Are Renewables Really Cheaper Than Conventional Power Generation?

How much does a new power plant cost? And how much will the power cost generated by it? There is much talk about the rise of renewables (by getting cheaper while nuclear getting more expensive) over the last decade, but what do the numbers show to us? We did the maths to shed some light on the real costs of both the renewable and conventional power plants.

(title: Total Cost of Energy of Various Power Plants, EUR/MWh)

Key points

  • Only taking into consideration the market prices, it hardly pays off to invest in new power plant projects throughout Europe (on the graph we show Hungarian prices which are among the higher ones in Europe)
  • The conventional power plants are yet cheaper than the renewables – main reason of which is capacity utilization of renewable PPs are being low because of intermittency and PV technologies, while the conventional PPs can long almost all-year-round. This makes the payoff time for renewables slower (thus the financing costs higher). The latter puts a great emphasis on the financing possibilities in the country wishing to push the clean energy forward1)we took 2% above inflation total financing costs for our example.
  • It’s important to note that any negative externalities (such as pollution, global warming, social impact) are not taken into consideration, except for the ETS-CO2 price, which does not cover all the above negative effects.
  • Taking into consideration the total lifetime cost, gas powered plants are the most cost-effective, however, once built, on a variable cost basis it’s one of the most expensive sources of power (that is why they’re mostly used for peaking in some countries). As for coal the calculations include international prices, however local lignite/peat prices in Eastern Europe can be even half this price.
  • Nuclear power can be a relatively cheap energy source – given the original budgeting and planning can be adhered to. However, it’s not what the industry is famous for2)see cancellation of an already agreed and nuclear plant in Bulgaria or many instances in the US. Any new project (like Paks2 in Hungary) must make sure that the contractor gives enough insurances against skyrocketing project costs. One example to bear in mind can be Hinkley Point C, which from an original 30ish EUR/MWh estimate now secured an outlandish feed-in tariff of appr. 100 EUR/MWh.
  • It’s advisable to support the spread of renewables with subsidies because of less externalities and to spur innovation. Because of the costs can vary greatly the key is to come up with the best subsidy system where the market can decide about the desired subsidy level and energy type.
  • There is a huge difference between the price of a utility scale and rooftop PV solar panels. Not a big surprise.

Please note that the above figures are based on rough estimates and they not constitute a scientific research by any means. There are a lot of nuances and details which should be taken into consideration for a real research3)such as local characteristics, exact price assessment instead of rule-of-thumb figures, precise market price assessment, including network infrastructure costs, etc. The aim was to give a approximate impression on the costs.

Details of the calculations can be viewed here.  We are happy to receive any comments and feedback on them.

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