Regan Brown
The cost of renewable energy versus fossil fuels is a highly debated topic. While renewable energy sources such as wind and solar are often cheaper than fossil fuels, there are other factors at play that affect the overall cost. For instance, renewable energy sources may require storage solutions, which can be expensive, and transmission costs may be higher than for fossil fuel plants located closer to customers. Additionally, fossil fuel plants can produce electricity to match demand, whereas renewable energy sources are dependent on factors such as sunlight and wind. However, the costs of renewable technologies have been decreasing due to technological advancements, and many reports indicate that renewable energy is more cost-effective than fossil fuels. The transition to renewable energy may also be more affordable than utility companies are disclosing, and could save providers and consumers money.
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What You'll Learn
Renewable energy is more cost-effective than fossil fuels
The cost of renewable energy technologies has been decreasing since 2010 due to technological advancements and economies of scale. For example, solar photovoltaic (PV) is 41% cheaper on average than the lowest-cost fossil fuel alternatives, such as gas, while onshore wind projects are 53% cheaper. Similarly, the global average cost of electricity from onshore wind fell to 3.3 cents per kilowatt-hour, a 3% decrease from the previous year. In addition, the cost of battery energy storage systems has declined by 93% since 2010, making renewable energy even more cost-effective.
The competitiveness of renewable energy sources in comparison to fossil fuels is driving their extensive deployment. This is particularly evident in China, which had the largest market share of solar PV, onshore wind, offshore wind, and hydropower in 2023. The development of renewable energy projects in China has driven down the global weighted average costs for these technologies.
While there are some challenges to adopting renewable energy, such as the need for storage technology and the potential for higher transmission costs, the overall trend suggests that renewable energy is more cost-effective than fossil fuels. This is further supported by the fact that the costs of operating and producing electricity from fossil fuel plants can be higher due to fluctuating fuel prices.
In conclusion, renewable energy is more cost-effective than fossil fuels, and this is expected to continue with advancements in technology and increasing deployment of renewable energy sources.
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Fossil fuels have higher operating and production costs
While some fossil fuel-fired plants can be built at a relatively low initial cost, they often come with higher operating and production costs. Fossil fuels are subject to fluctuating prices, which can make using them to generate electricity either cheaper or more expensive than initially estimated.
In contrast, renewable energy sources like solar and wind power have lower operating and production costs. The cost of battery energy storage systems, crucial for the large-scale adoption of renewable energy, has declined by 93% since 2010, making renewable energy even more cost-effective.
The International Renewable Energy Agency (IRENA) reported in 2025 that around 91% of utility-scale renewable energy projects were more cost-effective than fossil fuel alternatives. Solar photovoltaic (PV) was 41% cheaper on average than the lowest-cost fossil fuel alternatives, and onshore wind projects were 53% cheaper.
The capacity factor, or the percentage of a resource's production relative to its size, is lower for solar (23%) and wind (33%) compared to fossil fuels. However, this is mitigated by the fact that renewable energy sources have lower operating and production costs.
Despite the higher operating and production costs of fossil fuels, some fossil fuel-fired power plants remain in operation due to their specific roles in electric power infrastructure. For example, utilities rely on these plants to restore power after a blackout or to balance the grid.
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Renewable energy requires significant upfront investment
Renewable energy is often cheaper than fossil fuels, but it requires significant upfront investment. This is because renewable energy sources, such as solar and wind power, have lower capacity factors than fossil fuels. The capacity factor is the percentage of a resource's production relative to its full potential. Solar power has a capacity factor of 23%, while wind power has a capacity factor of 33%. In contrast, fossil fuel power plants can produce electricity to match demand throughout the year as long as fuel is available.
To act as a direct substitute for fossil fuels, renewable energy requires storage technology to make electricity available when customers need it, not just when it is convenient to produce. Battery storage costs have decreased by 93% since 2010, but they are still expensive relative to other options. The US Energy Information Administration (EIA) estimates that the levelized cost of electricity (LCOE) for solar and battery hybrid facilities is $36.27.
The cost of renewable energy technologies has been decreasing since 2010 due to technological advances and economies of scale. The global average cost of electricity from onshore wind fell to 3.3 cents per kilowatt-hour in 2024, 3% less than the previous year. Solar photovoltaic (PV) is 41% cheaper on average than the lowest-cost fossil fuel alternatives, such as gas, while onshore wind projects are 53% cheaper.
