In this guide below, we look at the true cost of different forms of renewable energy, and compare them to fossil fuel and nuclear energy costs.
We do this across several indicators and measurements of cost.
This guide may complement our separate comparison guide where we compare other features and aspects of the different energy sources.
Summary – The Cost Of Renewable Energy vs Fossil Fuels & Nuclear
Different Types Of Renewable Energy
There are several different types of renewable energy sources
Each different type of renewable energy has a different cost
Costs can also vary from country to country, and State to State
Costs vs Electricity Prices
The cost of renewable energy should be differentiated from electricity prices
Costs are the cost paid to supply a unit of electricity
Costs are essentially producer side, and prices are consumer side
What Are Costs Composed Of?
Costs for renewable energy include capital costs and also operational/running costs
These costs can be expressed individually/separately, or, as lifetime costs that are all inclusive
Using LCOE To Express Costs
LCOE – levelized cost of electricity – is one way to express the cost of different
We provide more information on what it is, how it’s calculated, different LCOE data of different energy sources, and potential limitations and shortcomings of LCOE, in the guide below
Indirect & External Costs
What is not mentioned as frequently are the indirect and external costs of different energy sources
Infrastructure costs (grid upgrade and redesign, storage batteries, and so on) are one example of indirect costs
Other indirect cost examples might include taxes, subsidies and higher electricity prices
Indirect costs add up, and what the consumer ends up paying is the price of supplying electricity as a service, rather than a standalone energy source
Cost can even be stretched out to include the external costs to address problems caused by a particular energy sources (such as air pollution, climate change, and so on)
Trends With Renewable Energy Costs, & Fossil Fuel Costs
Reports show that renewable energy technology and capital like solar and wind are consistently getting cheaper in some regions with more investment, demand, and so on
New coal plants and fossil fuel power related technology are getting more expensive with features such as CO2 and air pollution reduction devices.
We may also have to consider carbon taxes/prices and polluters taxes in the future for dirtier energy sources like fossil fuels, which could add to their cost
Are Cleaner Energy Sources Like Renewables A Cost, Or An Investment?
Renewable energy has several claimed benefits that don’t show up in cost comparisons
So, these benefits might be weighed up against costs to understand if renewables are more of an investment for the long term future than a cost
We have to ask how each energy source that provides us power is impacting key factors of society such as electricity prices, and social, environmental and economic factors
Main Cost Factors For Different Energy Sources
The main cost factors are usually:
– Capital costs
Construction and all costs to get the project up and operating
– Fuel costs and operational/running costs
Fuel, maintenance costs, repair costs, wages, handling any wastes etc.
These costs can be calculated separately, or together as a total.
wikipedia.org has a resource that lists the different energy sources and their estimated capital costs (cost to construct)
From that wikipedia.org resource, the cheapest to most expensive energy sources and their capital costs are:
gas/oil combined cycle power plant – $1000/kW
onshore wind – $1600/kW
solar PV (fixed) – $1060/kW (utility), $1800/kW
solar PV (tracking)- $1130/kW (utility) $2000/kW
battery storage – $2000/kW
conventional hydropower – $2680/kW
geothermal – $2800/kW
coal (with SO2 and NOx controls)- $3500-3800/kW
advanced nuclear – $6000/kW
offshore wind – $6500/kW
fuel cells – $7200/kW
Upfront costs of renewables might be expensive in some instances, but the lifetime costs might drop renewable energy sources to the same level or cheaper than some fossil fuel energy sources.
More information is available in the ucsusa.org resource
Operational & Running Costs
Renewable energy might be cheap to run because usually fuel (that is converted into electricity) doesn’t cost anything e.g. water, sun, wind are all freely available.
However, renewable energy sources can be more labor intensive compared to fossil fuels, and this must be a consideration in operational costs.
wikipedia.org notes that when it comes to fossil fuel energy:
Fuel costs can be [measured] per kWh and tend to be highest for oil fired generation, with coal being second and gas being cheaper. Nuclear fuel is very cheap per kWh …
*Research & Development Costs
What is not specifically assessed in this guide is research and development costs.
