Renewable energy becomes cost competitive with fossil fuels

Clean Capital Beyond Coal and Gas Image Library

By James Noble

December 19, 2013

The perception that fossil fuels are cheap and renewables are expensive on a levelized basis is fast becoming a thing of the past. Many of the new technologies that harness renewables are, or soon will be, economically competitive with fossil fuels.

Provided new research from the investment bank UBS, dynamic growth rates are driving down costs and spurring rapid advances in renewable energy technologies that are making some energy experts wonder why anyone would contemplate a new fossil-fuel plant.

The research provides examples from Texas and Colorado that show the falling prices of power purchase agreements for wind farms and new solar projects and their impact on their respective energy markets. New power purchase agreements for wind energy in Texas are now regularly below $30/MWh, and some are as low as $25/MWh. Even when calculating the levelized cost of energy or all-in-cost which includes tax incentives, the price of wind is still well below$50/MWh. In Colorado, new contracts for solar PV plants were announced at below $60/MWh, which is the lowest reported solar pricing in the US.

Compared to the levelized cost of gas that is roughly $60/MWh, which includes the variable cost of gas and the all-in cost to justify construction of a new gas plant, renewable energy is now a competitive source of energy compared to gas generation even without subsidies. When comparing renewables to coal, the case for renewable energy becomes even greater as coal has the highest externalized costs of all fossil fuels, which are often hidden from consumers. For example, these costs include health impacts and taxpayer-borne cleanup costs of pollution, as well as, the economic consequences of environmental damage. As a result, the total cost of a new coal plant would be more than three times greater than a new hydro plant.

In spite of the positive economics, significant challenges remain for the industry, like establishing long-term financing structures in the face of falling subsidy levels, excess manufacturing capacity and the globalization of the market, which all hamper growth. As technology improves and costs continue to fall the marketplace will demand new technologies that complement existing technologies that can save consumers money.

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