Mercedes Mullins
Renewable energy is, in many cases, cheaper than fossil fuels. Solar photovoltaic (PV) is 41% cheaper on average than the lowest-cost fossil fuel alternatives, and onshore wind projects are 53% cheaper. However, renewable energy sources have a lower capacity factor, which is the percentage of a resource's production as a function of its size. This means that renewable energy requires storage technology to make electricity available when customers demand it. While battery storage costs are decreasing, they are still expensive relative to other options. Additionally, building transmission lines to carry electricity to customers can be expensive, resulting in higher transmission costs for renewables compared to fossil fuel plants located closer to customers. Despite these challenges, the rapid rollout of clean technologies and the growing share of renewables are making energy cheaper for consumers.
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What You'll Learn
- Renewable energy has lower operating costs than fossil fuels
- Fossil fuel power plants can scale up and down to meet demand
- Renewable energy requires storage technology to act as a direct substitute for fossil fuels
- Fossil fuel subsidies favour incumbent fuels over clean energy investments
- Renewable energy is staying competitive with power from gas and coal without subsidies
Renewable energy has lower operating costs than fossil fuels
Despite this, there are several reasons why renewable energy is not the global norm. Firstly, renewable energy requires significant upfront costs, especially when paired with storage. Secondly, the capacity factor for solar and wind energy is low, at 23% and 33% respectively. This means that renewable energy requires storage technology to make electricity available when customers demand it, rather than just when it is convenient to produce. Thirdly, 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.
In addition, fossil fuel-fired power plants remain in operation because they fulfill specific roles within electric power infrastructure. Utilities need resources to restore power after a blackout, balance the grid, or preserve electric power reliability (“grid stability”). Fossil fuel power plants can also scale up and down to meet demand, whereas renewable energy sources cannot always produce power when it is needed.
However, the adoption of renewable energy sources is incredibly fast by the standards of the electricity industry. Governments worldwide spent around $620 billion in 2023 subsidizing the use of fossil fuels, far more than the $70 billion spent on support for consumer-facing clean energy investments. Fossil fuels are implicitly subsidized by not taxing the pollution from their energy production, which renewables do not receive. The benefits of a faster energy transition and growing shares of renewables would filter down to consumers in the form of more predictable costs.
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Fossil fuel power plants can scale up and down to meet demand
The cost of energy is a complex issue influenced by various factors, including technology, economics, and policy decisions. While renewable energy sources like wind and solar have been touted as cheaper alternatives to fossil fuels, there are nuances to this claim. One crucial consideration is the ability of fossil fuel power plants to scale up and down to meet demand, which is a significant advantage in the energy market.
Fossil fuel power plants have the flexibility to adjust their output based on demand and spot energy prices. When demand is high, more fossil fuel plants can come online or increase production, ensuring a steady supply of electricity. This adaptability is particularly important during periods of increased electricity usage, such as peak hours or during extreme weather conditions. For example, a sudden spike in air conditioning usage during a heatwave can be met by ramping up production at fossil fuel plants.
On the other hand, renewable energy sources like wind and solar are dependent on natural variables that cannot be controlled. Wind turbines rely on the availability of wind, and solar panels depend on sunlight. During periods of low wind or overcast skies, the output of these renewable sources can decrease significantly, leading to potential shortages in meeting demand. This unpredictability can be challenging when trying to scale up or down to match demand in real time.
However, it is worth noting that renewable energy technologies have been rapidly advancing, and costs have been declining due to technological improvements and increasing adoption. The levelized cost of electricity (LCOE) for conventional solar power is $23.22, and for onshore wind, it is $31.07. In comparison, natural gas and coal plants, categorized as thermal plants, tend to have a higher LCOE. Additionally, the costs of battery energy storage systems have declined by 93% since 2010, addressing the intermittency issues associated with renewables.
Despite the advantages of fossil fuel power plants in scaling to meet demand, the economic case for renewable energy is strong. The International Renewable Energy Agency (IRENA) reported that around 91% of utility-scale renewable projects were more cost-effective than fossil fuel alternatives. Solar photovoltaic (PV) was 41% cheaper than the lowest-cost fossil fuel options, and onshore wind projects were 53% cheaper. These cost differences have significant implications for reducing emissions and mitigating climate change.
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Renewable energy requires storage technology to act as a direct substitute for fossil fuels
Renewable energy sources such as solar, wind, and hydropower are now cheaper than fossil fuels in most countries. However, renewable energy sources have yet to become a direct substitute for fossil fuels due to the intermittent nature of their generation methods and the lack of efficient and economical storage technologies.
The generation of renewable energy relies on naturally occurring factors such as sunlight, wind, and water flow, resulting in inconsistent output levels. In contrast, thermal power plants using fossil fuels can produce electricity on-demand, independent of external factors. This inconsistency in renewable energy generation leads to the need for storage solutions to balance supply and demand.
