I have been challenged by a friend of mine in one of our jolly Facebook banters to provide “peer-reviewed citations” for the proposition that renewable energy is more expensive than conventional energy. This turns out to be surprisingly tricky, not because the proposition is wrong, but because it is hard to put the issue in a nutshell, and even harder to keep it there.
Let me say at once that I am not at all against renewable energy. If I lived on Tristan da Cunha, I might well think that a wind turbine was a great idea. And hydro is great if you happen to live near a large damable river. I have solar panels on my own roof, with a battery in the garage.
So let’s rule out hydro, geothermal, crowding round a lighted match and all the other small players. In the renewables corner, we have solar generation and wind turbines. In the conventional corner, we have burning hydrocarbons (coal, oil and gas). Let’s leave out nuclear as well the time being; we don’t want people getting excited. , geothermal hydro
Even with that simplification, counting the comparative cost of renewables and conventional power is not easy. Are we talking about the cost of what we have already got, that is up and running, or the cost of building something new? What account you take of environmental costs, or government subsidies?
So let’s simplify it even more, looking just at the true cost (not discounted by government subsidies) of building something new, and calculating both the capital cost and the running cost of the various options. This is what the Levelized Cost Of Electricity (LCOE) is supposed to do. I come back to that in just a moment, but first it is worth noting that climate change activists seem to have a lot more time on their hands than anyone else, and that the academic world is overrun with people absolutely determined to make the case for renewables. And so looking at outcome costs might be a more reliable measure (I come back to that as well).
Now, it is blindingly obvious that once you have built a wind turbine, and the wind is blowing just nicely – not too weak and not too strong – and you don’t care how many raptors or bats you chew up, then the running cost of a wind turbine is going to look pretty damn attractive. Likewise some solar panels on a nice sunny day. But the wind is not always going at the right speed, and the sun goes down every night. And so, unless you have some means of storing massive amounts of electricity (really tricky) you can’t provide electricity to a grid 24/7 using just renewables. You also need to build (or to keep) power stations that produce power all the time.
Blindingly obvious or not, this elementary point is regularly overlooked. Germany provides an example. In his piece in Forbes magazine The Reason Renewables Can’t Power Modern Civilization Is Because They Were Never Meant To Michael Shellenberger notes:
Over the last decade, journalists have held up Germany’s renewables energy transition, the Energiewende, as an environmental model for the world.
“Many poor countries, once intent on building coal-fired power plants to bring electricity to their people, are discussing whether they might leapfrog the fossil age and build clean grids from the outset,” thanks to the Energiewende, wrote a New York Times reporter in 2014.
With Germany as inspiration, the United Nations and World Bank poured billions into renewables like wind, solar, and hydro in developing nations like Kenya.
But then, last year, Germany was forced to acknowledge that it had to delay its phase-out of coal, and would not meet its 2020 greenhouse gas reduction commitments. It announced plans to bulldoze an ancient church and forest in order to get at the coal underneath it.
Gail Tverberg has analysed this problem in The Sum of All Costs: Counting the True Costs of Intermittent Wind & Solar Power. She writes:
I recently gave a talk called The Problem of Properly Evaluating Intermittent Renewable Resources (PDF) at a BioPhysical Economics Conference in Montana. As many of you know, this is the group that is concerned about Energy Returned on Energy Invested (EROI).
As you might guess, my conclusion is that the current methodology is quite misleading. Wind and solar are not really stand-alone devices when it comes to providing the kind of electricity that is needed by the grid. Grid operators, utilities, and backup electricity providers must provide hidden subsidies to make the system really work.
This problem is currently not being recognized by any of the groups evaluating wind and solar, using techniques such as LCOE, EROI, LCA, and EPP. As a result, published results suggest that wind and solar are much more beneficial than they really are. The distortion affects both pricing and the amount of supposed CO2 savings.
Similarly, a 2016 Utah State University study says this:
Estimating the actual cost of wind power is inherently difficult, as a wide variety of factors must be included. Some factors, like opportunity cost and reduced reliability of the electrical grid, are difficult to quantify, but every attempt should be made to estimate them as they add significant costs that must be borne by taxpayers and ratepayers alike. In order to come up with the most accurate estimate possible, both the explicit and implicit costs of producing electricity from wind power should be included.
Of the reports examined here, Michael Giberson’s Assessing Wind Power Cost Estimates is the most comprehensive and evenhanded, correcting the NREL report’s mistakes and relying on more realistic expectations about the cost of wind energy.
What does that paper say? It says this:
In brief, the primary focus of the National Renewable Energy Laboratory report, the 2011 Cost of Wind Energy Review, is to provide an estimate of the cost to the developer of installing wind power capacity.
The Lawrence Berkeley Laboratory’s Wind Technologies Market Report series seeks to provide an overview and details on trends affecting the wind power industry, including cost and performance trends. The Berkeley Lab report, like the NREL report, focuses primarily on the cost of wind power to the wind project developer. While expenses faced by wind project developers are an important element of the overall cost of wind power, addition of wind power to the power grid involves a number of other costs. If a more reasonable estimate of the installed cost of capital is $88 per MWh and operating costs are $21 per MWh, we can estimate a reasonable LCOE for wind power near $109 per MWh rather than NREL’s estimate of $72 — a more than 50 percent increase.
