A bold report is presented by Thure Traber, Hans-Josef Fell and Sophie Marquitan at Energy Watch Group. It says that a 100% renewable power system for Germany can undercut fossil power within this decade. The authors look at the full cost of fossil power, including subsidies. Importantly, they explain how unit costs will rise further, as demand declines, due to the decreasing utilisation of its expensive infrastructure. Meanwhile, total system costs for solar, wind and storage keep getting cheaper. E-mobility too. Even without adding the costs of environmental damage from fossil fuels and nuclear – always hard to pin down – the numbers favour renewables. So if 100% renewables for all energy sectors – heat and electricity for industry, households, commerce and mobility – can make economic sense before 2030, that should become the over-riding policy target, say the authors. Coal and gas prices are at record highs this year and may drop back, but the fundamental trends will remain. 100% renewables will reduce energy costs within policy timeframes. Their modelling includes an optimal full-supply clean energy mix of 18 generation and conversion technologies and storage for given costs and potentials.
Accounting for all costs
For about a decade, scientific studies have been showing that the costs of conventional energies (oil, natural gas, coal & nuclear power) significantly surmount those of renewable energies, if the immense damage costs are included (Fraunhofer Institut ISE, 2021; Reuster & Küchler, 2013). However, this realisation has not yet resulted in a change of political direction that would bring about a full supply of 100% renewables by 2030. The main counterargument is that electricity generation costs from conventional energies are lower than those from renewable energies. The external damage costs are often ignored, although they could be largely avoided by employing renewable energies.
Solar & Wind: total system costs
Since around 2017, however, the electricity generation costs of solar and wind power have fallen far below the electricity generation costs of conventional power plants such as natural gas, coal or nuclear (Fraunhofer Institut ISE, 2021). Yet, this new development is likewise largely rejected based on the argument that the total system costs, including for instance, the storage costs necessary for complete security of supply, are far above those of conventional power generation.
Costs continue moving in renewable energy’s favour
According to this short study, however, the latest developments in the price decline of renewables and storage technologies in conjunction with the price increases of conventional power generation paint a different picture: since 2021, reliable power supply from 100% renewables is cheaper than power from newly built conventional power plants, also when storage costs are included. From 2025 onwards, conventional power plants that are already in service will no longer be economically competitive with newly built full-supply systems with 100% renewable energy. This study shows that even without considering the damage costs, a full supply with renewable energies would allow cheaper electricity costs in the near future.
Especially now, in the energy price crisis triggered by fossil and nuclear power generation, switching to renewable energies can be demonstrated to offer a path to socially acceptable energy costs that relieve the burden on the economy. Numerous studies indicate that electromobility already has cost advantages over gasoline- and diesel-powered private transport (ADAC, 2021; BMU, 2021) and heating with green electricity is also significantly cheaper than with petroleum or natural gas (BDEW, 2021). Since green electricity costs will continue to fall in the coming years according to this EWG short study, the conversion of all energy sectors to 100% renewable energy is the all-important way out of the current and coming energy cost surges. Consumers as well as production companies can reduce their energy costs by a complete conversion to renewable energies. Depending on the object, the necessary investments should pay off within a few years against the costs of purchasing increasingly expensive energy from oil, natural gas, coal or nuclear power.
This study shows that there are no more excuses: climate protection with 100% renewables pays off compared to climate-destroying conventional energies even if the external damage costs are disregarded and a year-round security of supply is aimed for.
The results in detail
The cost of a full system transformation has fallen sharply by 2020 – and will continue to fall. This is according to calculations using the Energy Watch Group’s Energy System Model, which show how the costs of a new, 100% renewable and reliable energy system to supply all sectors have evolved over the last decade and are on track for the coming years with rapid expansion of renewables and storage.
Rising fossil costs
In contrast, the costs of conventional power generation have continued to rise. Cost drivers are rising natural gas and coal prices as well as carbon prices (Federal Reserve Bank of St Louis, 2021; index mundi, 2021; icap carbon action, 2021). This is also visible on the power market, where price quotations are mainly determined by the cost of conventional power generation. In September 2021, these rose to the highest level since the European liberalisation of energy markets in the late 1990s (Statista, 2021). At the same time, the urgency of transforming the energy system to be climate-compatible is constantly increasing, while reducing emissions with renewables such as wind and solar is steadily becoming cheaper.