However, building transmission lines to carry electricity to customers can be expensive, so even if energy production costs are low, transmission costs for renewables may be higher than for fossil fuel plants located closer to customers. Additionally, many fossil fuel-fired power plants remain in operation because they fulfill specific roles within the electric power infrastructure, such as restoring power after a blackout or balancing the grid.
Overall, renewable energy requires significant upfront investment in storage and transmission infrastructure to compete with fossil fuels. However, the declining costs of renewable technologies and the increasing competitiveness of renewables are driving the transition to cleaner energy sources.
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Fossil fuel plants are closer to customers, reducing transmission costs
The cost of generating electricity from renewable sources compared to fossil fuels has been a highly debated topic. While renewable energy sources like wind and solar have become increasingly cost-effective, some argue that fossil fuel plants remain more economical due to their proximity to customers, reducing transmission costs.
Transmission lines for renewable energy sources can be expensive to build, and the energy produced must then be transmitted over longer distances, increasing costs. Fossil fuel plants, on the other hand, are often located closer to population centres, reducing the distance that electricity needs to travel. This shorter distance results in lower transmission losses and, consequently, lower costs for consumers.
In addition to transmission costs, the availability of fuel plays a role in the economics of fossil fuel plants. As long as fuel is available, these plants can produce electricity to match demand. Renewable energy sources, on the other hand, rely on intermittent sources like wind and sunlight, which may not always be available when needed. This intermittency requires renewable energy systems to have storage capabilities, which can be costly.
However, it is important to note that the cost of battery energy storage systems for renewable energy has decreased significantly, dropping by 93% since 2010. This decline in storage costs improves the cost-effectiveness of renewable energy sources. Additionally, the costs of renewable technologies have been on a downward trend since 2010 due to technological advancements and economies of scale.
While fossil fuel plants may have an advantage in terms of transmission costs due to their proximity to customers, the overall economics of renewable energy are becoming increasingly favourable. The rising competitiveness of renewables is driving a shift away from fossil fuels, as countries strive to meet their renewable energy goals.
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Renewable energy requires storage technology to meet demand
Renewable energy is generally cheaper than fossil fuels, but it requires storage technology to meet demand. This is because renewable energy sources such as wind and solar power are intermittent and fluctuate based on the availability of natural resources. For example, a passing cloud can rapidly change a solar plant's output, and wind speeds can slow down. Therefore, energy storage systems are needed to smooth out variations in how wind and solar energy flow into the electric grid.
Energy storage systems work by converting renewable energy to and from another form of energy. For example, pumped-storage hydropower pumps water into a reservoir and then releases it to generate electricity at a different time. This can only be done in certain locations. Another example is compressed air energy storage, which has been used since the 1870s to deliver energy to cities and industries on demand. Surplus electricity is used to compress air, which is then decompressed and passed through a turbine to generate electricity when needed.
Lithium-ion battery storage is also a widely used technology for storing renewable energy. Governments and developers are investing in the creation of huge lithium-ion batteries to store energy for times when supply outstrips demand. However, these batteries degrade over time and present unique fire management challenges. Flow batteries are another type of battery storage that uses two charged liquids separated by a membrane to store energy.
Energy storage systems can be designed to meet specific storage needs, such as short-term regulation of output or longer-term matching of plant supply and grid demand. Energy storage can also relieve transmission and distribution infrastructure congestion and enhance the resilience of wires infrastructure. It can also serve as backup power for individual homes, businesses, communities, and the broader grid system to prevent power outages.
While renewable energy requires storage technology to meet demand, studies have shown that interconnected power systems can safely and reliably integrate high levels of renewable energy without new energy storage resources. For example, several states in the US, such as Iowa, Kansas, and Texas, generate a significant amount of their electricity using wind and solar without widespread deployment of storage.
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Frequently asked questions
No, renewable energy is cheaper than fossil fuels. However, renewable energy requires storage technology to make electricity available when customers demand it, not just when it’s convenient to produce. Battery storage costs are falling but remain expensive relative to other options.
Building transmission lines to carry electricity to customers can be expensive, so even if energy production costs are low, transmission costs for renewables may be higher than for fossil fuel plants located closer to customers. Additionally, fossil fuel-fired power plants are used to restore power after a blackout, balance the grid, and preserve electric power reliability.
Solar photovoltaic (PV) is 41% cheaper on average than the lowest-cost fossil fuel alternatives, such as gas, while onshore wind projects are 53% cheaper. The global average cost of electricity from onshore wind fell to 3.3 cents per kilowatt-hour, 3% less than the year before.
