Does Renewable Energy Make Electricity Cheaper, Or More Expensive?

Does Renewable Energy Make Electricity Cheaper, Or More Expensive?

There can be a lot of debate around this question …

Does renewable energy make electricity cheaper or more expensive?

In this guide, we provide a general summary to the question, as well as looking at examples around the world where renewable energy is used for electricity production and seeing what the impact on electricity prices are.

 

Summary – Does Renewable Energy Make Electricity Cheaper, Or More Expensive?

  • Renewable energy is only one of many factors that can impact electricity prices on the national (country wide) or State (one State of a country) level (… renewable energy may have a large impact, or a smaller impact, in conjunction with a range of other factors)
  • Ultimately, what impacts electricity prices is country, State and often city specific – as there are different factors and variables (direct vs indirect, short term vs long term, small picture vs big picture, and so on) impacting electricity prices at any one time in any one place. For example, the factors impacting electricity prices in California may be different to other States in the United States
  • There are countries and States in the world with renewable energy in their electricity mix that have higher than average electricity prices. In some of these countries and States, there is strong evidence that the introduction and expansion of renewable energy into the energy mix has correlated with electricity prices increasing significantly. Some of this increase might be from the overall service of providing electricity from energy sources that include renewable energy, while some of this increase can be from renewable or green energy related taxes and subsidies, or support schemes that customers have fund as part of their electricity bills
  • Some countries and States in the world have seen their electricity prices increase because of several other factors other than renewable energy, such as overall lack of supply of electricity compared to demand, high costs of electricity generation (such as high gas prices), network and infrastructure investment and costs (poles, wires, transmission equipment), and other factors
  • There are also countries and States that have experienced no real change with electricity prices, or even more competitive electricity prices with renewable energy in their electricity mix
  • The type of renewable energy should be specified and considered individually when asking if renewable energy increases or decreases electricity prices – some countries and States may find some types of renewable energy like hydropower to be more cost effective than other renewable energy sources like solar and wind (just as a theoretical example). Solar and wind for example are variable sources of energy, compared to hydropower which may function differently and provide a more constant supply of power
  • Electricity is a constantly evolving and developing sector. Solar and wind technology costs and capital costs in particular may continue to drop in the future, and this may lead to further electricity price drops. Coal and other fossil fuels may get more expensive with requirements for environmentally friendly plants (that minimise carbon and air pollution emissions), carbon penalties/taxes, polluters taxes, and more. These are just considerations though.
  • Overall, the presence of renewable energy in an energy mix for electricity is just one factor that can impact electricity prices. There are other factors that can also impact electricity prices (each factor may impact electricity prices to different extents). To find out what exactly is impacting electricity prices in a specific place over a specific time period, an individual assessment or report for that location and time period is required. It doesn’t seem accurate enough to generalise that renewable energy does or doesn’t impact electricity prices in a specific way.

A good way to summarise an answer to this question might be (from finder.com.au):

  • Electricity prices have become a political hot potato …
  • Electricity retailers find fault with governments, and renewable energy advocates point the finger at the nasty old fossil-fuel generators. The right-wing commentariat blames renewables, while the federal government blames everyone but itself.
  • The truth is there is no silver bullet. No single factor or decision is responsible for electricity prices … Rather, it is the confluence of many different policies and pressures at every step of the electricity supply chain.

Also, from energycouncil.com.au:

  • Despite the impact of renewable charges on electricity bills it remains one component of many and is not always the cause of higher prices

*Note – this guide is mainly about retail electricity prices, and not wholesale, commercial or industrial prices. Also note, some households have their own solar, or other type of renewable energy set up. This guide considers electricity from the grid only. Providing power from an individual set up would obviously require a comparison of set up and running costs, feed in credits, taxes, and other factors, compared to obtaining electricity from the grid only.

 

General Factors, & Country & State Specific Factors That Can Impact Electricity Prices

We have written about these factors in the following guides:

As you can see, different countries and States have different factors that might be impacting their electricity prices in a major way at any one time.

For example, places like Denmark, Germany and Belgium look to have significant taxes related to renewable or green energy development and support attached to their electricity prices. Phasing out and closing down of competitive or low cost energy sources (in favor of renewable energy) such as nuclear could also be an issue.

Whereas, a place like South Australia may be suffering from other problems such as government energy policy in need of improvement, high network (poles and wires) costs, paying premium prices for existing energy sources (which are also restricted in supply in numerous ways, and pushing prices up as demand increases), inefficient and/or old existing power plants, and so on.

