Solar, wind and other renewable power are key components in the race to reduce global carbon emissions and address climate change. They do so by harnessing the energy of a virtually inexhaustible resource, rather than burning fossil fuels. The development of these alternative sources has benefited from government support in the form of tax credits, loan guarantees and research grants. A combination of these factors has allowed these technologies to compete with conventional electric generating facilities on a cost-benefit basis.
All electricity generators must be located near markets that can purchase the generated energy. These markets may be national, regional or local (sometimes referred to as mini-grids). In order to maximize the benefit of each renewable source, the energy industry must develop the transmission infrastructure to deliver this power wherever it is needed. This requires major capital investments, but it is necessary to achieve the growth rates of renewables and to enable them to reach their potential contributions to the world’s energy supply.
Renewables make up about 12.5 percent of the world’s total energy production currently and are growing at an annual rate of nearly a quarter of that figure. But they need to grow faster and continue to expand rapidly if the world is to meet its 2050 goals of net zero emissions and climate stability.
The most well-known renewable energy technology is the wind turbine, which converts the turning of a propeller into electricity using the principle of aerodynamics. More recently, photovoltaics have been used to generate power from sunlight. These systems are typically mounted on the roofs of homes and commercial buildings or in solar parks, where a utility owns the facilities.
Other renewable energy sources include biomass, biogas, geothermal and hydroelectric (including tidal). Each of these renewables has its own specific applications and benefits. The policy planner will evaluate each of these technologies using cost-benefit criteria adapted to the particular situation at hand.
As with all electric generating technologies, there are many variables that affect the final decision about whether or not a given renewable energy source is cost effective. But in general, a new renewable generation facility is usually cost competitive with a conventional fossil-fuel facility when the costs of long-term fuel prices are included in the evaluation process.
In addition to the direct investment in building and maintaining a renewable power plant, there are a number of other indirect costs that need to be factored into the final analysis. The time and expense required to respond to bid proposals, obtain the requisite permits and licenses, and negotiate contracts adds to a project’s overall cost. These additional expenses are passed directly to electricity consumers and ultimately influence the kilowatt-hour price of delivered power. Government policies that organize and simplify these local institutional processes can help to prevent these additional costs from adding up to substantial increases in the cost of renewable projects.