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Putting an End to the Myth that Renewable Energy is too Expensive

Posted on 3 January 2013 by dana1981

The Washington Post recently published an excellent piece of investigative journalism in which they found that the Heartland Institute has teamed up with the American Legislative Exchange Council (ALEC) in an effort to reverse state renewable energy mandates across the USA.  ALEC is a highly controversial organization, essentially comprised of corporations which draft up legislation favorable to their interests, and then pass it along to legislators who will introduce and attempt to implement their bills in state legislatures and US Congress.

The Washington Post reports that ALEC has drafted the Electricity Freedom Act, which would repeal state renewable electricity standards (RESs), which require that a given state meet a certain percentage of its electricity demand with renewable sources by a certain date.  For example, California has an RES to supply 33% of its electricity demand with renewables by 2020, and overall 29 states (plus the District of Columbia) have RESs in the USA. A further 7 states have non-mandatory renewable electricity goals (Figure 1).


Figure 1: States with Renewable Electricity Standards and Goals.  Source: US Energy Information Administration (EIA).

The Heartland Institute defended the group's efforts to repeal state RESs, calling them "essentially a tax on consumers of electricity" and claiming:

"alternative energy, renewable energy, is more expensive than conventional energy."

In short, the Heartland/ALEC argument is that mandating that electricity comes from renewable sources will raise prices for consumers, and that we should therefore not implement these standards.

There are of course many benefits to implementing renewable energy which this argument neglects, primarily involving reduced pollution — both of traditional pollutants and their human health effects, and greenhouse gases and their climate impacts.  But before we address these important neglected points, is it true that deploying renewable energy technologies raises electricity prices?  Let's see what the data say.

Renewable Energy Implementation vs. Electricity Prices

To test the Heartland/ALEC claim, we've obtained state renewable electricity generation and electricity price data and from the US Energy Information Administration (EIA).  First let's just ask the simplest question — what is the correlation between the percentage of a state's renewable electricity generation and its electricity prices?  As Figure 2 shows, the two variables are essentially uncorrelated (correlation of 0.007, to be precise), meaning that a higher percentage of renewable energy generation has not translated to higher electricity prices.

renewables vs price

Figure 2: State renewable (excluding hydroelectricity) electricity percentage of total electricity generation vs. electricity price (blue diamonds) with a linear trend (black line).  Data from EIA (here and here).

In fact when we include hydroelectricity production in the renewable category, electricity prices actually decline slightly with higher renewable production (Figure 3).

renewables vs price with hydro

Figure 3: State renewable (including  hydroelectricity) electricity percentage of total electricity generation vs. electricity price (blue diamonds) with a linear trend (black line).  Data from EIA (here and here).

However, perhaps the states which have implemented more renewable energy started off with lower electricity prices, and perhaps deploying these supposedly more costly energy sources has indeed caused those prices to rise faster than states which continue to rely on fossil fuels.

Alas no, Heartland and ALEC are not saved by this potential nuance.  Figure 4 illustrates that there is virtually no correlation (correlation of -0.01) between a state's renewable electricity contribution and its electricity price increase between 1990 and 2011.

renewables vs electricity price increase 1990-2011

Figure 4: State renewable (excluding  hydroelectricity) electricity percentage of total electricity generation vs. the percent annual increase in electricity price 1990—2011 (blue diamonds) with a linear trend (black line).  Data from EIA (here and here).

Therefore, deploying renewable energy sources has not caused electricity prices to increase in the United States.

What About Subsidies?

Heartland and ALEC would undoubtedly argue that electricity prices have not risen alongside renewable energy deployment due to government subsidies.  There may be a sliver of truth to this argument. 

  • On the one hand, according to an Environmental Law Institute report, in the USA between 2002 and 2008, fossil fuels received approximately 2.5 times more subsidies than renewable energy ($72 billion vs. $29 billion).  This also includes transportation fuels, and over half of the renewable subsidies went to corn ethanol, which is not used for electricity production.
  • On the other hand, this represents a much larger renewable energy subsidization per unit of electricity produced, since fossil fuels account for a much larger fraction of the overall USA electricity mix (70% vs. 4.1%, respectively, or 70% vs. 10.4% if hydroelectricity is included in the renewable category).
  • However, fossil fuels have been receiving government subsidies for over a century, and therefore have received much larger overall government subsidies than renewable sources.

So while renewable energy sources appear to be receiving more government subisides per unit of energy produced than fossil fuels, fossil fuels are receiving larger total subsidies, and have historically received far more subsidies than renewables.  And then there are the hidden subsidies.

