What does science say about the cost of solar and wind power relative to fossil fuel power? What are the implications for a low-carbon transition?
Abstract
Several recent studies provide a very rosy analysis of the energy costs associated with transitioning to a net-zero world. These studies use several highly speculative assumptions for their analysis. Herein, I use a basic principles approach to avoid the large errors that are expected with such speculative assumptions. Specifically, I show that a low-carbon energy transition will substantially increase the global energy cost. Thus, the rosy analysis of the recent popular studies is not consistent with basic science. This has important implications for addressing climate change in a sustainable manner.
Introduction
Globally, efforts are ramping up to address climate change. Over 70 countries have set a target of net zero greenhouse gas emissions over the next decades [1,2]. These countries are responsible for over three quarters of the global emissions.
Most major proposals include a massive deployment of renewable power in their net zero pathways [1-3]. Solar and wind are the popular options for renewable power.
The net-zero pathway or low-carbon power transition will impact the global energy cost. Will the energy cost increase or decrease? It depends on whether the energy cost from solar and wind power for generating on-demand electricity can become lower than fossil fuel power.
Most studies use several speculative assumptions for their cost estimates [3-7]. In this article, I use basic principles to discuss the costs. Basic principles are those that are proven and do not change with time or new findings.
Additionally, I briefly discuss the implications of my findings.
Methodology
Several studies have estimated the energy cost for net zero scenarios [3-7]. These studies require several assumptions for their cost estimate. For example, the studies require assumptions about a) the future cost of solar, wind power and supporting technologies, b) the cost associated with the long-term supply/demand balance of the massive resources required for the technologies, c) the cost of the electrical grids which will be of unprecedented size and complexity, d) the level of redundancy required to ensure the long-term stability of electrical grids, and e) the applied discount rate.
Such cost estimates are very sensitive to the required assumptions which have very high uncertainty. Correspondingly, their cost estimates have very high uncertainty. For example, if aggressive assumptions are used the actual costs would be many-fold higher than the estimated costs and vice versa. Because of the large uncertainty in assumptions, an aggressive assumption of one estimator is conservative to another. Thus, these studies are fundamentally flawed.
The potential for bias of the researcher is extremely high for such estimates. Consequently, such cost estimates are subjective and unreliable.
How to avoid the pitfall? By focusing on basic principles which are reliable and undisputable.
I use the cost difference between fossil fuel power and solar/wind power to define the energy cost for the net zero pathway. The analysis focuses on a cost comparison between fossil fuel power and solar/wind power over a long-term using basic scientific principles.
Specifically, my analysis informs whether the cost of solar/wind power will decrease below fossil fuel power. Overall, this information provides a realistic understanding about the energy cost of the low-carbon transition.
Cost Discussion
Basic requirement for comparing costs
The cost between technologies must be compared on an apples-to-apples basis. Specifically, all technologies must satisfy the critical requirements of the customer. What if one technology does not meet the requirements? Then, the extra cost that enables the deficient technology to meet the requirements must also be included.
I will discuss an example to illustrate this point. John’s business requires a fan that provides cooling for 24 hours (24X7) daily. A manufacturer offers two types of fan technologies. Fan technology #1 can provide the desired 24X7 cooling. Fan technology # 2 can only provide intermittent cooling for a total of 15 hours per day. John should not compare the cost of the two technologies based on their individual costs alone. This is because fan technology # 2 does not satisfy his cooling requirements. He will require an extra fan or some other method to address the deficiency of fan technology #2 - which will result in an extra cost. Consequently, he must include this extra cost for a valid cost comparison between the two technologies.
The above example is directly applicable to the solar/wind power versus fossil fuel power discussion.
Basic requirement for comparing costs between solar/wind power and fossil fuel power The modern society has one critical requirement from the power system - the requirement that its electricity demand is met reliably on a 24X7 basis.
We know from decades of operating experience that fossil fuel power plants can reliably meet the 24X7 electricity demand.
Solar and wind power plants produce electricity intermittently, i.e., only when the sun is shining, and wind is blowing. They cannot meet the 24X7 electricity demand on a standalone basis because of this deficiency.
The levelized cost of electricity (LCOE) is a commonly used metric to compare costs between power technologies. But this metric is only useful for comparing technologies that can meet 24X7 electricity demand. The deficiency of solar and wind power disallows their comparison with fossil fuel power based on LCOE alone. Accordingly, the U.S. Energy Information Administration (EIA) lists solar and wind in a separate category [8]. Solar and wind are listed as resource-constrained technologies, while fossil fuel power plants are listed as dispatchable technologies. Two reports co-published by the Organization of Economic Cooperation and Development (OECD) systematically summarize the technical reasons for the required extra costs for solar and wind power [9,10].
Consequently, we must include the extra costs required to address the deficiency of solar/wind power for a valid comparison. Various options are available to address the deficiency. These include energy storage and/or back-up power plants, and/or overbuilding solar and wind, and/or extensive transmission grids.
To recap, a valid comparison between solar/wind power and fossil fuel power requires that their costs are compared for 24X7 electricity production. This means that the extra cost required to address the deficiency related to their intermittency must be included.
