Economic Viability of Renewable Energy

Renewable energy has attracted a great deal of attention over the past decade, alongside climate change debates and decreased fossil fuel security. Indeed, renewables now account for over half of the net additions to global energy production. However, this has still not led to the majority of our energy mix coming from renewables, due to the relative difficulty of changing away from fossil fuels, with economic, spatial and social barriers to overcome. As of 2010, only 13% of our global electricity came from renewable energy sources. A focus will be drawn therefore on these barriers to wide scale energy source changes, taking a particular emphasis on the economic issues surrounding renewable energy at the moment and going into the future.

Whilst there is a wide variation of different renewable energy sources, major debates concerning renewable energy usually concern photovoltaics (PV) and wind power. The former due to its direct generation of electricity, and the latter due to its position as a mature renewable resource. Wind power has been harnessed in many forms for centuries, and our modern application of wind to generate electricity has also been widely popular in many developed nations. However, social pressures in areas such as the UK lead to opposition of wind farms in many areas due to their audiovisual disturbances – which has in turn led to the development of off-shore wind farms. These turbines are more efficient as wind speeds tend to be higher over oceans, giving higher energy yields. However, the economics of off-shore turbines is contested, with maintenance costs, as well as infrastructure costs of transporting generated electricity to demand areas leading to overall higher costs compared to on-shore farms. This begins to describe the complexity of the renewable energy arena, with high cost and supply uncertainties.

However, there are a number of positive outcomes of the recent years’ energy debates and movements. Efficiencies of wind energy are increasing, with larger turbines capable of production up to 5MW. In the same vein, prices in nearly all renewable energy sources are decreasing (Figure 1).

Renewable Energy Source	Price (€ct/kWh)
Wind (offshore)	5 (18)
Photovoltaics	20
Hydro	4-19 depending on site
Tidal	10
Geothermal	7-15

Figure 1 - Price of renewable energy

Figure 1 shows the current prices of major renewable sources. A consequence of this price drop is that renewables have become increasingly feasible as a primary energy source, leading to a valuation of the renewable export market at £6.1bn. Nevertheless, this market is difficult to access for a great number of nations. Renewables usually require a high capital investment, even in countries with established renewable sectors. This alienates much of the developing world in producing energy renewably. Investment has been suggested to be a product of policy stability, as well as a baseline of capital, that many developing nations cannot afford to achieve. As a counter to this, a number of studies have suggested the need for a global ‘supergrid’, which allows for global provision of renewable energy based on connected hotspots of each renewable resource – for example, solar power from the Middle East and wind power from Northern Europe. This would allow for an efficient infrastructure of renewables not limited to wealthy or resource rich nations. However, it relies on a global communication and cooperation that has not been possible before, and a level of global trust. Also, countries such as the UK have moved to a greater renewable focus partially to reduce reliance on other nations, and a supergrid would combat this priority. Perhaps in the future, such an agreement will not seem so ambitious, but for the moment it seems that renewables will remain open only to those who can obtain sufficient investment and have the correct natural resources.

This brings the focus to the future of renewable energy. With the constant pressure of climate change, many expect the renewable industry to continue to grow exponentially over the coming decade. High profile studies, such as those conducted by Stern highlight the need to adopt renewable energy methods as soon as possible. The premise of the argument is that a small (1%) contribution of global GDP will allow for the establishment of a primarily renewable society that is able to minimise the impacts of global warming, in comparison to a ‘Business-as-usual’ model, or adopting renewables too far into the future. Failure to swap to renewables in the short term will mean greater losses of GDP in the future to accommodate for climate change induced losses. As a result, it is expected that renewables will show a clear superiority over fossil fuels by 2020, due to high investment over the coming years, and further technological advances. However, there are a number of developments needed to complement this economic advantage of renewables. Renewable energy incurs significant costs transporting the generated electricity to areas of demand. Avoiding these costs will require the movement of energy-intensive industries to the areas around power plants, thus reducing the amount of transmission lines and infrastructure needed. Furthermore, whilst PV panels have received increased traction, with government grants in some European countries, in order for them to become a fully-fledged energy source, a method of energy storage is required – such that energy can be provided throughout periods of low solar radiation e.g. at night. Alongside technological developments, social pressures impact the viability of renewable energy in the present. Societal growth demands an annual increase of energy demands by 1.8% to enable greater equality and development of poorer nations. Renewable skeptics do not see this able to be achieved using purely renewable energy. However, given our current rate of technological innovation, this could be achieved through increased efficiency of consumption, such as a movement to LED lights, which are around 5 times as efficient as traditional tungsten lights.

It has been found that we are capable of achieving a 100% renewable society. However, in order to reach this point, innovations into storage and transport methods must occur, which will facilitate the adoption of renewables on a global scale. Renewables are limited in their ability to supply all our energy needs, but based on real world data and future trends, it is possible that we can become a renewable society in an economically sound manner.