But, they can conceivably be considered costs too.
Investment is somewhat considered below with investment costs
LCOE (Levelized Cost Of Electricity) Of Each Energy Source
LCOE is essentially the cost to produce one unit of electricity (usually in $ per kWh) over the lifetime of production.
It takes into consideration investment, operations and maintenance costs, fuel, electrical energy generated, discount rate, and expected lifetime of the electricity producing asset.
Adding up the cost and discount factors, it is one common way to compare the different energy sources and their costs to produce the same unit of electricity.
From the figures below, in the US, we can see that hydro and solar PV were perhaps some of the cheapest energy sources in terms of LCOE, with coal and biomass being some of the most expensive.
Over time, some renewables might be getting cheaper in terms of LCOE compared to some fossil fuel plants (like for example if they are much more expensive to build, or if they are inefficient and costly to operate)
What Is LCOE?
LCOE is … the net present value of the unit-cost of electrical energy over the lifetime of a generating asset (wikipedia.org)
The LCOE measure tries to evaluate the lifetime cost of lifetime energy production, from initial build to fuel use and maintenance to decommissioning (dailymaverick.co.za)
How LCOE Is Calculated
… the LCOE is calculated over the design lifetime of a plant, which is usually 20 to 40 years, and given in the units of currency per kilowatt-hour or megawatt-day (wikipedia.org)
LCOE Of Different Energy Sources In The US
An estimate of the LCOE of different energy sources in the US in 2018 was:
Hydro – 39.1 (LCOE in $/MWh)
Solar PV – 45.7
On Shore Wind – 49.8
Gas Combined Cycle – 46.3-67.5
Nuclear – 77.5
Biomass – 92.2
Coal – 98.6-104.3
… The full table and supporting information can be accessed at the wikipedia.org resource
LCOE’s In Other Countries Worldwide
Global, national and regional LCOE estimates and calculations can be also be viewed at wikipedia.org resource
LCOE differs in different places in the world – by country, by region, by State, by city, and so on.
With solar for example, deloitte.com notes:
Australia has the lowest cost for solar PV and Africa has the highest due to investment costs
South Australia, along with China has the lowest unsubsidised, levelized cost of energy (LCOE) for concentrating solar power
For other renewables, deloitte.com notes: ‘China, the United States and Germany have already reached price parity for certain renewable sources’
Potential Trends In LCOE
Increasingly, old coal and gas plants might be running at a higher LCOE than hydro, and new solar and wind technology (solar and wind might be dropping in cost in some regions).
Potential Limitations & Exclusions When Using LCOE
Using LCOE might either exclude some factors, or, it might be limited in terms of what data the final figures include.
Therefore, it might have shortcomings as a calculation method.
We’ve paraphrased some of these limitations and exclusions from information provided in the wikipedia.org and dailymaverick.co.za guides:
– Dispatchability is not taken into consideration
– Power availability matching to the demand profile is not measured i.e. what time demand peaks in the day or year, and being able to match it.
Solar energy for example may experience issues sometimes with matching power availability to peak energy demand throughout the day or year, and require backup energy sources or energy storage (like batteries) – both of which add to costs.
– Additional costs to make up for the variability of some renewables like wind and solar
From theconversation.com: ‘… [In Australia] most renewable energy – like that generated by wind and solar – is intermittent, and needs to be “balanced” (or backed up) in order to be reliable [and] This requires investment in energy storage [and there’s also costs for backup energy sources]
– Quality of energy sources isn’t considered, such as it’s intermittency, reliability, and performance.
The cheapest option isn’t always better if the performance isn’t as good
– Environmental rating isn’t considered
For example, coal plants fitted with devices and features to minimize air pollution and emissions, might be more expensive
– Grid integration is not considered
And, grid integration has a cost for some new energy sources and technology compared to more traditional energy sources with pre existing integration and infrastructure
– Acquiring land for solar and wind is not considered
With the some of the above points, what isn’t discussed with different energy sources is opportunity cost and losses that can end up as costs.
If one energy source is intermittent, or doesn’t perform as well, there’s an opportunity cost, as well as losses in energy supply that can result in costs.
