Comparing Cost- Fossil Fuels v.s. Renewable Energy

Posted on Posted in by Austin Schiano

It is clear as with any major innovation, that the global economies shift toward renewable energy will not be due to a moral imperative but rather an economic incentive. Now, despite the disdain many of us will hold at this claim, we can take comfort in the fact that renewables are becoming increasingly efficient and cost effective.

A recent IMF Working Paper entitled “How Large are Global Energy Subsidies” puts this issue into perspective. David Coady, division chief at the Fiscal Affairs Department of the IMF and one of the report’s authors states that the text ” compares the cost that people pay for fossil fuel-based energy to the cost that they would pay if they calculated the true cost of the damage done by their consumption”. The report in short finds that “the potential fiscal, environmental, and welfare impacts of energy subsidy reform are substantial”. Now, what’s important to understand is that the report expand the understanding of “subsidy” (direct financial governmental support or specific policies) to include “externalities” (ex: damage to public health and the environment, and the amount of money unavailable for investment in other community goods due to hidden costs). When both subsidies and externalities are analyzed, it is concluded that fossil fuels cost the global economy a projected 5.3 Trillion in 2015. This is money that governments and consumers alike are losing.

Late in August 2015 prior to the COP 21 summit, Bloomberg news reported that:

“The median cost of producing so-called baseload power that is available all the time from natural gas, coal and atomic plants was about $100 a megawatt-hour for 2015 compared with about $200 for solar, which dropped from $500 in 2010. Those costs take into account investment, fuel, maintenance and dismantling of the installations over their lifetimes and vary widely between countries and plants.”

The International Energy Agency report which the article is based upon makes note that the cost for energy production by varying means is not perfectly stable. However, As the Bloomberg article states: “Coal plants will become as much as 70 percent more expensive if they include equipment to capture carbon emissions while offshore wind and solar costs are expected to fall. New utility-size solar installations could produce power for less than $100 a megawatt-hour before 2025 in the sunniest regions while panels on rooftops could reach that in five years after”.

What makes all this all the more intriguing is that countries like Portugal, Denmark, and Morocco have all seen large-scale implementation of renewable energy programs with fantastic success. It will now be our duty to promote them.