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Debunking the clean energy myth that renewable costs are more expensive than traditional fossil fuels

Clean Power

Debunking 4 Myths About The Clean Energy Transition, Part 3: Renewable Costs

Debunking the clean energy myth that renewable costs are more expensive than traditional fossil fuels

This is part 3 of a 4-part series — see also Myth #1: The Duck Curve limits renewables integration, Myth #2: Excess renewables must be curtailed or stored, and Myth #4: Natural gas is the main reason for decreased emissions.

By Robbie Orvis, Michael O’Boyle, and Hallie Kennan of Energy Innovation

America’s electric system is at a stark inflection point: coal power plants are operating at all-time lows with growing retirements, natural gas prices are at historical lows while power generation is rising, electricity sales are flattening, extreme weather events are forcing more resilient infrastructure, and plunging renewable energy prices have made low- or zero-carbon sources cost-competitive with conventional fuel sources.

Rapidly reducing greenhouse gas emissions from the electricity sector is now possible without radically disrupting grid operations, costs, or reliability. But the grid will require a more substantial transformation as we rely on higher shares of variable renewable generation. Some critics argue technological, financial, and institutional barriers will prevent significant decarbonization in the electricity sector, or will drive up the costs at the very least. But four common clean energy myths are easily debunked by facts and experience that show a low-carbon energy future is possible without sacrificing affordable, reliable service.

Myth #3: Clean Energy Is More Expensive Than Fossil Fuels

Reality One: Reported renewables costs are often outdated and projections are often underestimated

Outdated data or highly conservative cost assumptions for energy sources also tarnish renewable energy’s reputation as a cost-effective option for decarbonization. Innovation in renewables, battery storage, and other technologies is occurring at a breakneck pace, and the newest capacity and price data are often underestimated or aren’t released quickly enough to accurately inform important decisions by policymakers or grid operators.

For example, the National Renewable Energy Laboratory’s (NREL) 2012 Renewable Electricity Futures study showed that moving to 80% renewable energy by 2050 was technically feasible with moderate cost increases under conservative technology improvement assumptions. A 2014 update to the study found its most ambitious estimates for cost reductions by 2050 had already been reached in the real world in 2014, meaning the same study produced zero cost increases when using today’s actual data.

JP Morgan’s Brave New World report falls victim to this fallacy by relying on outdated costs for solar in the vast majority of its scenarios. Its Current Costs scenario models solar photovoltaic costs at $2.25/watt-AC for projects delivered in 2016–2018. However, US prices recorded in Q3 2015 are already 12–23% below this, and Germany’s prices are even lower. Rather than projecting cost declines as part of the current trajectory, their study mistakenly assumes costs will stay fixed to 2050. Analyses must use up-to-date costs and reasonable price projections to properly inform power sector decision-makers.

Reality Two: Customer bills decrease, and that is what matters

Energy efficiency cost savingsOne of the most commonly held myths about a low-carbon transition is that a high penetration of renewables costs electricity customers more money. This myth stems from looking at electricity rates ($/kWh) rather than electricity bills ($ for service), which are what ultimately matters to customers. Focusing on rates instead of bills fails to account for energy efficiency improvements and load changes, both of which reduce the actual price customers pay for reliable service.

To understand total system costs, it is important to look at the cost of generation as well as the total number of customers and total amount of demand. For instance, even though California has a relatively high electricity rate, its customers have some of the lowest bills in the country, thanks in part to aggressive energy efficiency policies the state has pursued. In many cases, efficiency measures lowering energy consumption can offset any increase in rates, lowering electricity bills overall.

It is true that expensive feed-in tariffs and early subsidies for renewable energy come with a net cost, but the era of paying a large premium for renewable energy is essentially over. Renewable energy is increasingly beating existing fossil fuel–fired generation on price alone. For example, when Colorado issued a request for proposals to replace 900 MW of coal-fired generation with renewable sources in 2013, over 6 GW responded and the winning bids were lower than the average price of generation, bringing down the cost of energy and saving Colorado customers money.

Palo Alto’s municipal utility recently approved a purchase power agreement for utility-scale solar at $0.037/kWh, which is below the average levelized cost of electricity for natural gas and coal. This counters the recent threat by National Association of Regulatory Utility Commissioners President Travis Kavulla that renewable energy will raise costs and enrich utilities. As state and federal policies provide consistent demand for greater renewables deployment, costs will continue to fall.

Furthermore, these low prices carry through to wholesale markets, where adding renewable energy lowers prices, making electricity cheaper on average and creating savings for customers.

Increased renewables penetration can also help lower the costs of uncertain fuel prices consumers are forced to pay. Fuel-based energy sources like natural gas or coal are vulnerable to price fluctuations, and utilities generally pass these costs through to their customers, exposing them to price volatility. Even if fuel costs are low for a time, price uncertainty is expensive since a large rise or fall can have wide-scale ripple effects throughout the economy, affecting business investments and consumer spending. A high penetration of renewables, which have zero fuel costs, helps to eliminate this volatility.

Pulling It All Together

Accurately estimating the cost of electricity sector decarbonization is undoubtedly a difficult endeavor because of rapid cost declines, myriad technologies, market operations, and other nuances. Institutional inertia favoring an outdated system further clouds this picture.

Nevertheless, it is increasingly clear that today’s available technologies and options can successfully decarbonize the electric sector. In order to cost-effectively achieve the goals many states and countries have laid out, policymakers must have the best available information, and use it to guide policymaking.

Moreover, today’s economy is extraordinarily favorable for investment in renewable resources to make the leap policymakers know is necessary to avoid catastrophic climate effects. Low natural gas prices and the proliferation of energy efficiency technologies mean that utility bills will be kept low, providing a cushion for early investment in renewable resources. The cost of money is at an historic low, encouraging renewable developers to invest. And finally, federal tax incentives for solar and wind power are at peak levels.

Avoiding these four common myths about decarbonizing the power sector can help guide analysts and policymakers toward the solutions needed to reach an affordable, reliable, clean energy future.

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