If you prefer your analysis done with a bit more pizzazz, it is put thus in Anthony Watts website:
All that means the real cost of wind power is a staggering 43¢ per kilowatt hour! That’s seven times the cost of natural gas-generated electricity!
One factor, of course, is location. So let’s focus on a particular location where the cost of electricity translates very directly into human life, because very large numbers of people are presently dying from the polluting effect of having to cook indoors using wood or dung as a fuel, since they cannot afford electricity. And let’s look IEA’s new way of measuring cost of electricity with what they call Value-Adjusted Levelized Cost of Electricity (VALCOE). Dr. Lars Schernikau shares this graph, demonstrating how an analysis promoting solar power in India is gainsaid once these additional costs are factored in:
More or less the same point can be put another way. Suppose you are a regional government in a poor area in Africa or the Indian subcontinent. Your people do not have electricity; if you could provide them with affordable electricity, you would prevent many needless deaths. Your financial resources are severely limited. The World Bank is a potential source of funds. You might look at a renewables power facility – either wind or solar. But you know that the solar facility will not provide power in the evenings or at night, and the wind is not always blowing. There is no way you could afford the huge expense of batteries, even if batteries were capable of storing sufficient power through the evening and night (which they are not). So if you went renewable, you would also have to procure a second, conventional, power station in order to provide power when the renewable facility is not working. And in these circumstances, the conventional power station is going to be much less efficient because it is only going to be operating part-time; the power from a part-time conventional power station is inevitably going to be more expensive than from a full-time conventional power station. There is no conceivable way that you can afford to pay double (probably more than double) for power generation in this way. You are severely handicapped in obtaining funding by the World Bank ban on funding a conventional power station. You go to sleep in the dark, praying to whatever god you worship that Greta Thunberg and her ilk become unfashionable in the corridors of power really quite soon.
So, is it possible to provide a “one size fits all” analysis? That is doubtful. The notion of a reliable “levelised” cost calculation is a chimera.
People who need electricity, and who are in a position to buy it from where they like, nevertheless need to make the calculation, of course, and they will factor in that the cost of renewables has been coming down. For example, earlier this year, a principal consultant at Oakley Greenwood told The Weekend Australian that solar generation cost about $200 a megawatt hour five years ago, and had dropped to about $70-$80 now. But that is still much more than coal; Hazelwood coal power was selling electricity for $30/MWh in its last month of operation.
There is another approach, of course, namely to look at the actual cost of electricity in places which have pursued a policy of replacing conventional power with renewables. What effect has this policy had – in the real world – on the cost of electricity? This approach loads the scale in favour of renewables in places where the state subsidises renewables, but even so it demonstrates that places which have put considerable emphasis on renewables, like Germany, have among the most expensive electricity prices in the world, at around $300 per megawatt hour. Conversely, the United States, which has been exploiting its shale gas reserves is only about 1/3 of that, at around $130 per megawatt hour. India and China, which are heavily reliant on coal, are only about $80 per megawatt, or about 1/5 of the cost of electricity in places with a heavy emphasis on renewables.
What about Australia? South Australia is the “standout” State which, under the leadership of the Labour government of Jay Weatherall, has led the charge away from conventional power to reliance on renewable energy. According to the Financial Review, South Australian households were in 2017 paying the highest prices in the world: even more than Germany or Denmark:
It is legitimate to remark that different conditions apply in all sorts of respects in different countries around the world, and so another way of looking at matters is to stay in the same place, and look at what has happened to the price of electricity over time as that place has moved from conventional power to renewables. The figures for Australia since 2003 until 2013 show the growth in retail electricity prices – far outstripping the consumer price index as a whole:
That trend has continued over the last few years; the average wholesale electricity prices have been as follows:
What conclusion can be drawn from this mass of rather scruffy data? There are I would suggest three big takeaways:
- the first is that direct comparisons are extremely difficult, allowing plenty of room for activists to advance a case for pretty much anything they like;
- secondly, the present position is that moving from the existing conventional power sources to renewables is expensive, and necessarily means substantial rises in the prices that people pay for their electricity;
- thirdly, this is a moving ball game. Views vary considerably about what technical developments there may be in the future. There are those who say that a wholesale shift to nuclear power generation is the only way that affordable power can be supplied to the whole world. There are others who regard anything nuclear as an absolute anathema. What is for sure that what is the position now will not be the position in the future.
 Although, interestingly, the island’s experiment with wind power has not been a great success. They put up a wind turbine in the 1980s, but it blew down in a gale after little more than a year in operation: see https://www.tristandc.com/renewableenergy1980s.php.
 Not so much because I think they are a good thing of themselves, but because I live in South Australia. I’ve had a dozen or so power cuts this year alone, largely because the states power policy created by the last state government dynamited the states large coal fired power station as part of a “green” policy. With solar panels and a battery, at least I can keep working when the grid falls over.
 IEA; WEO Analyst; February 12, 2019 by Brent Wanner https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf
 Dr. Lars Schernikau has founded, worked, and advised many organizations in the energy, raw material, and coal sectors in Asia, Europe, Africa and the Americas. Lars finished his PhD on the economics of energy, commodities, and the global coal business and published two industry trade books (Springer, available on Amazon) in 2010 and 2017.
 Emily Alford