One example of a cost like this might be the lost economic growth opportunities if an energy supply mix isn’t performing as well or as reliably as other energy supply mixes.
Some Renewable Energy Technology Might Be Getting Cheaper
Especially over the last few decades, the price of renewable energy (solar and wind specifically) in different countries might be getting cheaper according to some data.
Investment in technology, development of technology, increased demand, economies of scale … are all things that can push the price of renewables down over time.
As technology and economies of scale improve over time, the initial capital cost of building an energy generator decreases [and] This is known as the “learning rate”.
Improvements in technology are expected to reduce the price of renewables more so than coal in coming years
[In Australia … ]
The price of solar has been falling at the rate of 26 per cent since 1979, every year, and it continues to do so.
In about 2013-2014, solar started to compete with traditional energy generating technologies
By 2015 it was clear it was well on par and in 2017 there is no doubt that solar is the cheapest form of electricity you can make.
Renewable energy capital costs have fallen dramatically since the early 2000s, and will likely continue to do so.
For example: between 2006 and 2016, the average value of photovoltaic modules themselves plummeted from $3.50/watt $0.72/watt—an 80 percent decrease in only 10 years.
Renewable energy sources, notably solar and wind, are reaching price and performance parity on-and-off the grid
Three key enablers – price and performance parity, grid integration, and technology – allow solar and wind power to compete with conventional sources on price, while matching their performance.
As technologies, including blockchain, artificial intelligence (AI) and 3D printing continue to advance the deployment of renewables, prices will likely continue to fall, and accessibility will improve
Some Fossil Fuel Technology Might Be Getting More Expensive
Some older coal and fossil fuel power plants might have been cheaper in the past compared to modern power plants.
Modern fossil fuel power plants and technology are getting more expensive with air pollution control devices, and expensive technology like CCS.
Something else that has to be considered is carbon prices/carbon taxes, and polluters tax that may be more heavily enforced in the future – both of which can hit fossil fuel plants harder than renewables.
[Now, in Australia, coal fired power stations and gas turbines cost more to produce electricity compared to solar farms, when built from brand new]
[Capital investment costs for fossil fuel plants compared to 60 years ago are very different]
[In the future, a carbon price in Australia could put super critical and ultra critical coal plants up to a LCOE of around $100 per MWh $80 per MWh … and this is in comparison to a completely renewable electricity system at $75-80 per MWh] (theconversation.com)
Other Cost Factors That May Impact Different Energy Sources (Indirect, & External)
Other than more direct capital and operational/running costs (which are the main costs discussed in most studies and publications), there are indirect and external costs to consider with renewable energy, compared to fossil fuels and nuclear.
These indirect and external costs can be harder to calculate, but should certainly be considered in cost calculations.
These indirect and external costs might include, but aren’t limited to:
Infrastructure support costs
Consulting and expert costs
Environmental costs (and cost of addressing them)
Social costs (and cost of addressing them), including health costs
Infrastructure includes anything that facilitates the transmission and delivery of electricity from the generation site to the end user.
Examples include things like poles, wires and transmission lines, the design and capacity of the electricity grid, interconnectors, and so on.
Because of the role that infrastructure plays, infrastructure costs are unavoidable
Sometimes existing infrastructure can be used for new power plants and new energy generation set ups.
Sometimes existing infrastructure can be used as is, and sometimes it needs to be modified or upgraded.
Existing infrastructure will also need to be repaired or replaced from time to time.
Sometimes completely new infrastructure needs to be built too for new energy generation setups.
Increasing capacity for future electricity demand might be one reason infrastructure works are carried out.
Specifically for renewables, some reports say that renewables save infrastructure costs, and other reports say they increase costs.
[Renewable energy may lead to] smaller increases in the cost of maintaining power poles and wires and green schemes [but may be offset by lower wholesale power prices] (abc.net.au)
[Some of the indirect costs for renewables comes from] their intermittency and the need to build additional transmission lines and generation, most commonly gas-fired turbines, to provide electricity when the wind doesn’t blow and the sun doesn’t shine
[Additional costs also include] grid-scale batteries
From theconversation.com: ‘[In Australia, renewables need] more transmission lines within the electricity grid to ensure ready access to renewable energy and storage in different regions, which increases transmission costs.’
