Renewables are so cheap (define “cheap”)

Is renewable energy cheap? I often heard this claim in the past, mostly from politicians who want to justify their policies, but also from scientists. I then assumed that not all costs were counted, but had no clue what their specific arguments were.

The claim was also made in the current events lecture “A Sustainable Energy Supply for Belgium” (see previous post), specifically in the second lecture. The claim was that renewables are so cheap that they push fossil-fuel fired power plants out of the market. Odd, because subsidies for for example wind energy still exist in Belgium. If wind energy is really cheaper than fossil-fuel energy, then those subsidies don’t make much sense. Luckily, the speaker (Johan Driesen) took some time to explain his arguments in support of his claim and that made it very clear what he exactly meant by being “cheap”.

This is the part where he explains his reasoning (Dunglish not mine):

But the point was always that renewables were quite expensive. Although, if you look at these graphs, that come from IRENA, if you look at these graphs, these are the prices, the average prices of renewables like wind on land, solar PV, wind on the sea, concentrating solar, that is very large scale solar power, and they are compared to the average price of a classical fossil based power plant. You can see that actually the prices of solar PV, they are coming down rapid. Wind is so cheap that definitely, it pushes the classical power plants out of the market. Like Dirk has shown already.

The previous speaker, Dirk Van Hertem, indeed explained the mechanism how renewables push conventional sources out of the market, but he also added that when other sources got pushed out, prices go up again.

This is how he explained it: solar and wind get priority, therefor limiting the number of hours available for other players in the market to provide electricity. That doesn’t make sense economically for those conventional energy providers: they will not able to earn back their initial investments and that will push them out of the market.

Okay, I can understand how that works, but this has nothing to do with renewables being “cheaper” (as in costing less). It has everything to do with renewables getting an advantage over other electricity providers, making it more difficult for them to compete. It is therefor misleading to claim that renewables “are cheap” because they push other power sources out of the market. These other (conventional) energy sources have proven in the past that they were perfectly economically viable on their own. When renewables would have to compete on their own merits, they themselves would probably pushed out of the market because of their intermittent characteristics. This intermittency has consequences cost wise, but these specific costs are not accounted for, therefor coming to the false conclusion that they are cheap. It is not what we see in reality.

What about those graphs that show prices coming down rapidly? Here is the slide he refers to:

Looking closer, these are not “average prices” as claimed, but auction prices (the orange circles are auction results from the IRENA database).

There is something intriguing about these graphs. It is not very clear from the video, but when looking at a larger version of these graphs, it is clear that the range doesn’t end at present (the graphs were made in 2016), but it ends in 2022. The time frame starts in 2010, that means that the first half of the graph is the past and the second half is what is expected for the future.

The big question however is what he actually meant by being “cheap” and how this is related to those auction prices. He continued his talk:

So, are renewables affordable? Clearly yes. A lot of projects around the world are showing that it is true. But what we didn’t anticipate in the past was how quickly these things were coming down.

Okay, but “affordable” is something different from “cheap”. Something can be affordable, yet not cheap. Or cheap, yet not affordable. It will be dependent on other things, like how much one can/is willing to pay. That there are other countries showing that renewables are affordable, is a rather meaningless statement, especially when the lecture is about solar and wind in Belgium.

Cheap is also not necessarily a synonym for “low production cost”. When energy is auctioned cheaper than conventional sources, it doesn’t necessarily mean that production costs of these renewable sources are lower than conventional sources. He touched that issue further in the talk (my emphasis):

What is clear here, there is apparently an economic rationale also to go towards these renewables. This is not only because of subsidies.

“Not only because of subsidies”, that seems to suggest that subsidies still play a role in that “economic rationale” for renewables. Becoming curious about subsidies possibly included in those auction prices, I searched for more information and found the renewable energy auctions – analysing 2016 report from IRENA (2016 is also the year that the graphs above were made).

In chapter 3, titled “Analysis of factors influencing prices”, the different ways of support are summarized in this table:

Which includes things like feed-in tariffs, certificates, all kinds of exemptions and so on. Obviously, those auction prices of renewables are not necessarily competing with conventional energy sources on an equal level… Again, it is misleading to present these auction data as some proof that solar and wind are “cheap”.

Another thing that caught my eye is that the graphs do not present data of auctions in Belgium. These are the results of auctions worldwide. I can understand that solar and wind make perfect sense in some specific countries, but how relevant is this for Belgium? I had a previous post on the low auction prices for electricity from solar in UAE. This low price is because of things like:

• the location (in a desert and closer to the equator)
• longer daylight in summer as in winter
• a small difference between winter and summer
• a consumption that is higher when there is more sun
• the large scale of the project (large spaces are no problem in a desert)
• the bidding approach, low capital costs
• low-cost solar panels from China (subsidized by the Chinese government?).

The fact that solar works in UAE and there are low auction prices there, doesn’t mean that it also works in a country like Belgium. There are many reasons why it doesn’t work as well in our country:

• less than optimal location (more to the North)
• open space is limited (Belgium is a densely populated country)
• much less daylight in winter
• a large difference between winter and summer
• a high demand when there is low production
• a less favorable investment climate
• higher priced solar panels.

So yes, solar can make sense in countries like UAE under their favorable conditions, but there is no guarantee that it will also work here in our less favorable conditions. Remember, the lecture is called “A Sustainable Energy Supply for Belgium”, not “A Sustainable Energy Supply for UAE” or “A Sustainable Energy Supply for the World”.

Coming back to the initial question: are renewables cheap? Well, if you look at the examples that Johan Driesen provides, then yes, renewables are cheap(er than conventional power). But this has nothing to do with the real production cost of electricity and everything to do with a one-sided presentation ignoring some of the costs of renewables.

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