Carbon — The Huge, Overlooked Fossil Fuel Subsidy

Carbon emissions may reasonably be considered a subsidy because they impose various costs on society via climate change (on agricultural productivity, property damage, human health, etc.), but since most countries don't yet put a price on carbon emissions, these costs are not reflected in the fossil fuel market price.  Rather than fossil fuel producers and consumers paying these costs, society as a whole picks up the tab.  Therefore, fossil fuel prices are kept artificially low (Figure 5), which is generally the purpose of subsidies.

coal costs

Figure 5: Average US coal electricity price vs. Muller, Mendelsohn, and Nordhaus (2011) and Epstein et al. (2011) best estimate coal external costs.

The "social cost of carbon" (an estimate of the direct effects of carbon emissions on the economy) remains a highly uncertain cost, but according to a recent study by Johnson and Hope (2012), is somewhere in the ballpark of $100 per ton of CO2 emitted, which is similar to the highest value used in Epstein et al. (2011).  Accounting for this cost would add approximately 9 cents per kilowatt-hour (kWh) to the price of coal-generated electricity (which would more than double its market price), or approximately 4 cents per kWh to natural gas.  On top of that, there are the other external adverse health effects from coal illustrated in Figure 5, which are not reflected in the market price. 

In reality, coal in particular is a very expensive energy source.  Unfortunately its true cost is not accurately reflected in its market price, which allows groups like Hearland and ALEC to pretend that it's cheap and that transitioning to renewable energy will be too expensive.  In reality, the opposite is true.  Continuing to rely on coal is an extremely expensive proposition.

Renewable Energy is Not Expensive

To summarize,

  • States with a larger proportion of renewable electricity generation do not have detectably higher electric rates.
  • Deploying renewable energy sources has not caused electricity prices to increase in those states any faster than in states which continue to rely on fossil fuels.
  • Although renewable sources receive larger direct government subsidies per unit of electricity generation, fossil fuels receive larger net subsidies, and have received far higher total historical subsidies.
  • When including indirect subsidies such as the social cost of carbon via climate change, fossil fuels are far more heavily subsidized than renewable energy.
  • Therefore, transitioning to renewable energy sources, including with renewable electricity standards, has not caused significant electricity rate increases, and overall will likely save money as compared to continuing to rely on fossil fuels, particularly expensive coal.

Note: this post has been incorporated into the rebuttal to the the myth that renewable energy is too expensive

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Comments 51 to 65 out of 65:

