices and digitization can make significant dents in costs. Overall, experts see substantial room for renewable energy costs to become even more competitive with conventional power.

Geopolitical Factors

Many countries are dependent on imported fossil fuels, leaving them vulnerable to supply disruptions and price shocks. For example, the European Union imports 90% of its crude oil and 66% of its natural gas, mostly from Russia (https://www.omfif.org/2023/09/fossil-fuel-dependency-makes-europe-pawn-for-geopolitical-superpowers/). This dependency allowed Russia to weaponize its energy exports during its invasion of Ukraine in 2022. Developing renewable energy sources domestically improves energy security and reduces geopolitical risks from fossil fuel reliance (https://www.rechargenews.com/energy-transition/the-global-geopolitical-risks-arising-from-fossil-fuel-reliance-are-no-longer-sustainable/2-1-1200734).

Transitioning to renewable energy provides energy independence, insulation from fossil fuel price volatility, and reduces funding for petrostates. Domestically produced renewable energy from sources like wind, solar, hydroelectric, geothermal, and biomass can supplant imported coal, oil, and natural gas. This both improves domestic energy security and reduces revenues for major fossil fuel producing countries. The geopolitical benefits of renewable energy independence are substantial.

Public Perception

Public opinion polling shows broad support for expanding renewable energy in the United States. A 2022 Pew Research study found that 77% of Americans favor providing tax rebates to encourage more people to buy solar panels or other renewable energy sources. However, expectations are less positive when it comes to potential cost impacts. The same study showed only 23% believe a transition to renewables will lead to lower energy costs, while 76% expect it will increase prices (Source).

Nonetheless, a majority are willing to pay more to support renewable energy development. A survey by the Energy Policy Institute at the University of Chicago found 56% would pay $100 or more annually in higher electricity bills to expand solar and wind power generation (Source). This indicates that while cost increases are a public concern, they are unlikely to stall a transition to renewables given adequate government incentives and consumer protections.

Conclusion

In summary, the evidence shows that renewable energy is becoming cost competitive with and in many cases cheaper than fossil fuel energy. According to a 2023 report by IRENA, the costs of renewables continued to decline in 2022 despite supply chain challenges, making them among the cheapest sources of new power generation in many markets (IRENA). Factors like technology improvements, economies of scale, competitive procurement practices and a large, flexible global supply chain have driven down costs quickly (Roser).

Renewables are now mainstream, supplying over 30% of global electricity. With costs projected to fall further, now is the time to increase adoption of renewables across the board. Individuals can contribute by purchasing green power, while governments need long-term policies to incentivize renewable energy deployment. The environmental and health benefits of transitioning to renewables along with future cost reductions make this a necessity. Together, we can build a 100% renewable energy future that is cleaner, healthier and cheaper for all.