Will Switching To Renewable Energy Save Money?

The costs of energy from fossil fuels versus renewable sources have always been a major factor in the debate over switching to clean energy. Historically, fossil fuels like oil, coal and natural gas have been cheaper than renewable energy from sources like solar and wind. However, renewable costs have dropped dramatically in the last decade, leading many experts to predict grid parity in the near future. In fact, renewables are already cheaper than fossil fuels in some parts of the world.

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Current Costs of Fossil Fuels

Fossil fuels like coal, natural gas, and oil remain the dominant sources of energy generation globally. The costs of these fossil fuels can be broken down into:

Coal – The average cost of coal for electric generation in 2021 was $33.05 per megawatt-hour. The delivered price of coal includes the cost of the fuel plus transportation and handling costs.
Natural Gas – The average wholesale price of natural gas for electric generation in 2021 was $4.42 per million British thermal units. Natural gas prices fluctuate seasonally and have regional cost differences.

Oil – Crude oil prices averaged around $68 per barrel in 2021. Fuel oil and diesel retail prices for end users averaged $2-3 per gallon.

These fuels incur additional costs related to storage, transportation, infrastructure maintenance, and environmental compliance over their lifecycle. There are also macroeconomic factors like supply/demand dynamics that influence pricing.

Cost Trends for Fossil Fuels

The costs of fossil fuels like coal, oil, and natural gas have fluctuated over the past few decades. However, experts project that fossil fuel prices will likely continue to increase over the long-term as supplies dwindle and demand grows. Here are some key factors that will impact future fossil fuel costs:

– Limited Supply – Fossil fuel reserves are finite and cannot be replenished. As global supplies diminish, extraction costs will increase. This supply constraint will drive prices upwards.

– Increasing Demand – Energy consumption and demand, especially from developing nations, is projected to rise substantially in the coming decades. Higher demand combined with shrinking supplies will lead to higher prices.

– Extraction Challenges – The remaining reserves of fossil fuels are often harder and more expensive to extract, such as those located in remote areas, deeper underground, or offshore. The costs of extraction, refining and transportation will increase prices.

– Carbon Pricing – Many experts expect that governments will continue implementing carbon pricing policies which add costs to emitting greenhouse gases. This will likely raise fossil fuel prices compared to renewables.

– Market Volatility – Geopolitical instability in key fossil fuel producing regions leads to supply uncertainty and price volatility. This market instability is expected to continue driving costs up.

Current Costs of Renewables

The costs of renewable energy sources like solar, wind, geothermal, and hydro power have declined substantially in recent years. This is making renewables competitive with fossil fuels in many markets.

For utility-scale solar power, costs have dropped over 70% in the last decade. The average price for solar power purchase agreements is now around $20-40 per MWh in most of the U.S. This is competitive with the cost of building new gas or coal plants.

Onshore wind power is now one of the cheapest sources of electricity generation. Average costs for wind PPAs are around $20-30 per MWh. Offshore wind is more expensive but costs are quickly declining with larger turbines and other improvements.

Geothermal power can provide constant baseload electricity for $20-50 per MWh if there is an adequate geothermal resource. This makes it competitive with natural gas in some markets.

Hydropower has a high upfront capital cost but extremely low operating costs. Once built, hydroelectric dams can generate electricity for $30-60 per MWh or less.

Cost Trends for Renewables

The costs of renewable energy like solar and wind have declined substantially in the past decade. This is mainly due to improvements in technology and economies of scale as more renewables get deployed.

Solar panel costs have dropped 90% in the last 10 years. With each doubling of installed solar capacity, panel costs fall by 20-30%. This is known as Swanson’s Law, similar to Moore’s Law for computer chips. As solar manufacturing scales up and new technologies emerge, costs are projected to continue falling.

The levelized cost of electricity from utility-scale solar PV dropped 88% from 2009 to 2020. Costs are expected to fall a further 40-70% by 2050. Residential and commercial rooftop solar costs have followed a similar trajectory.

For wind energy, turbine costs have fallen 50% over the last decade. As hub heights and rotor diameters increase, wind turbine capacity factors improve. New turbine designs also allow for cheaper transportation and installation costs. The levelized cost of wind energy is projected to decrease an additional 10-25% by 2050.

Overall, most experts foresee renewable costs falling to 2-4 cents/kWh in the coming decades. This would make them consistently cheaper than new fossil fuel plants.

Government Incentives

Governments often provide financial incentives to encourage the switch to renewable energy. These come in the form of tax credits, rebates, and subsidies that help reduce the upfront cost of installing renewable energy systems.