If you want to do your own assessment on your own State or country, this guide may help you in determining what factors might be most responsible for impacting electricity prices where you live.

 

Electricity Prices In Countries That Use The Most & Least Renewable Energy For Electricity

From this list, we can see that not all the countries who use the most renewable energy as part of their electricity generation energy source mix have the highest electricity prices, and vice versa for countries that use far less renewable energy for their electricity generation.

But, some countries with higher renewable energy share of electricity generation do have higher than average electricity prices, and some of them very high prices.

In general, you can see some electricity prices worldwide for notable countries, which can be a good guide for comparison with the above guide.

 

Electricity Prices & Renewable Energy Share Of Electricity In The States Of Different Countries

Likewise, when we break it down to State level from the national level, not all the States in Australia and the United States respectively who use the most renewable energy as part of their electricity generation energy source mix have the highest electricity prices, and vice versa for countries that use far less renewable energy for their electricity generation.

But, some States with higher renewable energy share of electricity generation do have higher than average electricity prices, and some of them very high prices.

 

Different Renewable Energy Sources Can Have Different Impacts On Electricity Prices

In general terms (without looking at the different compositions and makeup of each electricity system worldwide) …

Hydropower has traditionally been seen a low cost way to provide consistent power (when water supplies aren’t variable and there is water available year round).

Solar and wind though are variable sources of energy – their power supply can peak and dip with the weather conditions. Some energy grids are set up in such a way that variable energy sources complement each other, but others may require additional measures like energy storage in the form of batteries, energy sources with energy storage (like pumped hydro), or simply other energy sources to provide more power in times of higher energy demand.

The problem with variable energy sources (that need additional support mechanisms) is that huge commercial energy storage batteries are expensive, and other energy sources may have to restrict their own supply capacity and have to ramp up quickly when required (both of which can impact profits and return on investment for these energy suppliers). Furthermore, surplus electricity from variable energy sources like solar or wind may cause overcapacity issues, and suppliers or governments may even have to pay other States or countries to take their surplus electricity. This is not to mention upgrades to the existing energy grid infrastructure that have to be made for additional or different energy sources being integrated to it.

For these reasons and others, different types of renewable energy can have a different impact on electricity prices.

 

Renewable Energy Providing Electricity As A Service, &, Going Beyond The Capital & Operating Cost Of An Energy Source

LCOE stands for the levelised cost of electricity.

It summarises the lifetime cost to generate one unit of electricity for an individual energy source.

Hydro, solar and wind can have low a LCOE because the cost to operate them is low during operation (because fuel like coal, gas or oil doesn’t have to be purchased).

What some people automatically think is that because an energy source has a low electricity generation cost, that it means the electricity produced from that source will be cheap as well.

But, as we covered in the above guide on the general factors that impact electricity prices, the cost to generate electricity is just one factor that can have an impact.

Further to that, the cost to generate electricity (capital, and operation costs) is not the only cost – there is the cost to get the electricity from a power plant or power generation site, to the end user. This involves the power grid, infrastructure, and whatever supporting capital and services you need to deliver power from that energy source. There’s also other costs added to the final electricity price, such as cost by the retailer, taxes, and so on.

Existing fossil fuel and nuclear energy might not only be able to provide electricity to the end user without adding supplemental energy sources like some renewables might need, but are often set up to provide electricity by the existing electricity grid without the need to upgrade or change the grid in any major way (like renewables might need).

So, electricity should be look at like a comprehensive service with many factors that make up the delivery of that service. Those factors and the overall requirements to deliver the service can change with different energy sources used to generate the electricity.

 

Remember, More Expensive Electricity May Come With Benefits

More expensive electricity is not necessarily a bad thing.

Like all products and services, increased price can be a feature of added benefits.

More expensive electricity might also mean:

  • Better Quality/Reliability – for example, Denmark has one of the best rated electricity services in the world according to some indexes.
  • Environmental & Social Benefits – for example, fossil fuels have often been linked to air pollution (and consequential human health problems and higher mortality rates), and greenhouse gas emissions that contribute to climate change. Greener energy and renewable energy might be more expensive in some cases, but may also be better environmentally and socially by addressing these problems and others.

The obvious point here is that if there is a higher price for electricity, the higher price has to be linked in a clear and transparent way to that increased price.