Cost Basics
The cost of energy production from a technology is determined by its intensity of resource requirements and deployment levels [11]. Examples of the required resources include labor, materials, land, water, and energy. Labor or human activity/involvement is required for mining, transportation of materials, pretreatment of materials, land preparation, and manufacturing.
From basic principles, a technology which has an easy path to the desired product will require a low intensity of resources. While a technology which has a challenging path to the desired product will require a high intensity of resources.
The required intensity of resources defines the intrinsic or true cost of energy production for the technology. Intrinsic cost is the cost of energy production for a technology in absence of the inefficiencies arising from low levels of deployment. Such inefficiencies are expected at low levels of deployment because of poor economy-of-scale or technical shortcomings. As the deployment level increases, the technology moves closer to its optimal state and the deficiencies decrease [12]. When a technology is close to its optimal state, its cost of energy production is defined mainly by the intrinsic cost, i.e., resource requirements.
Fossil fuel technologies have been close to their optimal state from a long time because of their extensive deployment over the decades. Solar and wind power are deployed at much lower levels currently. For reference, solar and wind combined provide about 10% of the global electricity [13]. These technologies are not close to their optimal states as yet [14]. Therefore, the current cost of energy production from these technologies includes the intrinsic cost and the inefficiency cost arising from low deployment levels. But solar and wind power will quickly move close to their optimal states based on the massive deployment predicated in the net zero proposals [3,4,15].
Herein, I compare solar/wind power and fossil fuel power based on their intrinsic costs alone - i.e., by comparing the intensity of the resource requirements for the technologies [16]. This enables an apples-to-apples comparison by eliminating the impact of deployment levels (i.e., by eliminating the contribution from inefficiencies).
Cost comparison between solar/wind power and fossil fuel power
In the previous section, I discussed how we can robustly compare the cost between solar/wind power and fossil fuel power by comparing their intensity of resource requirements.
But how to evaluate the intensity of resource requirements for seemingly dissimilar technologies? By using basic scientific principles.
For this, I will take advantage of the common thread between solar, wind, and fossil fuel power.
Solar energy has two major challenges from the viewpoint of converting it to on-demand 24X7 electricity.
How so? Basic principles inform us that the technologies that have a large helping hand from nature to mitigate the challenges of solar energy (the primary source) will have an easier path to produce 24X7 electricity and thereby have a low intensity of resource requirements. On the other hand, the technologies that do not have a helping hand or only have a small helping hand from nature will have a markedly more challenging path to produce 24X7 electricity and thereby have a high intensity of resource requirements.
How do the technologies compare in terms of the helping hand or support from nature? First, I will consider fossil fuel power technologies.
How were fossil fuels formed? The solar energy captured by ancient plants and organisms has been converted to fossil fuels [21]. Nature has enabled this conversion process by applying heat and pressure on the ancient plants and organisms in the earth’s crust over millions of years (Figure 1). Specifically, nature has transformed the dilute, and intermittent solar energy into high energy density fossil fuels that are available 24X7 for energy production. Characteristics such as energy density and power density provide information about how dilute the energy source is. Based on any reasonable metric, solar energy is more than thousand times dilute compared to fossil fuels [17,18,22].
Because of the massive helping hand from nature, fossil fuels are abundant, accessible, and easy to transport, store, and convert to usable energy. Essentially, nature has drastically lowered the intensity of resource requirements in case of fossil fuel technologies by mitigating the two critical challenges of solar energy. Thus, nature has enabled an easy path to 24X7 electricity for fossil fuel technologies.
Figure 1: Pathways for fossil fuel power and solar power.
I will consider solar power next. Unlike fossil fuels, there is no helping hand from nature for solar power because solar energy is its direct energy source for generating electricity. Thus, the challenges associated with solar energy are not mitigated in case of solar power. Correspondingly, solar power requires a markedly higher intensity of resources to produce 24X7 electricity compared to fossil fuel power. This, in turn, translates into a markedly higher cost of energy production for solar power.
Next, I will discuss wind power. Wind energy is the energy source for wind power. Nature acts upon solar energy and transforms it to wind energy. However, the helping hand from nature is small.
How do we know that? Because wind energy is also intermittent and dilute [17,18]. The required intensity of resources for wind energy is considerably larger than fossil fuels. Why? Because, in case of fossil fuels, nature has eliminated the intermittency and diluteness challenges. Correspondingly, fossil fuels require a substantially lower intensity of resources compared to wind to provide 24X7 electricity. This, in turn translates into a markedly higher cost of energy production for wind power.
The intermittency challenge can be decreased to a certain extent by deploying an optimal combination of solar and wind power. However, even this approach does not address the challenges adequately. Intermittency and uncertainty are major problems for these technologies - such that most regions will often have many hours to days of inadequate electricity even when the solar and wind are combined in an optimal manner [6,23]. This is because most regions have several overlapping periods every year where availability of both solar and wind energy is low.
In other words, intermittency still poses a major challenge despite using an optimal combination approach. Moreover, using a combination approach does not alleviate the challenge associated with the dilute nature of the energy source. These factors lead to a high intensity of resource requirements for solar and wind power.
Overall, basic principles inform that solar/wind power - unlike fossil fuel power - do not have a large helping hand from nature to mitigate the challenges of intermittency and diluteness of the energy source. This leads to a much higher intensity of resource requirements. In turn, this results in markedly higher electricity production costs for solar/wind power compared to fossil fuel power.
