The cost of renewable energy technologies has decreased significantly in recent years and is becoming increasingly competitive with conventional fossil fuel sources in many applications and markets. There are still some aspects where fossil fuels have a cost advantage today or in the near future depending on location and use. A detailed comparison is complex as costs can vary widely depending on specific project details, regional factors and assumptions about technology advancement.
Renewable energy costs have declined dramatically due to technological improvements, manufacturing scale-ups, and research/development investments over the past decade or more. For example, the cost of utility-scale solar photovoltaic (PV) modules alone has decreased over 80% since 2008. This massive cost reduction has been driven by market expansion as well as innovations that improved conversion efficiencies, manufacturing processes, and supply chain efficiencies. As a result, the total costs of renewable electricity for many applications are becoming competitive with new natural gas generation and new onshore wind energy is already comparable or lower than new coal or gas plants in many locations.
Despite the renewable cost declines, their costs are still higher than more mature fossil fuel technologies in some applications. Existing coal and natural gas plants have already been built and depreciated a large portion of their upfront capital costs, so their operating costs are often lower than building new renewable capacity in those markets. The fuel costs associated with fossil generation are significant long-term operating expenses and can fluctuate based on commodity prices. In contrast, renewable energy generates electricity at near-zero marginal fuel costs once facilities are constructed since they use fuels like sunlight and wind that are free. So over the lifetime of projects, renewable energy may achieve lower long-run total costs even if upfront capital costs are higher.
When integrating energy storage like lithium-ion batteries, renewable energy total costs are still typically higher than natural gas ‘peaker’ plants for applications requiring extremely flexible power sources that can rapidly ramp up and down. Energy storage technology costs are also declining quickly and lithium-ion battery pack prices have declined over 80% in the last decade. With these improving economics and continued scaling of manufacturing and deployment, renewable plus storage solutions are becoming competitive for more applications each year. Total lifetime costs including battery replacement over the system lifetime will require careful analysis versus alternatives.
In addition to direct energy costs, the external costs of pollution, greenhouse gas emissions, and long-term environmental damages should be considered in a full cost comparison but are difficult to monetize and are not always included in standard electricity market pricing today. Burning fossil fuels emits air pollutants like particulate matter, nitrogen oxides, and sulfur dioxide that are linked to public health damages from respiratory and cardiovascular illnesses costing hundreds of billions annually according to some studies. Environmental compliance and emission reduction costs for fossil plants may also increase significantly in the future with further regulation. Renewable energy systems produce little to no emissions during operations so have lower long-term external costs that are harder to quantify upfront but are real economic factors over the lifetimes of power projects.
Considering all these factors and taking a long-term, full societal cost perspective, renewable energy is expected to achieve total cost parity with most fossil fuel technologies in a growing number of geographic markets and applications over the next 5-10 years. Most current energy market studies and analysts project that utility-scale solar PV and onshore wind will be cost competitive with new natural gas generation in all or almost all markets under average conditions by the mid-to-late 2020s if not before. Offshore wind and solar thermal (concentrating solar power) are expected to achieve cost parity with natural gas in more limited applications later this decade or beyond, and new advanced nuclear faces significant remaining cost uncertainties. Renewable energy costs are rapidly declining worldwide and will continue to penetrate new markets as they achieve direct economic competitiveness with traditional thermal generation options over the coming years across much of the world.