How Renewables Are Undercutting Fossil Fuels

Wind and solar energy are now cheaper than nuclear, gas, and coal. Geoffrey Heal, Chazen Senior Scholar and Donald C. Waite III Professor of Social Enterprise at Columbia Business School traces the trends at the Chazen Institute’s India Business Initiative conference in Mumbai on January 15, 2018.
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A really salient point is that today, 2018 and also last year, 2017, for much of the United States, the least expensive way to produce electricity, was from either solar power or wind power.

Here’s the costs, electricity from various sources:

  • Electricity from nuclear power stations: $148 per megawatt hour.
  • From coal: $102 per megawatt hour.
  • Gas: $60 per megawatt hour. So gas is almost half the price of coal. Which is why I showed you that figure showing the annihilation virtually of the US coal industry. So gas, $60. The least expensive fossil fuel.
  • Solar: $50.
  • Wind: $45.

So you know, wind and solar now undercut all fossil fuels in the US. That’s a very recent development.

This diagram shows you a bit of background. This is a figure I took from a report issued by Lazard, an investment bank, recently. The vertical axis here shows you the cost of energy in terms of dollars per megawatt hour. Along the horizontal axis you’ve got year running from 2009 over there, to 2017 last year right here. And each of these lines shows you the cost of electricity from a given technology and how it’s moved over time. If you look at the right-hand end of this diagram, so here you’ll see the numbers I’ve just showed you: $148 for nuclear, $102 for coal, down to $45 for wind. So that’s – those are the figures for 2017 according to Lazard.

What’s interesting about this diagram is to follow the line which shows you the cost of solar power, which is the line that starts at the top, over on the left, and ends up almost at the bottom over on the right. Shows you the plummeting cost of electricity from solar power.

Back in 2009, which is only 8 years ago, you know, cost of power from the solar was $179 a megawatt hour. Now it’s $45 a megawatt hour. So back in 2009 solar was the most expensive of all of these options; now it’s almost the cheapest of all these options, and surely will be the cheapest within a couple of years, as the costs are still falling.

In fact, solar power undercut gas only in 2015. So it’s actually only two years that solar has been able to undercut all of the fossil fuels in the US. Wind has undercut all the fossil fuels back here in 2010. So it’s really only the current decade – it’s been the last couple of years in the current decade – that renewable energy has undercut fossil fuels. But it now does so, and it does so very clearly indeed.

And the costs of renewable energy are falling, and falling quite rapidly still. And there’s a lot of technical progress to be made in the solar field. Wind I think is a fairly mature technology; we won’t see huge drops in the price of wind, but solar is not a mature technology. There are a lot of new concepts in solar power coming through, and all my engineering friends tell me that efficiency of solar power will increase by a large amount in the next decade. So that rather than, you know, looking at $50 per megawatt hour, we could be looking at $25 per megawatt hour from solar within 5 to 10 years.

About the researcher

Geoffrey Heal

Geoffrey Heal, Donald C. Waite III Professor of Social Enterprise at Columbia Business School, is noted for contributions to economic theory and resource and...

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