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If We Have All This Amazing Energy Technology, Why Aren’t Prices Falling?

Over the last few years, we’ve seen something extraordinary happening in the energy sector. Despite dire predictions ten years ago about the price of renewables, the world is embracing them in a way that few people expected.

The Exponential Decline In Renewable Energy Costs

The cost of installing renewable energy systems is collapsing all over the globe. In some places, generating electricity from solar is cheaper than coal – a trend that will gather pace in the coming years.

Something similar is happening to wind turbines too. While the cost declines haven’t been quite as impressive as solar, they’re certainly on a strong, downward trajectory. The larger they get, the more efficient they become.

The question, therefore, naturally arises: why doesn’t the average business see much of a decline in their energy bills?

The reasons for this come down to several factors, some of which are obvious and some that aren’t.

Failing To Compare Prices

With the internet, it is easier than ever before to see electricity rates in real-time. You can track how much each vendor charges for energy, and where they derive it. But a lot of people are failing to make use of these facilities, potentially missing out on making savings.

Remember, it is competition that drives down the price of energy. The more people who are prepared to switch, the lower the markup providers will be able to charge. By switching energy providers, businesses and homeowners are helping other customers get a better price.

Solar And Wind Still Need To Fall Further

It is important to note that both solar and wind started as costly technologies. NASA put solar in the space station, but that was just about the only place you could find it. For the average person, it was prohibitively expensive.

With advances in technology and significant learning breakthroughs, the price has collapsed from its dizzying highs. We’ve seen a fall of close to 95 percent. Surely electricity prices should reflect that?

Unfortunately, that’s not quite how it works. The problem is that wind and solar started so expensive that these enormous cost declines are necessary even to make them slightly competitive with existing fossil fuel technologies. Falling in price by over ninety percent made it economically worthwhile to start deploying them on a large scale. But drops in electricity prices will require the cost of these technologies to fall even further, and there doesn’t seem to be much room to run there.

There are two reasons for this: the lifecycle of renewables and the cost of installation.

The cost of a solar panel will never fall to zero – not without some incredible technological breakthrough. But even if it did eventually get there, there would still be the cost of installing it. And that’s not cheap.

On top of that, renewables have a limited lifespan. It is not the case that once you install a solar panel, you get free energy forever. Today’s panels last around twenty-five years, after which they reach the end of their useful lives and must be replaced. The cost of replacement, therefore, is something that you need to take into consideration. The shorter the lifecycle of the technology, the higher the price.

Green Energy Only Comprises A Small Mix Of Total Energy

Even though the majority of new capacity is renewable, its total penetration in the energy market is small. Currently, around 2 percent of all the electricity generated in the US companies renewable sources, with only a fraction of that coming from solar.

The energy mix will undoubtedly change over the next few years as the price of solar panels continues to fall, but today, fossil fuels still dominate. And, for that reason, energy prices still need time to come down.

The Good News About The Future Of Energy

There is good news in this story, though. While energy prices will remain elevated for some time, there is a strong case to be made that they will eventually fall. Over time, the cost of deploying solar and wind on a large scale will decline, and we will see the bills for the average person come down.

There are a couple of reasons for this.

First, we’re still very much in the infancy of solar and wind technology. Current designs may only last for twenty-five years. Nevertheless, if engineers can double or triple that, then the cost savings could be enormous.

The technology could improve in other important ways too. At the moment, standard solar panels convert around 20 percent of incoming solar energy into electricity. New materials could push that above 30 percent, or even higher, meaning far lower installation costs and land usage.

Second, we’re yet to see solar and wind penetrate the market in a big way. That means that any cost savings will only form a small part of the total energy pie.

Replacing the existing fleet of coal and gas power plants will take a long time. Many of those facilities have more than 30 years to run before they require replacement. The transition, therefore, will be slow. Even so, once it is complete, the price the average person pays for their energy should come down considerably. It is much cheaper to collect energy from the sun passively with a solar panel than it is to orchestrate something as complicated as a coal power plant.

Summary

Fossil fuel energy is harmful to the environment on several levels. Burning gas and coal adds CO2 to the environment and mining causes widespread damage. Until now, though, it was a necessary evil to power our civilizations. Without it, we’d be in a lot of trouble.

Renewable energy sources offer humanity a way out of this predicament. Solar and wind are not only economically feasible, but they will soon lead to lower prices and, perhaps, a more robust economy.

None of this, though, is guaranteed to happen. While the economics and the technology make sense, they rely on the government staying out of the way. It should “just happen,” but there’s no guarantee it will.

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