My discussion involves an intrinsic or true cost comparison. Thus, the discussed costs include the improvements expected from the higher deployment levels of solar, wind and supporting technologies [16].
The discussion can be extended to other renewable power technologies that have solar energy as the primary source. For example, biomass power also has the same primary energy source and final product as solar, wind and fossil fuel power. Biomass power has a much smaller helping hand from nature compared to fossil fuels. Recall, fossil fuels were formed from biomass and other organisms after millions of years of heat and pressure treatment. Consequently, biomass power has a higher intensity of resource requirements than fossil fuels and thereby higher costs.
The impact on the overall energy economics is expected to be substantial because high electricity costs will also result in high costs associated with the electrification pathway. For example, the cost per mile for battery electric vehicles will increase significantly because of the markedly higher electricity costs.
Health and Social costs
Several studies include the health and social costs of fossil fuels to provide a very rosy analysis about the energy economics for the net zero proposals [4,5,7]. The health cost is related to the impact from pollution and the social cost is related to the impact from climate change. The inclusion of such external costs (externalities) to provide a rosy analysis has critical problems.
Energy costs are actual costs that are based on well-defined project costs such as capital costs and operating expenses. The energy cost associated with each project can be objectively estimated. Globally, every individual and business will be directly impacted by this increase in energy cost.
In contrast, health and social costs are vague and cannot be estimated in an objective manner.
For example, one such estimation is the cost associated with the loss of human life. How to assess the cost associated with loss of human life? One might argue that the cost depends on the loss of contribution from the impacted person. How to reasonably quantify the anticipated contribution of the specific individuals that are impacted? Studies typically include a large cost, such as million dollars per person, for their estimates [7]. Clearly, these costs include assumptions that have a large uncertainty. Moreover, it is not clear how these costs impact an average individual or business. In other words, this cost is not compatible with energy costs for determining a realistic economic impact. Estimating cost related to human health issues has similar problems.
The discount rate assumptions in the studies also lead to a critical problem. A discount rate is assumed to convert the future estimated health and social cost to a current cost. The external costs are extremely sensitive to the discount rate assumption. For example, a change in discount rate from 3% to 5% can more than triple the estimate for the social cost of carbon [24]. Thus, individuals who are very pessimistic about future climate impacts would prefer to use a low discount rate, while others will prefer to use a high discount rate.
Consequently, studies that want to provide a rosy analysis of the energy economics for net zero pathways use a low discount rate of around 2%. This value is much lower than global average discount rate for projects and the historical inflation rates for consumer prices. For reference, the average discount rate or cost of capital for projects is about 5% in the United States and typically much higher in developing countries [25,26]. Also, the global average inflation rate was 5.3% from 1980 to 2021 [27].
Many economists make philosophical arguments to favor low discount rates. Clearly, the social cost of carbon is extremely sensitive to such philosophical assumptions.
Furthermore, the rosy studies make a critical assumption about the external costs from the renewable technologies. The studies assume a very low external cost for these technologies even at very high deployment levels. Recall, from basic principles, the renewable technologies have a very high intensity of resource requirements. History has shown that high intensity of resource requirements leads to large environmental impacts [28,29]. Thus, the low external cost assumption for renewables is very likely to be inaccurate. Further details are discussed elsewhere [30].
Fossil fuels have significant external costs. But the estimation of the costs has a very large uncertainty. Costs with high uncertainty should not be comingled with actual costs. When costs have high uncertainty, there is no quantitative credibility. Therefore, external costs of energy technologies should not be quantitatively included in the energy cost discussion.
To ensure scientific honesty the external costs must be discussed cautiously. If discussed in a quantitative manner, the studies should emphasize that the costs are based on highly uncertain assumptions and cannot be coupled with actual energy costs.
Implications
Using basic principles, I have demonstrated that energy costs will increase substantially as we move to a net-zero world. This large increase in energy costs will have a significant impact on the global population. This conclusion totally contradicts the bulk of recent studies that are based on speculative assumptions [3-7]. These popular studies provide a rosy analysis about the low-carbon transition that is not consistent with basic principles. The unfortunate implications are discussed below.
Globally, the governing bodies are being increasingly convinced by such studies that energy costs will not be a significant issue. This is influencing their energy policies and the messaging to the general population. The message being - a low-carbon transition will have massive benefits with minimal detrimental cost impacts.
Basic principles dictate a substantial increase in cost. Consequently, the true energy costs will not remain concealed for long. As long as the implementation levels of solar and wind power are low, the increase in cost will be small. This will mask the increase in energy cost for a short while. But as the implementation levels of solar and wind power increase beyond a certain threshold level, the substantial cost impact will become obvious to the general population.
To sustainably address climate change, the global population will need to have a high confidence in the scientific community and international bodies over the long term. Basic principles dictate that the rosy picture painted by the recent studies are incorrect. The confidence in the scientific community will be lost when the rosy pictures about energy cost prove to be false. The corresponding backlash will likely cause a switch back to fossil fuels and will greatly undermine climate change mitigation efforts.
