Cleaner energy is commonly talked about as a key part of the world’s future.
However, what is talked about less is the economics of green electricity – specifically, how electricity rates and prices may change as more of the supply moves to renewables.
In this guide,
- We paraphrase and summarise a relevant article about potential impact on electricity prices from Forbes.com
- There’s also reference to a post by joannenova.com.au
You can read the full articles by following the links in the sources section at the bottom of this guide.
Summary – Why Renewable Energy Could Lead To Higher Electricity Prices
Even when certain forms of renewable energy technology gets cheaper (across the LCOE), electricity prices can get more expensive
Fossil fuels and the closure of nuclear power plants might be ruled out as causes of these price rises in some places
A major cause might be the variable nature of solar and wind energy
When there’s an energy surplus, you might need to pay to get rid of an energy surplus, and to prepare for an energy deficit, either backup energy sources have to be set up (usually fossil fuel back ups), or a city has to invest in energy storage technology (such as big storage batteries)
What all this indicates is that supplying energy is a service – and a service takes into account all costs and requirements to deliver that service. Renewable energy doesn’t stand alone by itself in this instance. Where for example a fossil fuel energy technology might be able to supply energy on it’s own, renewable energy needs extra investment to deal with it’s unique variability
There’s other side effects of variable power sources like renewables as well
A backup gas generator for example could have to charge more for their electricity supply to make up the money they lose when solar is feeding the grid. Either that, or governments have to subsidize them – which comes out of taxes
So, how renewable energy affects other energy sources supplying power to a city or town is also a consideration that can add to the service of providing electricity with this type of energy source
However, it should be noted that we might see a different picture in different cities in regards to energy sources and electricity prices.
There’s reports that in a number of cities worldwide, wind and solar has lowered and stabilized electricity prices
There’s also the consideration that renewable energy can continue to develop in the future, and electricity prices can naturally become more affordable as the cost to deliver the service lowers
Alongside this, new cleaner coal plants are more expensive, and may also make electricity more costly. So, improvements in the cleanliness of fossil fuels should be compared alongside the developments in renewables, and not just the cost of electricity from older dirtier fossil fuel plants
Ultimately, each city or town needs to be analyzed individually for the main factors influencing their electricity prices
Why An Increased Renewable Energy Supply Might Mean Higher Electricity Prices In The Future
Paraphrased and summarised from Forbes.com with some key points:
- Wind and solar technology is getting cheaper, but in some countries (like Germany), and states in the US (like California), electricity prices are getting more expensive
- [In these countries and States] fossil fuels (who’s prices have decreased), and closure of nuclear power – have both been ruled out as causes of prices rises
- The reason [for price rises] has been isolated to the fact that wind and solar are unreliable power sources – you rely on the sun to shine and for there to be wind blowing to generate energy.
- When you are in energy surplus, you have to pay neighbouring countries to take your excess energy
- [Because of the variable nature of] solar and wind, [they] require that natural gas plants, hydro-electric dams, batteries or some other form of reliable power [such as another state’s power grid] be ready at a moment’s notice to [provide] electricity
- Supplying energy is a service – you have to think about not only the energy source itself, but how it is prepared and delivered [what is required to deliver the electricity while also having an increased input from renewables – compared to if you took renewables and their variables and features out of the picture]
- [For the above reasons – a higher % of renewable energy supply to a state’s total electricity supply comparative to other energy sources could mean higher electricity prices]
- [It may be worth looking at countries and States that also happen to be] nuclear energy leaders [like] Illinois, France, Sweden and South Korea [that have] some of the cheapest electricity in the world [for an idea of how to achieve lower electricity rates]
- [The environmental and other benefits of an increased supply % of renewable energy sources comparative to other sources needs to considered seeing as electricity is a basic need and requirement for most people]
- [The price of electricity in any one state ultimately depends on their energy supply set up, and whether or not they are connected to the grid of another state and their arrangement with that state, amongst other factors – so it’s an individual/situational approach as to figuring out why rates/prices rise and what the best energy strategy is in any one place]
Some notes about the information in the post at joannenova.com.au:
- Solar and renewables, in some parts of the world, are only cheap when compared to other more expensive forms of electricity
- Solar generation cost is estimated at around $70 to $80 per Mwh, but this could be low. The reason is that ‘Unreliable power makes the other baseload generators more expensive, adding $30/MWh to gas generators for example. Because the back up generators have to be there, not earning money while solar feeds in, they have to charge more to recoup those costs in a shorter working period’. So, these costs have to be added to solar as well.
- Comparatively, some brown coal power stations in Australia sell electricity for around $30 per Mwh
- In some regions, renewable energy and solar energy can be sold for cheaper prices because of the Renewable Energy Targets in place, and a host of other subsidies
Our own summary of using renewable energy in some energy systems:
Even though the cost of some types of renewable energy is cheap over it’s lifetime in terms of LCOE (because sunshine and wind is free, and operating costs are very low) … the service of providing renewable energy can be expensive because you have to run other sources of energy generation (that have to be turned on and off, and ramped up and down – which impacts profit and other economic factors), and you may also have to have energy storage like batteries to cope with variability/intermittency of energy sources like wind and solar (and energy storage batteries aren’t cheap)
OurWorldInData.org also has a good graph which compares the relative cost of renewable forms of energy vs fossil fuels in 2016 (taking into account both set up and operational costs). What we see is that costs can be context specific, but most renewables fall within a competitive range, even if their higher range prices can extend to be quite expensive. Read more at https://ourworldindata.org/energy-production-and-changing-energy-sources
However, Renewables Can Also Stabilise And Lower Electricity Prices In Some Regions When Included In An Energy Mix With Fossil Fuels
In some places in the world such as South Australia, renewable energy like wind and solar has already had the economic benefit of both lowering and stabilising electricity prices for consumers in an energy mix with natural gas. Parts of the MidWest in the US are seeing a similar trend with their emphasis on wind energy.
Read more about the economic benefits of renewable and clean energy in this guide.
A Note On The Other Impacts Of Fossil Fuel Energy
Although fossil fuels can be much cheaper for energy and electricity production and consumption, there are big potential drawbacks.
Mining of fossil fuels, as well as air pollution (from the release of air contaminants), and release of greenhouse gases like carbon dioxide (that impact climate change) – all have a social and environmental cost.
A further problem is that ‘cleaner coal’ technology like CSS (carbon capture storage) can make coal energy more expensive.
So, there’s pros and cons to each energy source to consider (fossil fuels, nuclear and renewables).
Right now, there’s a lot of capital tied into fossil fuels in major countries, so there will be a transition period if renewables are to be used as a greater % of the primary energy mix of major cities.