Most importantly, even the cost of year-round reliable energy systems based on renewables has fallen sharply over the past decade. These systems, integrated by sector coupling with full renewable supply, deliver energy from renewables for all energy sectors – heat and electricity for industry, households, commerce and mobility – even in weeks of Dunkelflaute (minimal wind and sunshine) – at every hour of the year. As a result, the system costs of full renewable energy supply will be below the total costs of coal and nuclear power plants at current input costs as early as 2025. Since 2010, when renewable energy was still non-competitively high, the costs have steadily fallen until today, even below those of non-sustainable energy options. This is valid even if the environment is only partially taken into account in the cost calculation.
Figure 1 shows that the costs of an optimal full-supply mix of 18 generation and conversion technologies and storage1 for given costs and potentials, will fall significantly, soon rendering conventional energy sources entirely uncompetitive.
All-year round zero-emission power: investment costs
In 2010, an average zero-emission investment project for full supply (24×7 hours a week & 52 weeks a year) for electricity, heat and transport had costs of 32 euro cents per kWh, while in 2020 it was only 12 euro cents. Costs will average 9 euro cents in 2025. In contrast, the private electricity generation costs with fossil fuels like natural gas, hard coal and lignite coal, which are also shown, have risen sharply in the last decade, while nuclear power has been uncompetitive for several years, even though the unresolved costs of final storage of radioactive waste continue to be passed on to the community.
Another result of the calculations shows that even depreciated conventional plants will soon make annual losses from their day-to-day operation (Fig. 2). By 2028 at the latest, conventional energies will no longer be able to cover their costs in a competitive environment, even after the investments have been written off. And only the coverage of nuclear energy risks by the society, with billions of euros burdening the state budgets, can postpone the situation for this technology until around 2040. This means that by 2028 at the latest, not only all conventional new plants but also conventional existing plants will be economically obsolete due to the low costs of renewable full supply. Since prices cannot exceed the costs of the cheapest – i.e. renewable – energy sources in the medium and long term given functioning competition, it is already foreseeable that the operation of conventional plants is no longer worthwhile on the market. The subsidies for conventional plants and the regulatory obstacles for renewables can therefore only postpone the transformation, but not permanently prevent it.
This revolution in the fundamentals of energy economics is only being perceived very slowly in society. Mostly, it is just referred to the dramatic cost reduction of wind and solar power generation. However, this finding is then frequently invalidated in the public discussion by the question of winter supply at night and during periods of no wind. Thus, by clarifying low full-supply costs for 100% RE systems with their now comparably low system costs for storage, which hardly account for more than 20% of full-supply costs, it becomes apparent that the Dunkelflaute argument is nowadays only of secondary importance, at least from a technical-economic point of view.
Fossil power unit costs rise as infrastructure utilisation falls
As a basis for climate protection, the scale of the transformation to renewables must match the pace of past technological revolutions and cannot be held up by a protracted discussion of targets (e.g., climate neutrality by 2045). Crucial to the dynamics in such a transformation is the point at which the utilisation of the old capital stock declines ever more rapidly. The old infrastructure then is hit by fixed cost progression: the lower the demand for these infrastructures, the higher become their unit costs and thus the cost-covering prices. This in turn leads to an accelerated decline in demand, and so on. If one wants for instance to keep the German lignite industry in operation because of the jobs in structurally weak areas, growing additional subsidies would have to be paid. This applies similarly to the use of natural gas, which has long since triggered a permanent and growing need for state subsidies due to state-subsidised infrastructures.
If, in contrast, the tipping point in economic viability caused by declining infrastructure use and presented in this study is facilitated by very ambitious and clear expansion scenarios, especially at the regional level, the path is paved for an emission-free, cost-effective, and climate-protecting energy supply with 100% renewables by 2030. This can also be expected to result in an increase in employment.
Thure Traber is Chief Economist at Energy Watch Group
Hans-Josef Fell is President of the Energy Watch Group
Sophie Marquitan is the Partnerships Manager at Energy Watch Group
This report is published with permission. Download for the full literature references and cost tables.
1] Rooftop and ground-mounted photovoltaics, onshore and offshore wind, small and large bioenergy power plants, battery storage and battery storage interfaces, heat pumps, heat storage, hydrogen storage, hydrogen electrolysers, fuel cells and thermal hydrogen power generation (CCGT), geothermal and heating rods are considered. In addition, there are run-of-river and pumped storage power plants, which are assumed here to be non-expandable.