There is another problem. A basic principles approach provides the best-case cost scenario for solar and wind power. Even in the best-case scenario, the energy production costs from solar and wind power are substantially higher. The rosy estimations will make it much worse!
Why? Because the rosy estimations disincentivize an optimal evaluation of the path forward [31]. The resulting suboptimal selection of energy technologies and speed of deployment will lead to even higher energy costs. Effectively, the rosy estimations will disallow the best-case cost scenario for energy production from solar and wind power.
Concluding Remarks
Several recent studies provide a very rosy picture about the energy economics associated with net zero pathways. These studies are burdened with speculative assumptions that have very high uncertainties. The conclusions from these studies are unreliable because of the large error potential related to these assumptions.
I have used basic principles to demonstrate that the energy costs related to the net zero pathway will be substantially higher than the current energy costs which are dominated by fossil fuels. My analysis shows that the energy cost will continue to rise as the deployment of solar and wind power increases at the expense of fossil fuel power. In case of fossil fuel power, the helping hand from nature greatly diminishes the challenges of the primary energy source. Therefore, fossil fuel technologies have an easy path to 24X7 electricity. In contrast, renewable technologies - which have little-to-no helping hand from nature - have a challenging path to 24X7 electricity. This translates to a much a higher intensity of resource requirements for renewable energy technologies and thereby a much higher cost.
The external cost estimates of the energy technologies are also used in several studies to emphasize the cost attractiveness of the net zero pathway. However, a reasonable estimate of external costs is impossible because of the large uncertainty of the assumptions that are required. Therefore, studies must not quantitatively include external costs of energy technologies in the energy cost discussion. A rosy analysis which quantitatively includes such cost is not meaningful.
Basic principles dictate that the rosy pict
ure provided by the recent studies will prove to be false. The global population will need to have high confidence in the scientific community and international bodies over the long term to sustainably address climate change. The global population will lose confidence in the scientific community when the rosy pictures about energy cost proves to be false. The corresponding backlash will likely cause a switch back to fossil fuels and will greatly undermine climate change mitigation efforts.
The global population is more likely to embrace the climate mitigation efforts over the long term if there is trustworthy messaging that ensures the absence of unexpected shocks. Consequently, the best course of action would be to focus on scientific honesty. This entails the use of basic principles and the delivery of uncomfortable truths about costs and other relevant issues. An approach based on basic principles will also enable an optimal path forward selection by avoiding poor energy policies.
References and Notes
Several recent studies provide a very rosy analysis of the energy costs associated with transitioning to a net-zero world. These studies use several highly speculative assumptions for their analysis. Herein, I use a basic principles approach to avoid the large errors that are expected with such speculative assumptions. Specifically, I show that a low-carbon energy transition will substantially increase the global energy cost. Thus, the rosy analysis of the recent popular studies is not consistent with basic science. This has important implications for addressing climate change in a sustainable manner.
Introduction
Globally, efforts are ramping up to address climate change. Over 70 countries have set a target of net zero greenhouse gas emissions over the next decades [1,2]. These countries are responsible for over three quarters of the global emissions.
Most major proposals include a massive deployment of renewable power in their net zero pathways [1-3]. Solar and wind are the popular options for renewable power.
The net-zero pathway or low-carbon power transition will impact the global energy cost. Will the energy cost increase or decrease? It depends on whether the energy cost from solar and wind power for generating on-demand electricity can become lower than fossil fuel power.
Most studies use several speculative assumptions for their cost estimates [3-7]. In this article, I use basic principles to discuss the costs. Basic principles are those that are proven and do not change with time or new findings.
Additionally, I briefly discuss the implications of my findings.
Methodology
Several studies have estimated the energy cost for net zero scenarios [3-7]. These studies require several assumptions for their cost estimate. For example, the studies require assumptions about a) the future cost of solar, wind power and supporting technologies, b) the cost associated with the long-term supply/demand balance of the massive resources required for the technologies, c) the cost of the electrical grids which will be of unprecedented size and complexity, d) the level of redundancy required to ensure the long-term stability of electrical grids, and e) the applied discount rate.
Such cost estimates are very sensitive to the required assumptions which have very high uncertainty. Correspondingly, their cost estimates have very high uncertainty. For example, if aggressive assumptions are used the actual costs would be many-fold higher than the estimated costs and vice versa. Because of the large uncertainty in assumptions, an aggressive assumption of one estimator is conservative to another. Thus, these studies are fundamentally flawed.
The potential for bias of the researcher is extremely high for such estimates. Consequently, such cost estimates are subjective and unreliable.
How to avoid the pitfall? By focusing on basic principles which are reliable and undisputable.
I use the cost difference between fossil fuel power and solar/wind power to define the energy cost for the net zero pathway. The analysis focuses on a cost comparison between fossil fuel power and solar/wind power over a long-term using basic scientific principles.
Specifically, my analysis informs whether the cost of solar/wind power will decrease below fossil fuel power. Overall, this information provides a realistic understanding about the energy cost of the low-carbon transition.
Cost Discussion
Basic requirement for comparing costs
The cost between technologies must be compared on an apples-to-apples basis. Specifically, all technologies must satisfy the critical requirements of the customer. What if one technology does not meet the requirements? Then, the extra cost that enables the deficient technology to meet the requirements must also be included.