  1. what is the reason(s) that the southeast U.S. region doesn't have renewable goals or standards? all those states seem to have something in common? What?
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  2. showme @51 - all of the states in white in Figure 1 lacking renewable goals or standards are very politically conservative states, with the exception of Florida, which is moderate, but has had Republican governors and probably a Republican state legislature for quite a while.
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  3. Regarding farm equipment and their internal combustion engines. Farmers can grow their fuel for tractors, etc. They certainly have the raw materials for farm waste to methane conversion. This isn't 0 carbon, but is better than burning ancient fossil fuels. As far as nuclear energy, I share Doug H's skepticism about the ability to maintain proper safety in a rapidly expanding nuclear power world. Fukishima showed me, that the nuclear industry and regulatory agencies did not take the power of nature seriously enough, to make proper siting and other decisions. What I see is an industry that is overconfident and underestimates what can go wrong. For example, the 9+ magnitude earthquake that generated the huge tsunami in Japan is not really that rare. There have been 5 earthquakes that big since 1950, and they all generated dangerous tsunamis. Imagine if the shores of Sumatra, southern Thailand and southern India had been lined with nuclear power plants in 2004, when 225,000 people were killed by the tsunami. From what little I do know about nuclear energy, LFTRs (Liquid Floride Thorium Reactors) seems like the direction nuclear should go, because it is safer in a number of ways. Don't fast breeder reactors lend themselves to increased nuclear weapons proliferation dangers? LFTRs do not. And they too can use existing nuclear waste, which is touted as one of the advantages of fast breeders. If this path were taken, it would take a few decades to get up to scale in commercial development. So, in the meantime, build solar and wind as fast as possible, as we don't have decades to wait. LFTRs could contribute to the grid later. In that case, some money should be spent on R&D for LFTRs and pilot plants, while continuing to spend larger amounts in support of renewables development.
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  4. Re sailrick @53 and others, a further problem with nuclear that hasn't been mentioned is the decreasing availability of cooling water. Several nuclear reactors in the US had to be shut down at times this past summer because their cooling water supplies became too warm. Some rivers are also running too low. That's a problem that's only going to get worse as the climate warms. And of course, this problem also affects other thermal technologies.
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  5. BillWalker: France has had to shut down nuclear power plants due to overheating water as well, and a coal power plant in Queensland had to be taken offline a few years ago because the water level in its lake dropped too low. In each case the shutdown occurred when the power was needed the most. The "reliability" argument, especially in a warming world, is not as strong as its made out to be. Note that it's possible to use air cooling for many types of thermal power plants, including solar thermal, at the cost of some efficiency, but with a large reduction in water use. This would be an attractive trade-off for desert-located solar thermal plants.
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  6. Pretty good post in terms of debunking ALEC. Ali TT (#33) makes some very good points. I'd add that the analysis overlooks the fact that retail prices vary dramatically throughout the U.S. depending on the market structure -- about half the states operate in a deregulated wholesale power market where prices are set by the marginal unit(highest cost unit needed), the other half operates a "traditional" cost of service market where prices are set to pay for the entire built system. So Heartland's analysis is not valid, but the rebuttal could be stronger if it included this fact. Re CCS, in terms of meeting steep reduction targets, there is a lot of well regarded economic analysis which has looked at the least cost pathway to decarbonize the energy system. CCS nearly always shows up as a necessary component of this. In a system which uses a carbon price to provide the incentive, the cost of CCS has a large impact on what the market price of emissions would be. Expensive CCS, high carbon price. Cheaper CCS, lower carbon price. The reason for this is that the models, which include the cost impact of investment and operation of various technologies on the entire system, deploy some CCS before other techs (like electrification of vehicles for example). These models now show that CCS would also be installed on generating units that use natural gas. The reason the Southeast doesn't have renewable policies, beside the politics, is that their resources aren't that great and the cost issue is important to them. They don't have good wind and solar isn't fantastic -- too many cloudy/overcast days. Check out a solar insolation map for the U.S. Unlike Germany, with a very poor solar endowment, they care a lot about having low costs power. I rely on this site for good science. There is a wealth of peer-reviewed, high quality energy and economic analysis out there done in the context of a low-carbon mitigation strategy. Check out work by folks at MIT, RFF or even EPRI to start, which can lead you to other good research. Back of the envelop analysis as we have in this post is fine when pressed for time, but there is some well developed energy/economic research you can use as well.
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  7. Here is a good UCS (Union of Concerned Scientists) summary article that supplements Dana's post and the Washington Post article about the tragic push by ALEC, Heartland, Koch bros. and their ilk to undermine state renewable energy standards with the Orwellian-named "Electricity Freedom Act": Misinformation about Renewable Energy: Coming to Your State?
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  8. #53 sailrick, Claims that fast reactors pose some sort of extra proliferation risk are very dubious. The only nations likely to build fast reactors in the next decade or more are already nuclear armed and already have an excess of weapons grade material. For would be proliferators, there are much easier, faster and cheaper ways to make Pu in a graphite moderated water cooled "research" reactor or alternatively centrifuge enrich uranium. Ultimately any nation that has access to natural uranium (which really is everybody as it can at a pinch be extracted from sea water) could with sufficient effort make nuclear weapons. Proliferation at it's core remains a political problem. Of course LFTRs present precisely zero proliferation risk because there aren't any, nor are their likely to be any commercially deployable LFTRs for 15 years or more without dramatically increased R&D spending.
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  9. Here are two recent assessments of the cost of electricity generation by various technologies: Summary from the Australian Government's Bureau of Resource and Energy Economics: AUSTRALIAN ENERGY TECHNOLOGY ASSESSMENT 2012 Oct 2012 assessment from the UK Government's Department of Energy and Climate Change: Electricity Generation Costs
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  10. realize this is somewhat relevant. August blackout in NE USA, (2004) 10,500Mw on 3 trunk lines, one line got hot and sagged to point where hit tree or something and melted. If had 500Mw of distributed PV, would not have had blackout (cost at that time appx $5 billion US dollars ). damages of blackout somewhere between 8-11 Billion US dollars AND the distributedPV would have been producing still. related case in point. One US company is on track to have installed base of about ->450Mw<- of distributed PV by renting rooftops and using solar REC's (renewable energy credits)by end of 2013. additionally, the folks have LOWER electricity prices with the rented rooftop PV and get first use of the electrons so there is little or no distribution loss and at least a few in the Washignton DC area use the electrons to power their EV's. hopefully the suits will win out over ALEC and Heartland
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  11. oops, it was August 2003 article is at detailing how the blackout may have been able to be averted. on the page look for 2004 article, pdf
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  12. #60/61 winfield100: the analysis on reduced risk/impact of blackouts would apply to any form of distributed generation, e.g. small diesel generators. They would be able to provide a similar service even during night-time. Cheaper still would have been to clear the vegetation around the transmission line...
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  13. Since the posts on this article have slowed, I want to add a comment regarding the construction of nuclear power plants, as an uncle of mine has a vast amount of experience in the field, having worked on many nuclear and fossil fuel-fired plants, and I have had many a chat with him over the years. As a civil engineer with expertise in all things concrete, he experienced a rather dramatic situation back in the mid-1980s, I believe, during the construction of a plant in the midwestern US, I think in Illinois.

