How Does the Cost of Renewables Stack up against Other Sources?

Ask a Scientist - April 2013

George M. of Chicago, IL asks "A friend of mine claims that if all direct and indirect government subsidies were eliminated, the cheapest electricity source would be coal and that renewables of any kind would be most expensive. Can you clarify how the cost of renewables actually stacks up against other sources?" and is answered by Senior Energy Analyst Laura Wisland.

The most important thing to emphasize in answering your question is the fact that renewable sources of electricity are providing clean, safe electricity at competitive prices right now across the country. That’s a big reason why electricity suppliers are making record-level investments in resources like wind and solar. In fact, the latest data indicate the U.S. wind industry installed more electric generation capacity in 2012 than any other energy source, beating even natural gas. And, thanks in part to government incentives and a maturing industry, renewable sources are getting substantially cheaper. But let’s try to unpack some of your friend’s claims and assumptions to gain a fuller understanding of how the cost of renewables compares to other sources of electricity.

The first thing to point out is that given the important role energy plays in our economy and the size of most energy-related capital investments, the U.S. government has long offered direct and indirect subsidies to a wide variety of industries in the energy sector. Coal mining companies get a variety of tax breaks, for instance, especially when they operate on public lands. Oil and gas companies also get a number of lucrative tax allowances, such as one in place since 1916 that allows them to deduct the costs of all “unproductive” drilling that yields no fossil fuel.

When you add up all these subsidies over the long haul, there is no question that oil and gas companies have received the most government support over the years. One 2011 study estimates that the historical average annual subsidy for the oil and gas industry is roughly $4.86 billion in today's dollars (pdf)—more than 12 times greater than the same average for renewables. According to this analysis, cumulative subsidies to the oil and gas industry and the nuclear industry actually represent 94 percent of all government subsidies distributed to the energy sector.

In other words, federal subsidies to the fossil fuel and nuclear industries, including tax breaks, incentives, and R&D, have historically far outweighed subsidies for renewables and energy efficiency. In recent years, the gap between support for fossil fuel/nuclear industries  and support for renewable energy industries  has shrunk, but only very recently (since about 2007). Therefore, from a historical perspective, government investment in renewables is way behind the curve. Also, while government incentives to the fossil fuel and nuclear industries have provided very stable, long-term investment signals to the market, renewable incentives have tended to be more uncertain and short term, making investments in renewables appear riskier.

Importantly, though, none of the information I mention above addresses perhaps the biggest subsidy given to the fossil fuel industry, which is that they have not had to pay for the enormous public health, environmental, and climate change costs that burning these fuels imposes on our society.

Failing to adequately assess the environmental and social costs of burning non-renewable and polluting fuels is perhaps the biggest error your friend makes in assuming coal is a less expensive electricity option. The research on health costs shows clearly that even a conservative assessment of these damages doubles or triples the price of coal-fired electricity, making wind, solar, and other renewable sources a far better investment. For example, one 2013 study assessed the public health impacts of fossil fuel electricity on our economy, including illnesses, premature mortality, lost workdays, and other direct costs to the healthcare system associated with emissions of particulates, nitrogen oxides, and sulfur dioxide. The study found that, when measured per kilowatt-hour, the public health costs of coal alone are equal to more than double the US average retail electricity rate in 2012.

Common sense tells us that the health impacts of burning coal are reason enough to phase it out. But, of course, even health costs don’t account for perhaps the biggest and most compelling cost associated with coal: global warming.

The science is clear. Evidence shows that the Earth is warming and scientists have determined that it’s caused primarily by burning coal, oil and gas, as well as by clearing tropical forests. If we don’t reduce our carbon emissions we’ll lock in changes to our atmosphere that will exacerbate extreme weather events, drought, and record-breaking temperature increases, all of which impose significant costs on society.

So, almost any way you measure it, renewable energy is a bargain, especially when you consider that renewables are clean, safe, will never run out, and will replace energy sources that are contributing to global warming. Therefore, I’d say that the money the government is spending to help the renewable energy industry grow is a wise investment in our future.

img style="margin: 5px; float: left; border: blue 0px solid;" src="/assets/images/staff/laura-wisland-60px.jpg" alt="" />Laura Wisland is an energy analyst with the UCS Climate and Energy Program. She has a master's degree from UC Berkeley’s Goldman School of Public Policy, and a bachelor's degree from the University of North Carolina at Chapel Hill honors program in public policy. Her work focuses on developing state policies that will effectively increase the amount of renewable energy used in California.  She provides technical and policy analysis to legislative and regulatory agencies to successfully guide implementation of the state's renewables electricity standard and designs effective electricity sector climate change policies in accordance with the state's landmark global warming bill.

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