2778 Billion

Fossile vs. renewable energy cost

A commonly repeated mantra is that renewable energy technologies are too expensive, or require high investments. Which suggests that the alternative to renewable energy – the current fossil-based energy infrastructure - is cheaper, or requires less investments. But does that view actually hold true?

A look at global energy cost developments over the past 20 years shows –

• Fossil resources are not infinitive. Due to rising extraction costs and (real or perceived) threat to consistent and sufficient supplies, market prices for fossil energy rose at high margins over the last 20 years.
• Due to the lack of a meaningful competition, fossil energy enjoys a monopolistic market position, i.e. we have to pay whatever the cost. We can’t buy an alternative product.
• Global expenditure for energy rose significantly faster than energy consumption - from 0.86% in 1995 to 1.43% of World GDP in 2013. We are paying U$ 2778 billion more for energy needs in 2013 than 1995
• Had we had the sustainable foresight to invest significantely in renewables in the 1990s, we would be paying significantly less for energy than we are today for maintaining the fossil infrastructure 

 

Global energy consumption and expenditure for energy 1995-2013. Expenditure for energy rose much faster than consumption due to rising cost of fossil energy carriers (oil, coal, gas).

 

 

While we move to more challenging locations to extract the remaining fossil resources – in the arctic, deep under the ocean surface, cooking tar sands and fracking rock deep under the surface – exploration is becoming increasingly expensive. At the same time, the cost of renewable energy is dropping with technology development and mass production. Cost reduction is a function of investment volume (the higher the investments, the faster the cost reduction). An interesting question is therefore – what would happen if we decided to kick-start a renewable transformation now?
Comparative analysis of two different future scenarios, a business-as-usual scenario based on BP’s Energy Outlook, and a Renewable Energy Marshall Plan scenario, shows:

• Renewable energy is fast becoming cost competitive, and in some cases (wind power) already cheaper than fossil alternatives.
• Cost of other renewable energy technologies, including storage, could be reduced drastically with economics of scale (investment-induced mass production and deployment)
• At the same time, fossil energy carriers have to be extracted from more challenging locations (tar sands, ultra-deep sea, fracking, arctic drilling, etc.), i.e. costs of fossil fuels are rising.
• Not investing in large-scale renewable energy development and infrastructure NOW will cost us and additional U$ 500 billion in 2020, in excess of U$ 3’000 billion by 2025, and more thereafter. Every single year.

Global expenditure for energy needs is rising further in the future in line with increasing demand and rising cost of fossil energy extraction. However, if we abandon current policies favouring the fossil and nuclear industries in favour of renewables, coupled with strategic technology development and deployment, global energy expenditure would start to drop after 2020. By 2040, a renewable Energy Marshall Plan would save us 1% of World GDP compared to a Business-as-usual approach.

It will cost us 1% of global GDP every year to maintain the status quo - for energy alone, before even start to consider the actual impacts of climate change and increasing extreme weather events. We cannot afford maintaining the out-dated fossil-based energy infrastructure. For further information, download the report from the SolaVis website.