 

But, Very Expensive Electricity Can Also Be A Sign Of Problems 

On the flip side, expensive electricity can be a sign of things like:

  • Lack of supply of electricity compared to demand
  • Not enough competition amongst different electricity suppliers and retailers
  • A regulated monopoly – the government forcing electricity prices a certain way based on regulations or other methods of control and restriction

These factors and more can be signs of an unhealthy electricity sector that isn’t functioning in a competitive, fair or free (as opposed to restrictive) way.

 

The Potential Future Of Electricity

Electricity, like all sectors, will change in various ways in the future.

Some factors to consider in the future that may impact on electricity prices and the various energy sources that provide electricity are:

  • New coal plants might be getting more expensive
  • CCS (carbon capture storage and use) technology for fossil fuels might be prone to failure, and is expensive
  • Air pollution technology for fossil fuel plants cost additional money
  • Carbon prices and taxes, and polluters tax can increase the price for fossil fuels that were previously cheaper to set up and run
  • Solar and wind technology, with continual investment and demand, are expected to continue to drop in price – potentially passing cost savings onto the end consumer
  • Distributed (as opposed to utility) solar could help move some electricity generation from the main grid to independent users and individuals
  • There’s still untapped potential in some energy sources like offshore wind, pumped hydro, and other energy sources

You can read more in these guide about the considerations of moving towards renewable energy, and the challenges in moving towards renewable energy.

There’s also this guide that outlines whether it’s possible to completely replace fossil fuels with renewable energy.

 

In Australia, looking to the future in the electricity sector as an example:

  • The cost to decarbonise the electricity system is lower than the cost of replacing the existing power system [of existing coal fired generation with new coal fired generation] like for like.
  • Remember there are costs of not decarbonizing [too]
  • Three priorities in the future that will require investment will be 1. Reducing emissions 2. Replacing the existing coal fleet and coal mines, and 3. Increasing supply of power stations to reduce risk and increase reliability of electricity supply

– reneweconomy.com.au

 

Potential Solutions For Making Electricity Prices More Affordable In Different Countries & States In The Future

Check out this guide:

What is interesting to note from that guide, is, a place like Denmark has come out and said that as their renewable energy supply has increased, there may be little reason for their taxes on electricity to remain so high given that renewable energy share of electricity is now at a certain level.

So, we have to ask the question – what are we paying for in our renewable or green energy electricity taxes, and at what point have they served their goals or purpose?

 

Sources

1. https://www.bettermeetsreality.com/factors-that-impact-electricity-prices-what-causes-them-to-increase-decrease/

2. https://www.bettermeetsreality.com/causes-of-high-or-increased-electricity-prices-in-different-countries-states-around-the-world-case-studies-examples/

3. https://www.bettermeetsreality.com/electricity-prices-in-countries-that-use-the-most-least-renewable-energy-for-electricity/

4. https://www.bettermeetsreality.com/how-to-determine-what-is-causing-electricity-prices-to-increase-decrease-in-specific-countries-states-a-step-by-step-guide/

5. https://www.bettermeetsreality.com/electricity-prices-in-countries-that-use-the-most-least-renewable-energy-for-electricity/

6. https://www.bettermeetsreality.com/countries-with-the-most-expensive-cheapest-electricity-prices-electricity-prices-around-the-world/

7. https://www.bettermeetsreality.com/comparison-by-australian-state-renewable-energy-of-electricity-production-vs-average-electricity-price/

8. https://www.bettermeetsreality.com/comparison-by-us-state-renewable-energy-of-electricity-production-vs-average-electricity-price-vs-co2-emissions-vs-air-pollution/

9. https://www.bettermeetsreality.com/solutions-for-making-electricity-prices-cheaper-more-affordable-in-different-countries-states/

10. https://www.bettermeetsreality.com/challenges-problems-with-transitioning-to-renewable-energy/

11. https://www.bettermeetsreality.com/can-renewable-energy-replace-fossil-fuels-meet-demand-power-the-world-moving-towards-100-renewable-energy/

12. https://www.bettermeetsreality.com/transitioning-towards-renewable-energy-solutions-strategies-considerations/

13. https://www.finder.com.au/australian-electricity-prices-rising-decade

14. https://www.energycouncil.com.au/analysis/electricity-prices-around-the-world-what-is-the-impact-of-renewable-charges/

15. https://reneweconomy.com.au/does-more-renewable-energy-mean-higher-prices-10310/

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