    In the middle of the construction of the critical components of the plant, the government-approved supplier of the high-grade sand required for the high strength mix of concrete ran out of the approved sand (despite having supposedly proven to government inspectors that it had enough such sand in its quarry). As my uncle related the story to those of us gathered around the holiday dinner table, the ensuing delay of several months resulted in a cost overrun in the hundreds of millions of dollars, since all the workers involved in the construction operation were contractually entitled to their pay during the wait for a new source of sand to be approved.

    This was merely the biggest and most costly mistake my uncle observed. At different times he pointed out that merely pouring the concrete often involved very costly preparation work and other delays, since many variables--from the exact mix of ingredients to the ambient temperature where it was poured were specified quite exactly in order to guarantee that the concrete would meet the standards. If, for example, the weather was too hot or cold, and there was no way to warm or cool the location of the pour, concrete work had to halt, causing further delays, which in turn often caused additional cost overruns down the line.

    At other times, my uncle noted that seemingly minor mistakes or omissions in the enormously complicated plans for the phsyical buildings associated with a power plant proved quite costly. One he cited was failing to include a particular required cable bundle in the specifications which meant that a major steel beam had to be cut out and re-welded, which was nearly impossible to do while still maintaining the required tensile strength. Another happened when, out of thousands of doors spread throughout one new plant, two doors were switched on the blueprints (a sealable, submarine-style door switched places with a standard office door) and the mistake wasn't discovered till after the concrete had been poured. According to my uncle, these kinds of mistakes were rarely easy to fix--usually because of the technical challenges, but also because of the bureaucracy.

    Finally, he still laments that the industry continued to build the same basic reactor design for decades, even though better designs were on the drawing board, and then compounded this mistake (as he saw it) by instead focusing on arbitrarily changing the little things--like where to route cables or pipes or where to put offices or stairwells or windows or various control rooms, which meant that mistakes kept cropping up and that costs kept increasing, since despite using the same reactor design, his company never could say it built the same plant twice.

    I suppose my main point is that building wind farms and solar arrays is not nearly as fraught with such serious potential problems, and the costs of such projects should continue to come down as the builders of the hardware and the installers gain experience. This cost draw-down clearly won't be as quick to happen with the next generation of nuclear plants, as they are likely to experience a vast number of growing pains due to their much greater level of complexity.

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  14. In reply to Mark Harrigon I would like to ask where you are getting your figures from?

    The figures from the EIA Levelized cost estimates don't seem to indicate that all renewables are anywhere near the multiples more expensive than fossil fuels as you suggest.  For example hydro, geothermal and onshore wind all come out cheaper than coal when all factors, including transmission, are taken into account.

    Some renewables are more expensive than fossil fuels, but it is not true across the board as you seemed to assert.  And some costs are dropping rapidly e.g. for solar PV.

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  15. Indeed, a cheapskate pays twice, and it’s pretty reasonable in this case. Unfortunately, we keep on making it more expensive to preserve the world from complete environmental disaster by trying to save money using the resources we have very doubtful rights. I would like to comment on CBDunkerson who pointed out we all will be fine if we simply go with less CO2 in our everyday life and redistribute the energy from hazardous transportation to safe and clear means. I completely agree, that this is not only the matte of concern of environmentalists and governments, but of each of us. As soon as everyone focuses more on the health of the planet, we will manage it in a collective and effective way. And beware, the world’s plants, like China and India, can’t be responsible for all the pollution issues: it’s us who get obsessed with purchasing and consuming, it’s us who orders more plastic. If you want to make it cheap, try starting from yourselves. For example, when you decide to make your economic standing more stable, you don’t make it through spending more, you simply stop buying, you start saving and, probably, encourage more effective financial operations and address to professionals, like that can provide you with a viable source to correct your financial reputation. Exactly like that you contribute to the common goal of making environmental activity cheaper – you spend less and save more.

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