Some of the key incentives include:

Federal Solar Tax Credit – This provides a 26% tax credit for installing solar panels on residential and commercial properties. The credit applies to both the cost of the system as well as installation.
State Tax Credits – Many states offer additional tax credits beyond the federal credit to further incentivize solar, often between 10-50% of the project cost.

Solar Renewable Energy Certificates (SRECs) – These are tradeable credits earned from generating solar energy. They can be sold to utilities to meet renewable energy quotas.
Rebates – Local utilities or governments may offer rebates to cover a portion of purchasing renewable energy systems and equipment.
Property Tax Exemptions – Some locales offer property tax breaks for adding renewable energy systems to homes and businesses.

USDA Grants – The USDA provides grants and loans to assist rural small businesses and agricultural producers transition to renewable energy.

Taking advantage of these incentives can potentially cover 25-50% of the costs of going solar for a home or business. This can greatly accelerate the return on investment timeline for renewable projects.

Case Studies

Real-world examples showcase the significant cost savings realized when switching to renewable energy. In 2018, the city of Georgetown, Texas shifted entirely to renewable energy due to favorable economic factors. Georgetown now sources all of its municipal electricity from wind and solar power delivered via long-term fixed-rate contracts. This change is saving the city and its residents over $30 million on electricity over 25 years.

Apple is another example. As of 2018, all of Apple’s facilities worldwide are powered by 100% renewable energy. This has allowed Apple to save on energy costs and reduce exposure to fossil fuel price volatility. Apple’s transition to renewables was economically motivated and has produced a positive return on investment.

Google is a third example. Since 2017, Google has matched 100% of its global electricity consumption with renewable energy purchases. Like Apple, Google cites renewable energy’s economic advantages as a major reason for its commitment. The tech giant is benefiting from long-term cost savings and insulation from fossil fuel price swings.

There are many more examples of organizations saving substantially on energy costs by switching to renewables for economic reasons. The case studies make clear that renewable energy can provide major cost reductions compared to conventional power.

Environmental Cost Savings

Switching to renewable energy can provide significant environmental benefits that lead to cost savings. Fossil fuels like coal and natural gas produce air pollution when burned, contributing to smog, acid rain, and health issues like asthma. Renewable sources like solar and wind do not produce direct air or water emissions. According to the Union of Concerned Scientists, air pollution from coal costs the U.S. $62 billion per year in public health impacts. Other studies estimate coal pollution causes over 10,000 premature deaths annually in the U.S. Reducing our reliance on fossil fuels can avoid these costs and create public health savings. Renewable energy also helps lower carbon emissions that contribute to climate change. Climate change leads to rising sea levels, damage from extreme weather, and other impacts that will cost the global economy trillions of dollars if left unaddressed. Transitioning the electricity sector to renewable sources is a key step in mitigating climate change risks in a cost-effective manner. While renewable energy systems have upfront capital costs, they can provide net cost savings in the long run by avoiding the significant environmental externalities of fossil fuel energy.

Other Considerations

When evaluating the costs of switching to renewable energy, there are some other important factors to consider beyond just the upfront and ongoing costs of the energy sources themselves:

Reliability

Many renewable energy sources like solar and wind are intermittent – they only generate energy when conditions are right. This can lead to reliability challenges in matching energy supply with demand, unless there is some way to store and dispatch the energy when needed. Backup power or storage adds costs and complexity.

Storage

Energy storage systems like batteries and pumped hydro allow renewable energy to be dispatched as needed. But these add substantial costs to a renewable energy system. Storage technology is improving rapidly, but it still remains expensive compared to the relative reliability of fossil fuels.

Transmission Costs

Fossil fuel power plants can be located close to population centers, minimizing transmission costs. But renewable sources like solar, wind, and hydro power are location dependent and often require expensive investments in long-distance transmission lines to connect the generation source to customers.

Conclusion

In summary, while renewable energy sources like solar and wind are still more expensive than fossil fuels like coal and natural gas in many places today, costs for renewables are falling rapidly as technology improves. Cost trends show that renewables are likely to reach cost parity with fossil fuels within the next decade in most of the world, and will likely become cheaper than fossil fuels after that point. Government incentives can accelerate this transition and help offset current higher prices for renewable power.

There are also significant environmental benefits and cost savings from switching to renewables, in terms of reducing pollution, mitigating climate change, and avoiding the health impacts of fossil fuels. While switching to 100% renewable energy poses some grid reliability challenges currently, many experts think these can be addressed through improved transmission, storage, and demand management. On the whole, the long-term economic and environmental benefits of transitioning to renewables outweigh the upfront costs and challenges.