The Cost Associated with the Use of Renewables for Electricity Generation
The cost of most renewable energy technologies has declined in recent years and additional expected technical advances to be reached during the coming years would result in further cost reductions. Significant advances in renewable energy
technologies and associated long-term cost reductions have been demonstrated over the last decades, though periods of rising prices have sometimes been experienced (due to, for example, increasing demand for renewable energy in excess of available supply). Further cost reductions are expected in the near future, resulting in greater potential deployment and consequent climate change mitigation. Examples of important areas of potential technological advancement include:
• New and improved feedstock production and supply systems, biofuels produced via new processes (also called next-generation or advanced biofuels, e.g., lignocellulosic) and advanced bio refining;
• Advanced solar PV and CSP technologies and manufacturing processes;
• Enhanced geothermal systems;
• Multiple emerging ocean technologies;
• Foundation and turbine designs for offshore wind energy.
Further cost reductions for hydropower are expected to be less significant than some of the other renewable energy technologies, but research and development opportunities exist to make hydropower projects technically feasible in a wider range of locations and to improve the technical performance of new and existing projects.
The intermittence of wind and solar power can further hinder the economic competitiveness of those energy resources, as they are not operator-controlled and are not necessarily available when they would be of greatest value to the system.
The use of energy storage (such as hydroelectric pumped storage, compressed air storage, and batteries) and a wide geographic dispersal of wind and solar power generating facilities could mitigate many of the problems associated with intermittence in the future.
Renewables are also moving into new applications and industries, including desalination (especially using solar power in arid regions) and the mining industry, whose operations are energy intensive and often in remote locations. Impacts of all of these developments on jobs in the renewable energy sector have varied by country and technology, but globally, the number of people working in renewable energy industries has continued to rise.
The cost of electricity depends on the supply and demand sizes. The supply- side is determined by the unit costs of electricity and the resulting potentials. In a liberalized and competitive market these costs have a major influence on the energy source chosen for electricity generation.
As long as an overcapacity of power plants exists to meet electricity demand, no new power plant is necessary to meet the demand. Accordingly, competition between the different generators is only determined by the variable costs of a plant. With future demand growth and plant replacement, new capacity has to be constructed. Competition between different new generators is influenced by the total costs of electricity generation. In both cases, costs depend on the applied con- version technology and the applied energy source, respectively. By looking closer at a certain energy source another important correlation appears; namely the correlation between costs of electricity generation and the availability of capacity. Because every energy source, fossil, nuclear or renewable, used for electricity generation has limitations, costs depend on previous exploitation and installed capacity. Hence, strategies for a forced market penetration of renewable energy sources for electricity generation in a future electricity market must be based on a detailed analysis of costs and potentials for electricity generation from different renewable energy sources.
On the other hand, demand for renewable energy sources for electricity generation is determined by a number of factors, including:
• The industrial economic point-of-view. The price of conventional electricity is set by supply and demand of electricity in general. According to specific market conditions across Europe, this price differs by country and by sub-region. These differences will continue to change due to the ongoing liberalization process. Under the assumption that no other promotional instrument exists, the price of conventional electricity would determine the market penetration of renewable energy sources for electricity generation. In this case only the quantity of green electricity would be produced that could be generated to lower or equal costs than the according conventional price level;
• Willingness to pay for electricity generated from renewable energy sources.
Voluntary approaches to promote renewable energy sources for electricity generation (e.g., green tariffs) are based on consumers’ willingness to pay voluntarily more for green electricity compared its grey counterpart. It is important
to highlight that in Denmark, Luxembourg, Netherlands, Finland and Sweden, the percentage of people who voluntarily sought green electricity is larger than in other countries, and for this reason their demand for renewable energy sources for electricity generation is large compared with other countries within Europe. Nevertheless, there usually exist important divergences between real demand and the aspiration shown in surveys. There is an important interaction between regulatory and voluntary approaches, with huge impact on the latter one (Menges 2003). This interaction relates to the existing asymmetrical relationship between both approaches, which explains the e.g., the relatively poor readiness of German consumers, facing a high regulatory demand for renew- able energy sources for electricity generation, to pay more for green electricity, despite their well-known environmental awareness;
• Quantity-driven strategies (Promotion instruments for renewable energy
sources for electricity generation on the demand-side). To promote renew- able energy sources for electricity generation, a mandatory demand could be set by the government. Assuming, a quota for renewable energy sources for electricity generation is introduced, a mandatory (inelastic) demand for electricity from renewable energy sources results (Resch et al. 2006).
In summary, and according to different sources, the following can be stated regarding the cost of the electricity produced by different renewable energy sources:
• Biomass: (US$0.029–US$0.09/kWh): Cost estimates vary depending on the combustion method used. In solid waste landfills, naturally occurring anaerobic digestion creates methane used to generate electricity. Similarly, waste gen- erated by lumber mills provides fuel that is essentially free. A slightly more costly source of biomass energy is the anaerobic digestion of animal manure. Conventional combustion technology is the most flexible, but also the most expensive to implement and operate. Although these types of renewable energy resources can eliminate waste products while generating electricity, biomass fuels are bulky and expensive to transport far distances. And unlike other renew- able resources, the cost of biomass fuels is not being driven down by techno- logical innovation;
• Wind: (US$0.038–US$0.06/kWh): The use of lightweight, but durable mate-
rials and more aerodynamic designs have significantly lowered the production cost of the wind turbine. Cost alone is not the only concern when considering wide-scale deployment of wind farms. Susceptibility to failure from mechani- cal fatigue, the inability to function well in the rain or in cold climates, and the noise created from vibration, should all be taken into account when consider- ing the true cost of using this abundant energy source. Despite the substantial upfront investment required for the generator, it requires a marginal operating cost of less than US$0.01/kWh;
• Geothermal: (US$0.039–US$0.30/kWh): The considerable variability of costs
for this type of renewable energy resource comes largely from the type of plant constructed and the depth of drilling required. Boasting incredible uptime of
more than 97 %, geothermal plants can operate more efficiently and consistently than coal power plants with uptimes of around 70 %. In comparison to natural gas, the annual reserves available are quite low. Binary geothermal power plants (currently the preferred technology) are small, and can be built in a variety of different places, including acreages and rural farmland. Even though they are smaller, they still carry a higher initial investment than natural gas power plants. Despite the sustainability of its free fuel source, the high cost of well drilling and pipeline construction prevents many of these plants from ever being built;
• Hydro: (US$0.051–US$0.11/kWh): Accounting for 16–20 % of worldwide
energy production, hydropower is the most practical and universal of these five types of renewable energy resources. While they can only be built in a limited number of places due to the extraordinary amount of space required, hydro- power plants are the most efficient source of green electricity and contribute no waste or little emissions into the environment. Environmentalists argue that large hydroelectric power projects destroy marine ecosystems and disrupt fragile habitats. In response to these protests, governments and private enterprise have developed several cutting-edge technologies such as hydrokinetic power systems that generate power without the need for dams;
• Solar: (US$0.15–US$0.30/kWh): Solar power systems include solar PV, which
convert the sun’s energy directly into electricity, and CSP which uses solar energy to heat water in residential and commercial applications. The high cost of these types of renewable energy sources is largely due to the high price of silicon crystals. Silicon prices continue to rise as their widespread production applications are leading to supply shortages. However, newly developed alter- native materials could bring the cost down below US$0.05/kWh in the near future.
The environmental benefits of using green electricity unarguably outweigh any financial drawbacks. Nonetheless, it’s still prudent to consider the real financial viability of each of these leading types of renewable energy resources as a real alternative to fossil fuel-based energy.