[New wind farms present some problems to infrastructure]
… [existing] transmission lines are thin and can’t handle more power coming into the system
[So we may see] transmission lines … upgraded to allow for increased renewable energy generation
[A large number of new renewable energy projects can increase] the complexity of every connection in the market
[There may be changes to] the way new transmission lines and interconnectors are built [or planned, to allow renewables to connect to the grid in a better and cheaper way]
[abc.net.au lists these changes in their article]
… investment costs associated with replacing old and retiring infrastructure with new plant … are significant and unavoidable.
… improving interconnection [may cost money initially, but may have system and performance benefits, and provide access to lower costs energy sources]
[There might be a number of good renewable energy zones across an existing energy grid, but a number of new ones might need to be created or accessed in order to replace existing or retiring fossil fuel generators]
Some energy sources need various types of support infrastructure to function reliably, or at all
Some renewables for example may need backup energy sources like combined cycle gas turbines that can ramp up and down quickly
These same renewables may also need energy storage batteries that can store energy for later use (like the big battery installed in South Australia recently – the biggest of its kind at the time). These batteries need to be connected to the grid too.
Other renewables need extra network construction compared to traditional energy sources
[To deal with capacity issues for a solar farm in Mildura in Australia, a] massive machine [was added to the project], known as a synchronous condenser … [which] can balance the energy output and protect the grid … [however,] it’s a hugely expensive piece of equipment (abc.net.au)
[In Australia,] the addition of pumped-hydro storage and extra network construction would add a levelised cost of balancing of A$25-30 per MWh to the levelised cost of renewable electricity (theconversation.com)
Consulting & Expert Costs
Can include additional expertise from consultants such as engineers and other experts.
Some newer forms of energy like renewables may have additional consulting costs to consider.
[In Australia, renewables also have] additional engineering requirements, like building “inertia” into the electricity system to maintain voltage and frequency stability.
Each additional requirement increases the cost of electricity beyond the levelised cost.
Polluting energy sources, or dirty energy sources, can lead to a range of environmental issues.
Two of the most significant are greenhouse gas emissions, and air contaminants leading to air pollution.
But, there may be others, like water pollution, ocean warming and acidification, acid rain, and so on.
There are financial costs to address and clean up these environmental issues.
Social & Health Costs
There can be costs of addressing the social and health issues caused by different energy sources.
One of the most significant social/health issues caused by some fossil fuel energy sources is caused by outdoor air pollution.
It can lead to higher mortality rates and several different health problems.
There can be other miscellaneous costs indirectly borne by society as a whole as a consequence of using different energy sources.
Some of these might include:
– Higher Electricity prices
Denmark, Germany, Belgium and other countries may be examples of countries that have experienced higher electricity prices as a result of renewable and green energy taxes/subsidies, and costs to support renewable portfolio standards and renewable energy credit (REC) programs
– Other Costs
Additional and external cost factors are outlined at wikipedia.org
Also, there are some good weighted costs (taking into consideration more than just LCOE) of different energy sources at theconversation.com
Is Renewable Energy An ‘Investment’, Or A Cost?
Some reports indicate that renewable energy might be looked at more as a long term investment rather than a cost.
An investment provides benefits in addition to the primary service it’s providing.
A cost on the other hand usually just delivers the service/product.
Some reports argue that the short term costs and challenges that renewables present, are a worthwhile investment for the long term future.
However, the social (and human health), environmental, and economic benefits that renewable might provide have to be weighed up against the drawbacks.
This net cost/benefit analysis can be compared to fossil fuel and nuclear energy options.
Forbes.com, via Stanford University, the National Bureau of Economic Research and Woods Hole) mentions this: ‘… the longer we wait to decarbonize our economy, the more dramatically future GDP will decline’
So, at least some reports indicate cleaner energy is an investment
Read more about the importance and potential benefits of renewable energy.
So, some of the claimed ‘benefits’ of renewables that may linked to be an investment in society’s future, may not be accurate.