I will discuss an example to illustrate this point. John’s business requires a fan that provides cooling for 24 hours (24X7) daily. A manufacturer offers two types of fan technologies. Fan technology #1 can provide the desired 24X7 cooling. Fan technology # 2 can only provide intermittent cooling for a total of 15 hours per day. John should not compare the cost of the two technologies based on their individual costs alone. This is because fan technology # 2 does not satisfy his cooling requirements. He will require an extra fan or some other method to address the deficiency of fan technology #2 - which will result in an extra cost. Consequently, he must include this extra cost for a valid cost comparison between the two technologies.
The above example is directly applicable to the solar/wind power versus fossil fuel power discussion.
Basic requirement for comparing costs between solar/wind power and fossil fuel power The modern society has one critical requirement from the power system - the requirement that its electricity demand is met reliably on a 24X7 basis.
We know from decades of operating experience that fossil fuel power plants can reliably meet the 24X7 electricity demand.
Solar and wind power plants produce electricity intermittently, i.e., only when the sun is shining, and wind is blowing. They cannot meet the 24X7 electricity demand on a standalone basis because of this deficiency.
The levelized cost of electricity (LCOE) is a commonly used metric to compare costs between power technologies. But this metric is only useful for comparing technologies that can meet 24X7 electricity demand. The deficiency of solar and wind power disallows their comparison with fossil fuel power based on LCOE alone. Accordingly, the U.S. Energy Information Administration (EIA) lists solar and wind in a separate category [8]. Solar and wind are listed as resource-constrained technologies, while fossil fuel power plants are listed as dispatchable technologies. Two reports co-published by the Organization of Economic Cooperation and Development (OECD) systematically summarize the technical reasons for the required extra costs for solar and wind power [9,10].
Consequently, we must include the extra costs required to address the deficiency of solar/wind power for a valid comparison. Various options are available to address the deficiency. These include energy storage and/or back-up power plants, and/or overbuilding solar and wind, and/or extensive transmission grids.
To recap, a valid comparison between solar/wind power and fossil fuel power requires that their costs are compared for 24X7 electricity production. This means that the extra cost required to address the deficiency related to their intermittency must be included.
Cost Basics
The cost of energy production from a technology is determined by its intensity of resource requirements and deployment levels [11]. Examples of the required resources include labor, materials, land, water, and energy. Labor or human activity/involvement is required for mining, transportation of materials, pretreatment of materials, land preparation, and manufacturing.
From basic principles, a technology which has an easy path to the desired product will require a low intensity of resources. While a technology which has a challenging path to the desired product will require a high intensity of resources.
The required intensity of resources defines the intrinsic or true cost of energy production for the technology. Intrinsic cost is the cost of energy production for a technology in absence of the inefficiencies arising from low levels of deployment. Such inefficiencies are expected at low levels of deployment because of poor economy-of-scale or technical shortcomings. As the deployment level increases, the technology moves closer to its optimal state and the deficiencies decrease [12]. When a technology is close to its optimal state, its cost of energy production is defined mainly by the intrinsic cost, i.e., resource requirements.
Fossil fuel technologies have been close to their optimal state from a long time because of their extensive deployment over the decades. Solar and wind power are deployed at much lower levels currently. For reference, solar and wind combined provide about 10% of the global electricity [13]. These technologies are not close to their optimal states as yet [14]. Therefore, the current cost of energy production from these technologies includes the intrinsic cost and the inefficiency cost arising from low deployment levels. But solar and wind power will quickly move close to their optimal states based on the massive deployment predicated in the net zero proposals [3,4,15].
Herein, I compare solar/wind power and fossil fuel power based on their intrinsic costs alone - i.e., by comparing the intensity of the resource requirements for the technologies [16]. This enables an apples-to-apples comparison by eliminating the impact of deployment levels (i.e., by eliminating the contribution from inefficiencies).
Cost comparison between solar/wind power and fossil fuel power
In the previous section, I discussed how we can robustly compare the cost between solar/wind power and fossil fuel power by comparing their intensity of resource requirements.
But how to evaluate the intensity of resource requirements for seemingly dissimilar technologies? By using basic scientific principles.
For this, I will take advantage of the common thread between solar, wind, and fossil fuel power.
- Solar, wind, and fossil fuel power have the same primary source of energy - solar energy.
- Also, the technologies have to produce an identical energy product - i.e., 24X7 electricity to meet the consumer demand.
Solar energy has two major challenges from the viewpoint of converting it to on-demand 24X7 electricity.
- First, solar energy is extremely dilute [17,18]. While earth receives gigantic amounts of solar energy, the amount of energy received per unit area is small [19]. Consequently, it is challenging to capture solar energy - which is required to convert it to electrical energy [20].
- Second, solar energy is only available intermittently. Consequently, generating 24X7 electricity from solar energy is a massive challenge.
How so? Basic principles inform us that the technologies that have a large helping hand from nature to mitigate the challenges of solar energy (the primary source) will have an easier path to produce 24X7 electricity and thereby have a low intensity of resource requirements. On the other hand, the technologies that do not have a helping hand or only have a small helping hand from nature will have a markedly more challenging path to produce 24X7 electricity and thereby have a high intensity of resource requirements.
