A panoramic view of a wind farm at dawn, wind power is a growing form of renewable energy.
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We love cheap renewables

Why Are Solar and Wind Power Cheaper than Fossil Fuels and What Does That Mean for Our Future?

Steve Hansen
October 5, 2023

Right now in the U.S. renewable energy provides about 22% of our electricity. Fossil fuels like natural gas and coal, along with nuclear energy, make up the rest. But that mix is changing rapidly. It’s even changing quarterly, with coal’s share, fortunately, appearing to drop quarter by quarter in 2023.

Over the last decade, solar power and wind power have expanded their market share tremendously while their costs have plummeted. In fact, the cost of wind energy declined by 70 percent, and the cost of solar power declined by 90 percent, according to the American Council on Renewable Energy, a trade association.

What’s behind those two factors, massive growth and cost decrease? Three things primarily: increasing scale, more subsidies, and operational costs.

Operational Costs

This is where renewable energy modes really stand apart from fossil fuels. Coal, oil, natural gas, and nuclear power must continually consume a fuel that must be obtained from the earth and supplied at a high cost. For coal, about 40% of the total cost of producing electric power goes to the fuel, for example. In contrast, the sun and the wind are free.

The downside for renewables, of course, is that the sun and wind are intermittent. And that’s why the models of grid-scale wind and solar now include grid-scale batteries. Adding grid-scale batteries is not really that different from bringing a natural gas “peaker” plant online, except that a battery backup doesn’t emit so much climate-harming pollution or cost so much to bring online. It’s a backup source of power that’s ready for use whenever it’s needed.

Current Costs

According to a report by financial advisory firm Lazard, in 2023, both wind and solar saw their costs rise for the first time. That’s mostly because of supply chain issues related to the pandemic, along with rising interest rates. Nevertheless, they both remain cheaper than fossil fuels. The range for solar, cited in the report, is $24/MWh to $96/MWh and $24/MWh to $75/MWh for wind. MWh is short for megawatt hour, equal to 1,000 kilowatt hours (kHw). MWh is often used to measure larger amounts of energy, the amount it might take to power a whole community or city, for example.

In comparison, the best natural gas plant comes in at $39 to $101/MWh, and all the other fossil fuel options are higher.

How Do Scale and Subsidies Work for Renewable Energy?

Basically, they work the same as they do for fossil fuels. First, let’s look at subsidies. Yes, fossil fuels are heavily subsidized all over the world. Even though they’re hugely profitable, those industries are well-connected and know how to lobby politicians to get the breaks they want. And they are big breaks.

In the U.S., the direct subsidies for the fossil fuel industry are estimated to be over $20 billion per year. Those subsidies go to fairly profitable companies, as shown in this chart from Visual Capitalist.

A chart showing ExxonMobil, Shell, Chevron, TotalEnergies and BP profits in 2021 and 2022, all in the tens of billions

That’s $88.8 billion in profit in 2021, and they get subsidies?

And what about subsidies for renewable energy? According to the U.S. Energy Information Administration, “Federal support for renewable energy of all types more than doubled, from $7.4 billion in FY 2016 to $15.6 billion in FY 2022.”

What Have Subsidies Accomplished?

Subsidies of various kinds, such as the current 30% tax credit in the Inflation Reduction Act, make a product cheaper so more people can afford to buy it. When that leads to more sales, the manufacturer has more revenue available to improve their product and their processes, which leads to lower prices and even greater scale. That’s one way you scale a business. As solar panels got cheaper and cheaper over the last decade, for example, their usage ballooned, and costs plummeted.

What’s the prediction for the years leading up to 2030?

The rate of change in the last decade or so is stunning, but what’s likely to happen by 2030? According to the National Renewable Energy Laboratory (NREL) in Golden, Colorado, one of the U.S. government research labs, “solar and wind installations in the US could account for between 40% and 62% of total electricity generation by 2030. That’s two to three times today’s figure!

The Rocky Mountain Institute, a green-focused think tank, expects wind and solar power to grow by three to four times current levels by 2030, while the price for solar energy will drop by half in that time, falling as low as $20/MWh from over $40MWh currently. They also predict that 2022 was “peak fossil fuel,” and fossil fuel use will fall by as much as 30% by 2030.

In addition, the International Energy Agency (IEA) predicts that new installations of renewable energy capacity will surge to 440 gigawatts (GW) this year (worldwide), which is the largest increase in new capacity ever seen.

As I mentioned earlier, in addition to a lot more wind and solar capacity, we also need grid-scale energy storage that accompanies wind and solar projects. These gigantic battery banks store electricity and sit ready to supply the grid when needed. That can be on hot summer days when we get peak alerts, or any other time when supply cannot meet demand.

What About 100% Clean Electricity by 2035?

While 40–60% of electricity coming from renewable sources in 2030 is a massive improvement over today’s 22%, getting our electric grid to 100% renewable energy is the goal. And the researchers at the National Renewable Energy Laboratory have been modeling how we can get there.

Remember, these are computer models, and there are many ways to arrange all the parts, but the researchers arrived at four scenarios that reach the goal of renewable energy providing 100% of our country’s electricity needs by 2035. They include wind and solar providing 60–80% of generation while growing to a combined 2 terawatts of capacity. We have about 240 gigawatts today. A terawatt is 1000 gigawatts, so we’ll need roughly 8 times more capacity in wind and solar than we have today.

The modeling scenarios also specify 5–8 gigawatts of new hydropower and 3–5 gigawatts of new geothermal generation must be constructed by 2035 (review all the renewable energy resources here). Battery storage, or diurnal storage (nighttime storage) is also part of the mix, to the tune of 120-350 gigawatts to help meet demand when wind and/or solar are not producing. Finally, seasonal storage adds from 100–680 gigawatts to compensate for multi-day supply shortages. Seasonal storage is complex and wonky, so we’ll save that for another time.

Can We Do It?

Hell yes we can! In 2010, no one really believed our renewable energy industry would be where it is today. It’s already overperformed. Why not again, and even more so?

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