The Economics of Renewable Energy
EM – February 2024: This month, EM includes expert insights from wind, solar, and hydrogen developers and market analysts on how recent economic factors have impacted their sectors and what's in store for 2024.by Brent Beerley, David Narum, and James Winebrake
As the world faces ever more dire consequences due to climate change, governments and industry must rapidly turn to renewable energy to fuel a sustainable and resilient economy. Renewables such as solar, wind, biofuel, tidal, and wave power represent carbon-free alternatives to fossil fuels and the greenhouse gases they produce. These technologies also displace harmful air pollution produced by the burning of fossil fuels, including particulate matter, nitrogen oxides, carbon monoxide, and sulfur oxides, which harm human health and natural ecosystems.
Although these renewable energy technologies are commercially viable and exist today to serve most of our daily energy needs—whether in the electric, residential, commercial, transportation, or industrial sectors—these technologies must compete in a global market that is largely driven by economics. Fortunately, the costs of renewable energy have fallen dramatically in recent years, making them more competitive with fossil fuels; in addition, governments around the world are providing financial incentives to support the development and deployment of renewable energy.
For example, the cost of solar and wind power has declined a stunning 90% over the past decade, making these technologies not only competitive, but the preferred economic choice in many parts of the world for both energy producers and consumers. The advancement of energy storage technologies has also contributed to the commercialization of renewable technologies, firming up intermittent production from solar and wind power to match consumer demand.
Governments are helping to spur this rapid expansion of renewable energy. In the United States, for example, the Inflation Reduction Act of 2022 (IRA) is a landmark piece of legislation that includes a number of provisions to support the advancement and cost reductions of renewable energy. The IRA is likely to shape the renewable industry for the next decade and beyond. One of the most important provisions of the IRA is the extension and expansion of the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), two attractive and flexible tax credits that can be claimed by businesses and individuals who install or generate power from renewable energy systems. The IRA also includes billions of dollars of support for development and deployment of renewable energy in the manufacturing, electric utility, and residential sectors.
Yet, despite these proven technologies, positive economic trends and supportive government incentives, a massive build out of renewables is facing many deployment-based challenges. Due to these challenges, it is helpful to view renewable energy production within a systems context. It isn't enough to simply want to install a wind turbine or solar panels to generate power, one must also consider issues such as grid interconnection, permitting challenges, supply-chain logistics, equipment availability, and regulatory hurdles, among others. Thus, we need to look at the deployment of renewable energy more holistically than is often done in simplified analyses based only on upfront costs.
This issue of EM aims to provide a more holistic, deployment-focused approach to understanding the economics of renewable energy. We have pulled together five renewable energy experts to share their thoughts around renewables, with an emphasis on costs within a systems context.
Continue reading the full February 2024 issue of EM.