How do the technologies compare in terms of the helping hand or support from nature? First, I will consider fossil fuel power technologies.
How were fossil fuels formed? The solar energy captured by ancient plants and organisms has been converted to fossil fuels [21]. Nature has enabled this conversion process by applying heat and pressure on the ancient plants and organisms in the earth’s crust over millions of years (Figure 1). Specifically, nature has transformed the dilute, and intermittent solar energy into high energy density fossil fuels that are available 24X7 for energy production. Characteristics such as energy density and power density provide information about how dilute the energy source is. Based on any reasonable metric, solar energy is more than thousand times dilute compared to fossil fuels [17,18,22].
Because of the massive helping hand from nature, fossil fuels are abundant, accessible, and easy to transport, store, and convert to usable energy. Essentially, nature has drastically lowered the intensity of resource requirements in case of fossil fuel technologies by mitigating the two critical challenges of solar energy. Thus, nature has enabled an easy path to 24X7 electricity for fossil fuel technologies.
Figure 1: Pathways for fossil fuel power and solar power.
I will consider solar power next. Unlike fossil fuels, there is no helping hand from nature for solar power because solar energy is its direct energy source for generating electricity. Thus, the challenges associated with solar energy are not mitigated in case of solar power. Correspondingly, solar power requires a markedly higher intensity of resources to produce 24X7 electricity compared to fossil fuel power. This, in turn, translates into a markedly higher cost of energy production for solar power.
Next, I will discuss wind power. Wind energy is the energy source for wind power. Nature acts upon solar energy and transforms it to wind energy. However, the helping hand from nature is small.
How do we know that? Because wind energy is also intermittent and dilute [17,18]. The required intensity of resources for wind energy is considerably larger than fossil fuels. Why? Because, in case of fossil fuels, nature has eliminated the intermittency and diluteness challenges. Correspondingly, fossil fuels require a substantially lower intensity of resources compared to wind to provide 24X7 electricity. This, in turn translates into a markedly higher cost of energy production for wind power.
The intermittency challenge can be decreased to a certain extent by deploying an optimal combination of solar and wind power. However, even this approach does not address the challenges adequately. Intermittency and uncertainty are major problems for these technologies - such that most regions will often have many hours to days of inadequate electricity even when the solar and wind are combined in an optimal manner [6,23]. This is because most regions have several overlapping periods every year where availability of both solar and wind energy is low.
In other words, intermittency still poses a major challenge despite using an optimal combination approach. Moreover, using a combination approach does not alleviate the challenge associated with the dilute nature of the energy source. These factors lead to a high intensity of resource requirements for solar and wind power.
Overall, basic principles inform that solar/wind power - unlike fossil fuel power - do not have a large helping hand from nature to mitigate the challenges of intermittency and diluteness of the energy source. This leads to a much higher intensity of resource requirements. In turn, this results in markedly higher electricity production costs for solar/wind power compared to fossil fuel power.
My discussion involves an intrinsic or true cost comparison. Thus, the discussed costs include the improvements expected from the higher deployment levels of solar, wind and supporting technologies [16].
The discussion can be extended to other renewable power technologies that have solar energy as the primary source. For example, biomass power also has the same primary energy source and final product as solar, wind and fossil fuel power. Biomass power has a much smaller helping hand from nature compared to fossil fuels. Recall, fossil fuels were formed from biomass and other organisms after millions of years of heat and pressure treatment. Consequently, biomass power has a higher intensity of resource requirements than fossil fuels and thereby higher costs.
The impact on the overall energy economics is expected to be substantial because high electricity costs will also result in high costs associated with the electrification pathway. For example, the cost per mile for battery electric vehicles will increase significantly because of the markedly higher electricity costs.
Health and Social costs
Several studies include the health and social costs of fossil fuels to provide a very rosy analysis about the energy economics for the net zero proposals [4,5,7]. The health cost is related to the impact from pollution and the social cost is related to the impact from climate change. The inclusion of such external costs (externalities) to provide a rosy analysis has critical problems.
Energy costs are actual costs that are based on well-defined project costs such as capital costs and operating expenses. The energy cost associated with each project can be objectively estimated. Globally, every individual and business will be directly impacted by this increase in energy cost.
In contrast, health and social costs are vague and cannot be estimated in an objective manner.
For example, one such estimation is the cost associated with the loss of human life. How to assess the cost associated with loss of human life? One might argue that the cost depends on the loss of contribution from the impacted person. How to reasonably quantify the anticipated contribution of the specific individuals that are impacted? Studies typically include a large cost, such as million dollars per person, for their estimates [7]. Clearly, these costs include assumptions that have a large uncertainty. Moreover, it is not clear how these costs impact an average individual or business. In other words, this cost is not compatible with energy costs for determining a realistic economic impact. Estimating cost related to human health issues has similar problems.
The discount rate assumptions in the studies also lead to a critical problem. A discount rate is assumed to convert the future estimated health and social cost to a current cost. The external costs are extremely sensitive to the discount rate assumption. For example, a change in discount rate from 3% to 5% can more than triple the estimate for the social cost of carbon [24]. Thus, individuals who are very pessimistic about future climate impacts would prefer to use a low discount rate, while others will prefer to use a high discount rate.
