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What’s Cheaper: Fossil Fuels Or Renewables?

There is a lot of debate about whether renewable energy is efficient and cheap enough to stand on its own. Some feel that the world would collapse if fossil fuels stepped back from their place in the market, as the alternatives are expensive to build, expensive to maintain and don’t produce the results they’d expect from a replacement to the ever-reliable coal, oil and natural gas. In this post we’re going to look into the current value of all of the methods and whether they’re going to change any time soon.

Coal

Due to the sheer volume of it, and its consistently low market price, coal is the largest source of energy in the world, accounting for over 40% of all electricity worldwide. In the USA it accounts for 30% of electricity generation (along with the 32% that comes from natural gas, this means the majority of the US’s electricity is from fossil fuels).

The drawback to this usage, however, is that coal combustion is a major contributor to global greenhouse gas emissions, being responsible for 30% of the total amount of CO2 emissions worldwide. This is the biggest reason people are seeking long-term alternatives.

Coal’s market value is the lowest, which makes it an obvious choice, but there is more that goes into the overall price that isn’t initially apparent.

One of the larger issues with coal is that these hidden costs are difficult to work out, but reports have looked negative in the past. They are called externalities, and aren’t paid by the fuel buyer, but more by everyone in the world.

A 2011 American Economic Review study by Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus, named “Environmental Accounting for Pollution in the United States Economy” (available here: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.1649) has estimated the air pollution caused by coal creates roughly $53 billion in damages a year- a cost that is over double the market price of the electricity. The estimate does not include damage to water or soil, or carbon dioxide and its own effect on climate change. When the authors include the cost of carbon dioxide pollution, they estimate it’s something closer to $69-74 billion.

With these prices included, coal is substantially more expensive than its renewable counterparts- and that isn’t even taking into account the ethical downsides of creating so much pollution.

Renewable Energy

100% renewable energy is a final goal for many, with 50 countries promising to achieve this by 2050. But there are major barriers stopping more renewable energy from being produced. One of those setbacks is cost. According to U.S. based organization Union of Concerned Scientists (UCS), the majority of renewable energy costs come from the original construction of the facilities used to produce the energy. A newly built natural gas plant might come to around $1,000/kW, while the average cost to install a wind farm falls somewhere between $1,200-$1,700/kW. Solar costs around $2,000-$3,700/kW.

However, the ethical damage is non-existent, and it is an extremely plausible replacement for non-renewable methods. After building the facilities, the costs are essentially on par with fossil fuels.

A report from Lazard (available here: https://www.lazard.com/perspective/levelized-cost-of-energy-2017/) shows how these prices are getting closer and closer. Energy from high-grade solar plants have seen a huge price drop: an 86% decrease since 2009.

The cost of producing solar energy is now around $50kW/ for solar power, according to Lazard’s report. The cost of coal, by comparison, is $102kW/. This of course doesn’t include the cost of building the facilities, but it does, however, prove that over time, this method essentially pays for itself.

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The future

The cost of renewable energy sources like wind and solar will continue to fall drastically, and it’s only a matter of time before they leave fossil fuels in the dust. The International Renewable Energy Agency (IREA) has estimated this will happen by 2020 based on a report conducted this year (available here: http://www.irena.org/-/media/Files/IRENA/Agency/Publication/2017/Jul/IRENA_Renewable_Energy_Statistics_2017.pdf?la=en&hash=E93A8DF9B1BE56B6E7838E4552A7EC9C0C95867F). Prices could even be as low as $0.03kW/ for certain renewable energy projects, meaning there will truly be no need for fossil fuels.

An IREA spokesperson explained “Electricity from renewables will soon be consistently cheaper than from most fossil fuels. By 2020, all the renewable power generation technologies that are now in commercial use are expected to fall within the fossil fuel-fired cost range, with most at the lower end or undercutting fossil fuels.”

“This new dynamic signals a significant shift in the energy paradigm,” stated Adnan Amin, director-general of the agency.

“Turning to renewables for new power generation is not simply an environmentally conscious decision, it is now, overwhelmingly, a smart economic one.”

By 2020, IREA estimated renewables will cost between $0.03-0.08, with the best value for money projects expected to process electricity at the price of $0.03 or less within the next year.

Other methods of producing renewable energy aren’t yet as close but will catch-up in the coming years.

Conclusion

The future is green. The gap between fossil fuels and its renewable alternatives is closing day by day, and the change is welcome by people, wildlife and the environment alike. These methods are still in infancy in the grand scheme of things, as people 20 years ago couldn’t ever have imagined the developments that have been made in the short space of time since the conception of modern-day energy facilities.

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