The Hidden Costs of Renewable Energy

Rising Energy costs in many countries following widespread policies to rapidly decarbonise their economies have ignited a closer look at the real cost of low-carbon generation technologies. 

In Australia, the debate has gained greater intensity following the Coalition opposition parties declaring their policy to include nuclear power in the energy mix. This is a direct denial of the Labor government's anti-nuclear stance. With a federal election now due in less than 12 months, the debate is in full swing. Into this debate the IPA (the Institute of Public Affairs) has lobbed a detailed report by Professor Stephen Wilson titled “The Ruinous Cost Of Free Energy: Why An Electricity System Built On Renewables Is The Most Expensive Of All Options” The report presents a direct challenge to the Labor governments oft-repeated claims that renewables is the cheapest form of energy and nuclear is the most expensive. It is well worth reading the full report, but here are the key points of his analysis.

Historical Context: From Low to High Electricity Prices

Australia once enjoyed some of the lowest electricity prices in the industrialized world. This was largely due to its reliance on baseload generation, primarily from coal. However, the shift towards renewable energy has led to a dramatic increase in electricity costs. Today, Australia has some of the highest electricity prices globally.

The Concept of Total System Cost

Wilson emphasizes the importance of considering the Total System Cost when evaluating energy systems. This concept goes beyond the simple cost of generating electricity and includes all associated expenses, such as infrastructure, storage, and transmission². According to Wilson, a system based on renewable energy sources like wind and solar is significantly more expensive than one based on baseload generation, such as coal or nuclear power.

Infrastructure Investments

One of the primary reasons for the high cost of renewable energy systems is the substantial infrastructure investments required. Wind and solar power generation necessitates extensive infrastructure, including storage facilities and transmission networks. These investments are essential to manage the variability of renewable energy sources and ensure a stable supply of electricity.

The Challenge of Variability

Renewable energy sources are inherently variable. The sun doesn’t always shine, and the wind doesn’t always blow. This variability poses a significant challenge for maintaining a stable electricity supply. To balance the grid, additional costs are incurred to manage these fluctuations. This often involves using backup power sources, such as gas turbines, which can quickly ramp up production when renewable output drops.

Impact on Consumers

Ultimately, the higher costs associated with renewable energy systems are passed on to consumers. Wilson argues that the increased infrastructure, storage, and grid balancing expenses result in higher electricity bills for households and businesses. This contradicts the common perception that renewable energy is a cheaper alternative.

Comparing Costs: Renewable vs. Baseload Systems

Wilson provides a stark comparison between the costs of renewable and baseload energy systems. He estimates that a renewables-based system could be two to three times more expensive than a baseload system. Furthermore, a ‘renewables only’ system could be five to six times more expensive. These figures highlight the significant financial burden that a transition to renewable energy could impose on society.

The Myth of Free Energy

The term “free energy” is often used to describe renewable energy sources. However, Wilson argues that this is a misleading concept. While the sun and wind are free, the process of converting these natural resources into usable electricity is far from cost-free. The infrastructure, maintenance, and grid management required to support renewable energy systems come with substantial expenses.

The Role of Government Policies

Government policies play a crucial role in shaping the energy landscape. Subsidies and incentives for renewable energy have driven significant investment in wind and solar power. However, Wilson suggests that these policies may not always consider the full economic impact. By focusing on the apparent benefits of renewable energy, policymakers might overlook the hidden costs that consumers ultimately bear.

The Need for a Balanced Approach

Wilson’s analysis underscores the need for a balanced approach to energy policy. While renewable energy has its merits, it should not be pursued at the expense of economic stability. A diversified energy mix that includes baseload generation can provide a more reliable and cost-effective solution. This approach ensures that the benefits of renewable energy are harnessed without imposing undue financial burdens on consumers.

Conclusion: Rethinking Renewable Energy

Stephen Wilson’s article challenges the prevailing narrative that renewable energy is the most cost-effective solution for the future. By highlighting the hidden costs and complexities associated with renewable energy systems, he calls for a more nuanced understanding of the energy landscape. As we move towards a sustainable future, it is essential to consider the full economic impact of our energy choices and strive for a balanced and pragmatic approach.