Umair Gaines
The cheapest form of electricity is a highly debated topic, with various factors influencing the cost of energy generation, including fuel prices, CO2 emissions, and government policies. In recent years, renewable energy sources such as solar, wind, and hydroelectric power have emerged as cost-effective alternatives to traditional fossil fuels. According to the International Energy Agency's World Energy Outlook 2020, solar power is now the cheapest source of electricity in history, with costs ranging from $20-60/MWh in different parts of the world. Onshore wind projects have also gained traction, becoming the cheapest new energy source per kWh globally by 2020. Despite these advancements, fossil fuels still dominate the energy sector, comprising over 80% of the world's energy production and contributing significantly to global CO2 emissions.
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What You'll Learn
Solar power is the cheapest form of electricity
The levelized cost of electricity (LCOE) from utility-scale solar power is less than that of coal and gas-fired power stations, although this varies by location. LCOE is a metric that compares the costs of different electricity generation methods. Solar power is now cheaper than coal and gas in most major countries.
The cost of solar power has decreased dramatically due to rapid improvements in solar technology. Solar panels have become more efficient, with a higher percentage of sunlight being converted into electricity. Additionally, advances in manufacturing have made solar panels cheaper to produce, with improvements in panel design and durability. As a result, solar power is now 20-50% cheaper than previously thought, with every watt generated costing less.
The accessibility of solar power has also increased due to leasing and power purchase agreements (PPAs), which have made it more affordable for individuals and businesses to adopt solar energy. These financing options allow customers to install solar panels with little to no upfront costs, paying a lower rate for electricity generated compared to traditional grid electricity. Community solar and solar subscription programs have further expanded access to solar energy, allowing renters or those without suitable rooftops to benefit from solar power through shared projects and credits on their electricity bills.
The widespread adoption of solar energy has the potential to significantly reduce the world's power-related carbon emissions. By 2050, sufficient renewable energy use could eliminate over half of the world's carbon emissions related to power generation.
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Onshore wind projects are a cost-effective energy source
Solar power is considered the cheapest form of electricity in history, according to the International Energy Agency (IEA). However, onshore wind projects are also a cost-effective energy source and have become the cheapest new energy source per kWh in the world.
Onshore wind projects were initially more cost-effective than other renewable energy sources, and by 2020, costs had fallen by 56%, from $0.089/kWh to $0.039/kWh. Installation costs have also decreased, although not as significantly as solar power. Onshore wind projects have been aided by reductions in turbine prices, plant costs, and higher capacities from newer wind technologies.
Wind energy is a renewable, abundant, and inexhaustible resource that provides electricity without burning any fuel or polluting the air. It is one of the lowest-priced energy sources available today, and its cost-competitiveness continues to improve with advancements in wind energy technology.
Onshore wind farms have a reduced environmental impact, as they create significantly fewer emissions during construction and operation compared to other energy sources. Additionally, the sites they are placed on can still be used for farming. Onshore wind farms are also quicker to install and easier to maintain than offshore wind farms, contributing to their cost-effectiveness.
The widespread adoption of renewable energy technologies, including onshore wind projects, can help reduce power-related carbon emissions and address global climate targets.
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Hydroelectric power is underutilised in the US
Solar power is currently the cheapest form of electricity in history, according to the International Energy Agency's World Energy Outlook 2020. The cost of solar power is now between $20-40 per megawatt-hour (MWh) in China and India, and $30-60/MWh in Europe and the US.
Hydroelectric power is one of the US's most underutilised renewable energy sources. The US is the third-largest producer of hydroelectric power in the world, after Brazil and China. However, of the over 80,000 dams in the US, less than 10% are used for electricity generation. The US Department of Energy estimates that there is over 12,000 MW of potential hydroelectricity capacity in these unpowered dams, which could generate 45 TWhr/yr, equivalent to 16% of 2008 hydroelectricity generation.
The first DC powerhouse was in Grand Rapids, Michigan, in 1880, where a water turbine was attached to a dynamo to illuminate 16 street lights. By 1886, there were between 40 and 50 hydroelectric stations operating in the US and Canada, and by 1888, about 200 electric companies relied on hydropower for at least part of their generation. The US used more hydropower than any other state at the time.
Despite the early adoption of hydropower, it now only represents 6.6% of US electricity generation and 38% of electricity from renewables. This is partly due to the increasing use of variable renewables like wind and solar, which accounted for 11% of US electricity markets in 2015, up from 2% in 2005. Hydropower also faces challenges such as decreasing availability factors, increasing operations and maintenance costs, and the need to operate plants in new and different ways.
However, hydropower still has advantages over other renewable sources. It provides necessary flexibility and reliability services to the grid, and in many cases, is used more intensely than natural gas plants in providing ancillary services. Repowering old stations has also increased the capacity of several facilities, and at least 11 hydropower plants in the US are adding battery capacity to their facilities, which is a promising trend for the future.
