Is renewable energy expensive?

It seems like every day there is a new article stating how expensive renewable energy is or how cost-competitive it is. Well, here is another one. I recently read two papers regarding both sides of the answer. One is a working paper from the University of Chicago and its results are applied only to the specific case of the United States and its policies. The other one is an analysis report from the International Renewable Energy Agency (IRENA) and its results are for global average costs. Both reports have different target audiences since costs vary greatly depending on the country and its policies, and the size of the project. It is interesting how two studies can have such different conclusions about costs (different types of cost) depending on the specific answer it tries to answer and sample size. But I am not getting into statistics; I will just share the findings of both reports.

In the U.S. there are a couple of policies that help move renewables forward, at the federal level is tax credits and at the state level is renewable portfolio standards (RPS). RPS require that certain percentage of electricity generated in a state comes from renewable sources. The University of Chicago released at the beginning of May a working paper titled Do Renewable Portfolio Standards Deliver? The study claims that renewables and adopting RPSs have made electricity prices in the U.S. more expensive because of renewable goals imposed on the generation system, higher transmission costs, renewables’ intermittency and the fact that they need 100% backup. The paper also claims that renewable targets have increased prices dramatically on average in states with these policies (RPS). Some people may agree, not necessarily with the paper as a whole but with the expensive price of renewables. One example used to sustain that claim is that California’s electricity prices had risen, and it could be attributed to the deployment of renewables.

Critics of the paper point out that applying established economic methods to a new problem is not the right approach to take, and therefore, the methodology and question the paper tries to answer is flawed. The paper will undergo peer review and its conclusions may change after that revision.

At a global level, according to new data from the Renewable Power Generation Costs 2018 Report by IRENA, the global average cost for hydroelectric power is at an average of $0.05 per kilowatt-hour (kWh). Hydroelectric power is not only the cleanest type of renewable energy but also the cheapest source of renewable energy today according to this report. Meanwhile, developing new solar PV, onshore wind, biomass and geothermal power plants is usually below $0.10 /kWh; and offshore wind costs around $0.12 /kWh. At these average costs, these renewables can now compete with the cost of developing new oil and gas power plants which range from $0.05 to $0.15 /kWh.

IRENA’s report also points out that new solar PV projects in countries like Peru, Mexico, Chile, Saudi Arabia and the UEA “have seen a levelized cost of electricity of as low as $0.033 /kWh”. The agency also believes that cost reductions will continue into the next decade, which hopefully and most probably will be true. That would be a step in the right direction towards meeting sustainability goals, especially since renewable energy capacity stalled in 2018.

To make things more exciting, an analysis by research company BloombergNEF found that the levelized cost of electricity (LCOE) for lithium-ion batteries fell 35% to $187 per megawatt-hour (MGh) since the first half of 2018. Batteries are essential in ensuring continuous supply for solar and wind during the periods where the sun does not shine and wind does not blow.

Francesco La Camera, director general of IRENA, said “renewable power is the backbone of any development that aims to be sustainable”. I agree with that statement to an extent. In my opinion, an efficient and reliable energy matrix should be diversified with sources that efficiently produce high power at low cost, and that release the lowest amount of carbon emissions as possible. That perfect balance is hard to achieve, but renewables contribute to it.

Sources:

M. Greenstone and I. Nath. Do Renewable Portfolio Standards Deliver? (2019). University of Chicago

IRENA – Renewable Power Generation Costs in 2018 , Forbes, World Economic Forum, The Energy Gang podcast