The Impact of Renewable Energy on Electricity Rates

Unlike non-renewable energy sources, renewable electricity generation is virtually inexhaustible. It can be replenished from naturally replenishing but flow-limited resources, such as water or sunlight.

In addition, renewable energy technologies are often cost-competitive with conventional fuel facilities on a total cost basis. However, various cost-effectiveness evaluation criteria must be applied to each situation.

Cost

The cost of renewable energy is an essential factor for both utilities and customers. The more renewable energy we use, the cheaper it becomes.

A recent IRENA report estimates that electricity from solar and wind, the cheapest new generation, will continue to become more affordable than gas and coal in 2022. That means renewable energy will help significantly reduce global greenhouse gas emissions and support efforts to meet the Paris Agreement’s 1.5 °C climate goal.

Renewable energy resources include geothermal, hydroelectric, biomass (wood and wood waste), solar photovoltaics, and wind energy. Each of these renewables requires specific technology effort to develop and deploy.

The quality and quantity of the resource determine the installed cost and per-kilowatt-hour cost of delivered power. For example, geothermal resources can be expensive to extract and may require complex production equipment to produce the requisite thermal and steam output.

For renewable energy facilities connected to a public grid, system costs can also add to the cost of delivering power. These can be incurred through power purchase agreements (PPAs), which bundle the sale of electricity and RECs, or through government-imposed taxes, fees, tariffs, and royalty payments.

Project financing is another critical factor in the cost of renewable projects. This involves obtaining requisite permits, licenses, and concessions and negotiating contracts to secure construction and operations funding. These costs can add to the initial capital cost of a facility and its lifetime costs.

Reliability

Electricity is produced from various sources, including coal, gas, and nuclear power plants. But as Americans have become increasingly worried about the effects of climate change, they’ve been looking for ways to reduce their dependence on foreign oil and fossil fuels.

Renewable energy sources greatly help the electrical grid. They strengthen the system by bringing electricity from many places and allowing it to be used in various situations.

But they also help to lower rates by reducing the risk of blackouts caused by storms and other weather events. Another way to reduce electricity rates aside from choosing electric rates in Pennsylvania is by incorporating cost-effective energy storage technologies into renewable energy projects. These technologies can be used to store the electricity generated by solar and wind turbines so that it’s available when needed.

Greenhouse Gas Emissions

The greenhouse gas emissions associated with renewable energy can impact electricity rates. Electricity from solar and wind power can be less carbon-intensive than power from coal or natural gas, so they may help reduce energy costs.

The carbon dioxide (CO2) emissions from fossil fuels generating electricity are the main reason global temperatures have risen since the Industrial Revolution and that human-caused climate change is happening. This is because fossil fuels are more CO2-intensive than alternative energy sources such as hydroelectric, geothermal, and biomass.

These emissions are also responsible for acid rain and coastal erosion, which can harm people’s health and ecosystems. Fortunately, using renewable energy technologies and policies to promote them can help reduce emissions.

These technologies are based on renewable resources such as the ocean, geothermal, and wind power. Life cycle assessments of these technologies show that they are usually lower in GHG emissions than their fossil-fueled counterparts without carbon capture and sequestration (CCS). In the first phase of this project, NREL reviewed and harmonized life cycle GHG emissions for a range of renewable energy technologies, including wind, ocean, geothermal, hydropower, solar, biomass, waste, and biofuels.

Policy

The impact of renewable energy on electricity rates is essential, and it can vary by region and country. Generally, renewables provide reliable and stable prices at the point of generation (see our information paper on EROI).

Renewables are also competitive with fossil fuel-based electricity because they do not require continuous fuel supply and can therefore be more resilient to disruption in production and transport. This is a significant reason why the world’s leading nations are deploying these technologies as part of the transition to a low-carbon economy.

However, solar and wind-generated power do not continuously operate at peak demand times. Therefore, it may need backup generating capacity such as hydro or quick-start gas to maintain a stable supply. These complexities can increase system costs, especially at high levels of variable renewables.

Nonetheless, the cost of renewables has fallen dramatically over recent years. This has been mainly due to technological innovation and supply chain improvements, making these technologies much cheaper than they were just a decade ago.

In addition, many states offer tax incentives to build or expand renewable power projects. These include investment tax credits, which can reduce installation costs and shorten the payback period for qualifying equipment like solar photovoltaics or small wind turbines.

Policies to support renewable energy can be shaped to address barriers that inhibit the market and stimulate innovation. To maximize their effectiveness, they should be designed to work with other policies, such as those that promote innovation in complementary renewable technologies.