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Carbon pricing impacts the cost of electricity
Solar power is currently the cheapest form of electricity, according to the International Energy Agency's World Energy Outlook 2020. The outlook offers four "pathways" to 2040, all of which predict a major rise in renewables. The cost of solar power is now 20-50% cheaper than previously thought.
Carbon pricing is a government policy instrument that puts a price on greenhouse gas emissions (GHG). It is designed to reduce emissions and incentivize the transition to a decarbonized economy. When applied to the electricity sector, carbon pricing changes the relative costs of operating generators depending on their carbon emissions. A carbon price makes carbon-emitting plants (those that run on coal, natural gas, or oil) more expensive to operate, while the cost of operating non-carbon emitting plants, like renewables and nuclear, remains the same. As a result, the cost of operating non- and low-emitting plants decreases relative to higher-emitting plants.
The impact of carbon pricing on electricity costs varies depending on the stringency of the carbon price and the carbon intensity of the power plants. For example, a carbon price of $7 per ton would increase the cost of operating an average coal plant by an estimated $7/MWh and about $3/MWh for an average natural gas plant. The impact on dispatch of generation also depends on the existing fuel mix, with a more diverse fuel mix likely to experience greater changes in the short term.
In the short term, consumers may respond to higher electricity prices by reducing their consumption through energy conservation efforts, such as turning off lights or using appliances less frequently. In the long term, if a carbon price is introduced with long-term certainty, consumers will be more likely to invest in energy-efficient technologies to avoid costly electric bills.
Carbon pricing can also impact the economic viability of fossil-fueled power plants. It can help mobilize financial investments in clean technology and market innovation, fueling new, low-carbon drivers of economic growth. Additionally, carbon pricing can be a source of revenue for governments, which is particularly important in budgetary constraints. Businesses can use internal carbon pricing to evaluate the impact of mandatory carbon prices on their operations and identify potential climate risks and revenue opportunities.
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Fossil fuels still dominate global energy production
Despite the increasing popularity of renewable energy sources, fossil fuels still dominate global energy production. In 2023, global primary energy consumption hit an all-time high, with fossil fuels comprising 81.5%-82% of the global energy mix. Oil, coal, and natural gas accounted for a significant portion of this, with coal and oil alone contributing to a third and a quarter of the world's energy consumption. The remaining share was made up of natural gas. This trend is reflected in the levelized cost of electricity (LCOE), which compares the costs of different electricity generation methods. While renewable sources like solar and wind power have become more cost-effective, the fixed and variable costs associated with fossil fuels, such as fuel prices, continue to influence their overall affordability.
The consumption of fossil fuels varies across regions, with the Global South, including China, India, Indonesia, South Korea, and Japan, accounting for a significant portion of the demand. The Global North, on the other hand, leads in fossil fuel production and remains key consumers, underscoring the historical role of these regions in global warming. Despite the ongoing transition to renewable energy sources, several influential countries continue to rely heavily on fossil fuels for electricity generation. For instance, in 2023, China, India, Japan, and the United States derived more than half of their electricity from fossil fuels.
The dominance of fossil fuels in the global energy mix has significant implications for the environment, with fossil fuels contributing to 87% of the world's total CO2 emissions. The high level of carbon emissions associated with fossil fuels highlights the importance of transitioning to renewable energy sources. However, this transition has been slow, particularly in developed countries with unstable electrical grids and historical carbon budgets. To meet climate targets, there needs to be a rapid increase in renewable energy capacity and investment, as well as a reduction in the consumption of fossil fuels.
While renewable energy sources have made significant strides in recent years, becoming more accessible and cost-effective, fossil fuels continue to play a dominant role in global energy production. This dominance is evident in the levelized cost of electricity calculations and the energy consumption patterns of various regions. Nevertheless, addressing global warming and reducing carbon emissions require a shift towards renewable alternatives. The upcoming COP28 meetings aim to address these concerns and advocate for urgent and widespread cuts in fossil fuel use to mitigate the impact on global temperatures.
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Frequently asked questions
Solar power is the cheapest form of electricity, according to the International Energy Agency's World Energy Outlook 2020. The cost of capital for solar power is much lower than that of other energy sources, and in the best locations, solar power can generate electricity at or below $20 per megawatt-hour.
Solar power is a renewable energy source that does not require any fuel, making its costs independent of world fuel markets. It is also environmentally friendly, as it does not produce any carbon emissions.
Other low-cost sources of electricity include onshore wind power, hydroelectric power, and biomass. These renewable energy sources have become increasingly cost-effective in recent years, and their widespread adoption could significantly reduce the world's power-related carbon emissions.
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