Is Renewable Energy Cheaper Than Fossil Fuels?

The Eco Experts

Some types of renewable energy are cheaper than fossil fuels

As renewables get cheaper, fossil fuels are getting more expensive

Solar power is the cheapest source of energy on the planet


Global renewable energy capacity is growing year-on-year, increasing by 9.1% in 2021 alone (IRENA, 2022), with solar panels and wind power leading the way.

Fossil fuel consumption growth, on the other hand, is beginning to slow down. The share of fossil fuels in the global energy mix was roughly 80% in 2021, which is slightly lower than 80.3% in 2009 (Environmental and Energy Study Institute, 2021).

There are a number of reasons why renewable energy is booming in popularity around the world, but one of the key factors is its affordability – with some sources becoming even cheaper than fossil fuels in recent years.

But which renewable energy source is the cheapest, and how does it compare to fossil fuels? Let’s find out.

solar panels at sunset

What’s on this page?

Are renewable energy sources cheaper than fossil fuels? 

Yes, renewable energy is cheaper than fossil fuels. In 2021, IRENA reported that two-thirds of newly installed renewable power in G20 countries had lower costs than the cheapest fossil fuel-fired option – and they’re only set to get more affordable from here on out.

And as renewables continue to get cheaper year-on-year, fossil fuels are actually getting more expensive. The price of gas, in particular, has exploded during the recent energy crisis, which was chiefly triggered by the war in Ukraine.

Experts are suggesting that switching to renewables can help the global economy during this turbulent time. In fact, a team of researchers from Oxford University have predicted that a transition to green energy sources could save up to £12 trillion ($15 trillion) globally, compared to taking no action.

Professor Doyne Farmer, co-author of the paper, says: “There is a pervasive misconception that switching to clean, green energy will be painful, costly, and mean sacrifices for us all – but that's just wrong.”

Want to discover the most effective types of green energy? Check out our page on Which Renewable Energy Is The Best?

What is the cheapest source of renewable energy?

Solar was crowned as the cheapest source of energy in history in 2021 – closely followed by onshore and offshore wind – after it became more affordable than gas.

This is a dramatic improvement compared to the cost of solar energy a decade ago. In fact, the price of solar has fallen by 82% since 2010 – with the cost decreasing by 13% in 2021 alone.

These solar energy rates are much cheaper than experts in the industry ever anticipated. In fact, solar electricity is around 20–50% cheaper today than the International Energy Agency (IEA) had projected just one year ago (with the range depending on the region).

The panels themselves have also become more affordable over time, with research by IRENA suggesting that the cost of crystalline solar PV modules sold in Europe declined by around 91% between 2009 and 2021.

And as solar energy continues to decrease in cost, more people will invest in it. It’s no wonder solar PV capacity grew about 21-fold between 2010 and 2021.

Check out the chart below to get an idea of how the cost of solar compares to other sources of energy.

Data from Our World in Data, 2020

Renewable energy costs vs fossil fuel costs

As renewable energy costs continue to fall to record lows, fossil fuels are gradually becoming more expensive. European gas prices are now about 10 times higher than their average level over the past decade – a rate that has been wildly increased by the shortage of gas from Russia.

When it comes to the cheapest fuel on the planet, gas and solar have been neck and neck for some time. But in 2021, solar finally took over gas as the cheapest energy source in the world.

Data from IRENA, 2022

This dramatic decrease in cost is something we can see across a number of renewable energy sources. The graphic below outlines how much the cost of solar and wind have changed over time.

COST OF ELECTRICITY

Generally, this is a trend that we can see happening in most countries – but the cost of renewable energy and fossil fuels will fluctuate, depending on which country you’re located in.

For example, IRENA suggests that the low-cost era of fossil gas in Europe ended in 2004, which means the continent “has seen the benefits of cheap renewable energy more”.

Why is renewable energy cheaper than fossil fuels?

According to Our World in Data, the costs of fossil fuels depend on two main factors: the price of the fuel they burn and the operating costs.

Renewable energy plants, on the other hand, work a little differently. Unlike gas and oil power plants, renewable facilities don’t have to extract energy out of the ground – they simply wait for their fuel to come to them. This means renewable facility operating costs are much lower than in fossil fuel plants.

Global pressure to generate cleaner energy has also had a knock-on effect on the price of renewables. Over the past decade, homeowners have started installing more green tech, whilst governments and businesses invest more in renewable energy projects.

This increased level of demand has led to more production of renewable technology and increased competition between manufacturers, which has inevitably created more opportunities for developments in green technology and cheaper products.

For example, wind power has become more efficient in recent years, as manufacturers have begun to produce turbines on larger towers with wider blades.

On the flip side, the price of fossil fuels has increased – and will continue to rise as we run out of resources. Francesco La Camera, the Director General of IRENA, suggests that:

“High coal and fossil gas prices in 2021 and 2022 have further undermined the competitiveness of fossil fuels, making solar and wind even more attractive. With the unprecedented surge in European fossil gas prices, new fossil gas generation in Europe will increasingly become uneconomic over its lifetime.”