Currently, battery storage technologies are not capable of efficiently and economically storing the vast amounts of energy required to meet demand during periods of low renewable energy production, such as extended cloudy periods for solar panels or calm conditions for wind turbines. While battery storage costs have decreased significantly, they remain expensive relative to other options and are limited by their recharge requirements.
To address this challenge, researchers have developed innovative thermal energy storage solutions, such as liquid-to-air transition energy storage and thermal sand batteries. These technologies can store thermal energy derived from surplus electricity for extended periods. Additionally, pumped heat electrical storage systems utilize surplus electricity to power heat pumps that can quickly generate electricity when needed.
In conclusion, renewable energy sources have the potential to be cheaper and more environmentally friendly than fossil fuels. However, to become a direct substitute, advancements in storage technologies are necessary to address the intermittent nature of renewable energy generation and ensure a stable supply of electricity to meet varying demand levels.
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Fossil fuel subsidies favour incumbent fuels over clean energy investments
Fossil fuel subsidies are intended to protect consumers by keeping prices low. However, they come at a significant cost. Firstly, they have fiscal consequences, often leading to higher taxes, more borrowing, or reduced spending. Secondly, they promote inefficient allocation of resources, hindering economic growth. Thirdly, they contribute to climate change and local air pollution, causing premature deaths. Finally, they disproportionately benefit higher-income households, failing to target the poor effectively.
The IEA has been tracking fossil fuel subsidies, highlighting instances where consumer prices are below the market value of the fuel. In 2022, global fossil fuel consumption subsidies doubled from the previous year to a record high of $1 trillion. This was due to surging energy prices and government support. While subsidies are expected to decline in the near term, they are projected to rise to $8.2 trillion by 2030 as fuel consumption in emerging markets increases.
The persistence of fossil fuel subsidies favours incumbent fuels over clean energy investments. Despite the decreasing costs of renewable technologies, high fossil fuel prices and associated subsidies can reduce policymakers' attention and investment in clean energy alternatives. This is particularly true for capital-intensive clean energy projects, which may be viewed as riskier investments during times of high borrowing costs.
Additionally, fossil fuel-fired power plants remain operational due to their specific roles in electric power infrastructure. They are often relied upon to restore power after blackouts, balance the grid, and maintain grid stability. This further delays the transition to clean energy sources, as the existing infrastructure favours the continued use of fossil fuels.
To promote a successful clean energy transition, fossil fuel subsidies should be phased out. The revenue generated from this could be reinvested in targeted social spending, efficient tax reductions, and productive investments, fostering sustainable and equitable outcomes. Removing subsidies would also reduce energy security concerns related to volatile fossil fuel supplies. However, subsidy reform is complex and can lead to social unrest due to increased prices. A comprehensive energy sector reform plan, transparent communication, and consultation with stakeholders are crucial for successful subsidy reform.
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Renewable energy is staying competitive with power from gas and coal without subsidies
However, renewable energy sources face challenges in terms of storage and transmission. To act as a direct substitute for fossil fuels, renewable energy requires storage technology to make electricity available when customers demand it, not just when it is convenient to produce. Building transmission lines to carry electricity to customers can also be expensive, resulting in higher transmission costs for renewables compared to fossil fuel plants located closer to customers.
Additionally, fossil fuel-fired power plants continue to play a specific role within electric power infrastructure. They are relied upon to restore power after blackouts, balance the grid, and preserve electric power reliability, also known as "grid stability". The capacity factor, or the percentage of a resource's production relative to its size, is lower for renewable sources such as solar and wind, impacting their ability to meet demand.
Despite these challenges, renewable energy is increasingly cost-competitive with fossil fuels. The avoided fossil fuel costs in 2024 reached up to $467 billion, demonstrating the economic advantages of transitioning to cleaner energy sources. Furthermore, the rapid rollout of clean technologies can drive down energy prices, making the transition more affordable for consumers.
While there are complexities in the energy market, renewable energy sources are proving their competitiveness without subsidies. The continued development and adoption of clean technologies are crucial steps towards reducing carbon emissions and tackling climate change.
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Frequently asked questions
No, renewable energy is generally cheaper than fossil fuels. Solar PV and wind energy are the cheapest options for new generation. However, renewable energy sources may not always be able to produce power when it is needed and fossil fuel power plants can scale up and down to meet demand.
Renewable energy requires significant upfront costs, especially when paired with storage. Fossil fuel-fired plants can be built cheaply, but have higher operating and production costs. Renewable energy also requires transmission lines to carry electricity to customers, which can be expensive.
Transitioning to renewable energy can save providers and consumers money and help reduce carbon emissions.