Consequently, studies that want to provide a rosy analysis of the energy economics for net zero pathways use a low discount rate of around 2%. This value is much lower than global average discount rate for projects and the historical inflation rates for consumer prices. For reference, the average discount rate or cost of capital for projects is about 5% in the United States and typically much higher in developing countries [25,26]. Also, the global average inflation rate was 5.3% from 1980 to 2021 [27].
Many economists make philosophical arguments to favor low discount rates. Clearly, the social cost of carbon is extremely sensitive to such philosophical assumptions.
Furthermore, the rosy studies make a critical assumption about the external costs from the renewable technologies. The studies assume a very low external cost for these technologies even at very high deployment levels. Recall, from basic principles, the renewable technologies have a very high intensity of resource requirements. History has shown that high intensity of resource requirements leads to large environmental impacts [28,29]. Thus, the low external cost assumption for renewables is very likely to be inaccurate. Further details are discussed elsewhere [30].
Fossil fuels have significant external costs. But the estimation of the costs has a very large uncertainty. Costs with high uncertainty should not be comingled with actual costs. When costs have high uncertainty, there is no quantitative credibility. Therefore, external costs of energy technologies should not be quantitatively included in the energy cost discussion.
To ensure scientific honesty the external costs must be discussed cautiously. If discussed in a quantitative manner, the studies should emphasize that the costs are based on highly uncertain assumptions and cannot be coupled with actual energy costs.
Implications
Using basic principles, I have demonstrated that energy costs will increase substantially as we move to a net-zero world. This large increase in energy costs will have a significant impact on the global population. This conclusion totally contradicts the bulk of recent studies that are based on speculative assumptions [3-7]. These popular studies provide a rosy analysis about the low-carbon transition that is not consistent with basic principles. The unfortunate implications are discussed below.
Globally, the governing bodies are being increasingly convinced by such studies that energy costs will not be a significant issue. This is influencing their energy policies and the messaging to the general population. The message being - a low-carbon transition will have massive benefits with minimal detrimental cost impacts.
Basic principles dictate a substantial increase in cost. Consequently, the true energy costs will not remain concealed for long. As long as the implementation levels of solar and wind power are low, the increase in cost will be small. This will mask the increase in energy cost for a short while. But as the implementation levels of solar and wind power increase beyond a certain threshold level, the substantial cost impact will become obvious to the general population.
To sustainably address climate change, the global population will need to have a high confidence in the scientific community and international bodies over the long term. Basic principles dictate that the rosy picture painted by the recent studies are incorrect. The confidence in the scientific community will be lost when the rosy pictures about energy cost prove to be false. The corresponding backlash will likely cause a switch back to fossil fuels and will greatly undermine climate change mitigation efforts.
There is another problem. A basic principles approach provides the best-case cost scenario for solar and wind power. Even in the best-case scenario, the energy production costs from solar and wind power are substantially higher. The rosy estimations will make it much worse!
Why? Because the rosy estimations disincentivize an optimal evaluation of the path forward [31]. The resulting suboptimal selection of energy technologies and speed of deployment will lead to even higher energy costs. Effectively, the rosy estimations will disallow the best-case cost scenario for energy production from solar and wind power.
Concluding Remarks
Several recent studies provide a very rosy picture about the energy economics associated with net zero pathways. These studies are burdened with speculative assumptions that have very high uncertainties. The conclusions from these studies are unreliable because of the large error potential related to these assumptions.
I have used basic principles to demonstrate that the energy costs related to the net zero pathway will be substantially higher than the current energy costs which are dominated by fossil fuels. My analysis shows that the energy cost will continue to rise as the deployment of solar and wind power increases at the expense of fossil fuel power. In case of fossil fuel power, the helping hand from nature greatly diminishes the challenges of the primary energy source. Therefore, fossil fuel technologies have an easy path to 24X7 electricity. In contrast, renewable technologies - which have little-to-no helping hand from nature - have a challenging path to 24X7 electricity. This translates to a much a higher intensity of resource requirements for renewable energy technologies and thereby a much higher cost.
The external cost estimates of the energy technologies are also used in several studies to emphasize the cost attractiveness of the net zero pathway. However, a reasonable estimate of external costs is impossible because of the large uncertainty of the assumptions that are required. Therefore, studies must not quantitatively include external costs of energy technologies in the energy cost discussion. A rosy analysis which quantitatively includes such cost is not meaningful.
Basic principles dictate that the rosy pict
ure provided by the recent studies will prove to be false. The global population will need to have high confidence in the scientific community and international bodies over the long term to sustainably address climate change. The global population will lose confidence in the scientific community when the rosy pictures about energy cost proves to be false. The corresponding backlash will likely cause a switch back to fossil fuels and will greatly undermine climate change mitigation efforts.
The global population is more likely to embrace the climate mitigation efforts over the long term if there is trustworthy messaging that ensures the absence of unexpected shocks. Consequently, the best course of action would be to focus on scientific honesty. This entails the use of basic principles and the delivery of uncomfortable truths about costs and other relevant issues. An approach based on basic principles will also enable an optimal path forward selection by avoiding poor energy policies.