Wind turbines in the sunrise

Why are energy prices rising if renewable energy is getting cheaper?

The cost of energy is rising across the world. Although prices were creeping up towards the end of 2020, things escalated in 2021, which was primarily triggered by the war in Ukraine. And as Russia continues to withhold gas resources from the rest of the world, we can expect this turbulence to carry on for a few years.

Check out the table below to see just how much the cost of electricity per kilowatt-hour (KWh) has increased over the past decade.

Although we can partly blame the gas shortage for rising energy prices, gas generates less than half of the UK’s electricity and only about 20% across the EU.

So why are we dealing with pricy energy bills, despite consuming more renewable energy than ever before? It mostly comes down to an outdated energy market.

Professor Michael Grubb, from UCL Bartlett School of Environment, Energy & Resources, claims that “the design of electricity systems has failed to catch up with the revolution in renewable energy”.

Grubb explains that competitive electricity markets are experiencing the largest price rises because these systems rely on the most expensive generator setting the price – and the majority of the time, fossil fuels are the most expensive generator. This is because some gas plants need to run almost constantly, which they won’t do unless the electricity price is high enough to cover their operating cost.

Grubb compares this to having to pay the peak-period price for every train journey you take.

So despite almost half of its energy mix coming from renewables, the UK is experiencing some of the most expensive energy bills in the world because its energy market is determined by gas.

We only need to look at Scotland to see that more needs to be done about the UK's outdated energy system. Despite generating electricity with almost 100% renewable energy (including exports), Scotland is still experiencing some of the most expensive energy bills in Europe.

Want to learn more? Check out our page: Why Scotland Should Have Cheaper Electricity Than England.

Will renewable energy continue getting cheaper?

Experts in the environmental field have estimated that almost all sources of renewables will become cheaper than fossil fuels in the years to come – and if we accelerate the transition, they will become cheaper faster.

However, Professor Michael Grubb suggests that this transition will only be effective if we update the energy market to make it more suitable for renewables.

His research proposes “a green power pool”, which would involve combining long-term contracts with renewable energy generators – like Contracts for Difference – and selling that on to consumers. This essentially means the price of energy would mainly be set by the actual investment costs of generators, rather than gas-driven wholesale markets.

“It won’t happen overnight. It won’t cut bills tomorrow. But new electricity needs a new market – one which cuts energy bills at the same time as decarbonising the energy system.” – Professor Michael Grubb

Will the UK be using more renewable energy?

Yes, the UK will be using more renewable energy in the future.

The government has set a goal of reaching net zero emissions by 2050, and a large portion of their plan involves switching from fossil fuels to renewables. For example, it’s also already set some goals, such as increasing offshore wind capacity from 11 GW to 50 GW by 2030.

It’s true that the UK’s renewable energy growth has started to lag in the past few years. In 2022, renewable energy capacity grew by 4.4% in the UK, compared to 9.7% globally. But it’s still growing, and more growth is expected in the future.

The history of energy prices in the UK

Energy prices have generally gone up over the years in the UK, although much of the increase is because of steady inflation, which normally occurs over time.

In 2005, for example, the price of gas was around 2.24 p per kWh, and the price of electricity was around 3.57 p per kWh. Skipping ahead to 2015, the price of gas increased to around 5.7 p per KWh, and electricity increased to around 9 p per kWh.

That being said, energy crises, such as the one in 2021, can make energy prices spike to unusually high levels – gas hit an all time high of 12.8p per kWh in December 2021.

Thankfully, prices have gone down a little since 2021, with gas costing around 10.3 p per kWh, and electricity costing 34p per kWh.

What’s remained constant for the past two decades is that electricity is more expensive than gas.

The main reason gas is cheaper than electricity is because of environmental taxes that are placed on electricity – and not gas –, which go towards renewable energy projects.

So, the wholesale costs of electricity is actually lower than for gas, without these extra taxes.

Summary

There are so many benefits to renewable energy – it’s better for the environment, safe for local communities, reduces air pollution, and it’s much cheaper than fossil fuels.

This is something that every country can benefit from – especially since the cost of renewable energy is decreasing across the world. Countries with a lot of sunshine hours can harness solar energy, famously windy nations can utilise wind energy, and regions with lots of rivers can invest in hydropower.

And as renewable energy continues to get cheaper in the coming years, it’s only a matter of time before more countries adopt more of these green sources of energy into their energy mix.

Written by:
Beth has been writing about green tech, the environment, and climate change for over three years now – with her work being featured in publications such as The BBC, Forbes, The Express, Greenpeace, and in multiple academic journals. Whether you're after a new set of solar panels, energy-saving tips, or advice on how to reduce your carbon footprint, she's got you covered.
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