References and Notes
- United Nations. Climate action. https://www.un.org/en/climatechange/net-zero-coalition
- Note: Net zero emissions means decreasing the emissions to as close to zero as possible. The remaining emissions will be absorbed by forests and oceans.
- IEA (2022): Net zero by 2050. https://www.iea.org/reports/net-zero-by-2050
- IRENA (2022): World transitions outlook: 1.5oC pathway. https://irena.org/publications/2021/Jun/World-Energy-Transitions-Outlook
- NREL (2022): Examining supply side options to achieve 100% clean electricity by 2035. https://www.nrel.gov/docs/fy22osti/81644.pdf
- Joule (2022). Empirically grounded technology forecasts and the energy transition. https://doi.org/10.1016/j.joule.2022.08.009
- Energy and Environmental Science (2022). Low-cost solutions to global warming, air pollution and energy security for 145 countries. https://pubs.rsc.org/en/content/articlelanding/2022/ee/d2ee00722c
- U.S. Energy Information Administration: Levelized cost of new generation resources in the annual energy outlook 2022. https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf
- OECD and NEA report (2012): The costs of decarbonization. Nuclear Energy and Renewables. System effects in low carbon low carbon electricity systems. https://www.oecd.org/publications/nuclear-energy-and-renewables-9789264188617-en.htm
- OECD and NEA report (2019): System costs with high share of nuclear energy and renewables. https://www.oecd-nea.org/jcms/pl_15000/the-costs-of-decarbonisation-system-costs-with-high-shares-of-nuclear-and-renewables?details=true
- Note: Energy production cost includes all major costs such as capital cost (initial investment) and feedstock cost.
- Note: The cost contribution from inefficiencies is low after a certain threshold level of deployment has been reached.
- BP Statistical review of World energy 2021. https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2021-full-report.pdf
- Note: How do we know that? Because their global average costs have been decreasing markedly since the past two decades. When the technologies get closer to the optimal state the rate of cost decline will slow down significantly. Based on the trend in certain countries, it appears that the rate of cost decline could slow down shortly.
- Note: The contribution to cost from inefficiencies is low after a certain threshold level of deployment has been reached. Because of the large energy demand, threshold levels of deployment can be reached fairly quickly for the energy technologies that are favored for deployment.
- Note: Focusing only on the intrinsic costs for the comparison analysis is the best-case scenario for solar and wind power. If cost inefficiencies from lower deployment levels are considered, these technologies will have additional costs.
- Energy policy, 123, 83, 2018. https://www.researchgate.net/publication/327239302_The_spatial_extent_of_renewable_and_non-renewable_power_generation_A_review_and_meta-analysis_of_power_densities_and_their_application_in_the_US
- International journal of Green Energy, 5,438, 2008. https://www.researchgate.net/publication/233231163_A_Comparison_of_Energy_Densities_of_Prevalent_Energy_Sources_in_Units_of_Joules_Per_Cubic_Meter
- U.S. EIA: Solar explained. https://www.eia.gov/energyexplained/solar/
- Note: The dilute nature of solar energy is a significant challenge. Why? Because it is difficult to harness energy from an extremely dilute energy source. For example, consider the challenges related to fishing in a lake that only has a few fish at any given time.
- U.S. EIA: Natural gas explained. https://www.eia.gov/energyexplained/natural-gas/
- Vaclaw Smil. Power densities: A key to understanding energy sources and uses. MIT press, 2015.
- U.S. EIA: Electricity. Hourly electricity grid monitor. https://www.eia.gov/electricity/gridmonitor/dashboard/electric_overview/US48/US48 Note: For example, the minimum daily electricity generated by solar and wind combined in the U.S. was a factor of four lower than the maximum daily electricity generated by solar and wind combined in 2022. In July 2021, the average combined solar and wind generation was about half of that in May 2021. Note, this was across the whole grid. The situation is worse for local grids.
- Interagency working group on the social cost of greenhouse gases: United States Government (2016). Technical update of the social cost of carbon for regulatory impact analysis. https://www.epa.gov/sites/default/files/2016-12/documents/sc_co2_tsd_august_2016.pdf
- Cost of capital and equity. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.html
- IEA: The cost of capital in clean energy transitions. https://www.iea.org/articles/the-cost-of-capital-in-clean-energy-transitions Note: The cost of capital for cement, chemicals and iron/steel is provided for different countries.
- World Bank data. Inflation consumer prices. https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG
- P. M. Vitousek, H. A. Mooney, J. Lubchenco, J. M. Melillo, Science 25, 494 (1997)
- European Environment Agency. The European Environment: State and outlook 2010. https://www.eea.europa.eu/soer/2010/synthesis/synthesis/chapter4.xhtml
- Climate and Energy Decoded: A realistic overview of climate change, renewable energy and low-carbon transition. HopeSpring Press (2022).
- Note: The rosy estimations will lead to the following thought process. Solar and wind power are extremely cost-effective technologies. Therefore, we should transform the energy system rapidly using solar and wind power. This argument leaves no room for a critically needed robust analysis. This will result in large cost additions due to inefficiencies related to haste in the deployment speed. For example, basic research is key to reducing energy storage costs. A haste in deployment will not be able to optimally take advantage of the cost declines from basic research, which will take time.