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Are renewables making electricity more expensive?

3 min read
For business

Renewable energy sourcing from wind, solar and even geothermal power has grown exponentially in the past decade. Since 2004, global investments in these alternative energy sources have exceeded $2.9 trillion.

While beneficial to the environment and counter-acting climate change, government-mandated renewable energy legislation can sometimes lead to an increase in energy poverty. Those suffering from energy poverty, as defined by the European Union Energy Poverty Observatory, spend more than 10 percent of their income on power and can often not afford proper heating, cooling or lighting.

In light of recent legislation changes (such as the California residential solar panel mandate,) some energy experts are arguing that renewable requirements make the energy-poor poorer. Proponents of government-mandated green energy claim that blaming renewables for electricity cost increases is too simplistic of a view on the energy industry as a whole.

Energy poverty is on the rise in Europe

In some countries with widespread renewable energy legislation, citizens have seen electricity rates sky-rocket. Germany, for example, has doubled its residential electricity rate since 2000, when the government mandated a transition to wind and solar power that added roughly 11 cents per kWh as a renewable energy surcharge and ecological tax. As a result, energy economist Dragana Nikodinoska found in his 2017 study by Christian-Albrechts University that 22 percent of German households qualified as energy poor in 2013.

The United Kingdom has also seen a rise in residential rates in the past decade. Today, the average household pays nearly 22 cents per kWh, amounting to a 27 percent increase from 2008’s rates; 10 percent of that rate-hike is directly a result of the U.K.’s energy and climate change policies, which left 20 percent of British households energy poor in 2015.

The cost of U.S. electricity

Compared to the rising electricity prices in some European countries, electricity rates in the United States have remained reasonably low. The national average residential rate is about 13 cents per kWh, with many states’ average rates falling well below that number.

Advancements in solar and wind technologies have made these energy sources significantly more affordable. Yet in California, a state which has always championed renewables (especially solar energy,) the average residential electricity rate is the 7th highest in the nation, at 19.17 cents per kWh. This discrepancy begs the question: Are renewables making electricity more expensive?

Joshua Rhodes, a Forbes contributor on all things energy, explains in this article that renewables are not to blame for high electricity rates. When adjusted for inflation, the price of generating electricity has actually fallen. A number of factors are influencing electricity rates in the U.S. – including record natural gas production and weather variability – but the diversity renewables bring to the power grid has certainly helped, rather than hurt, electricity prices.

What has risen is the cost of delivering electricity – which takes into account all the updates utilities must do to maintain the electricity grid. Considering the American Society of Civil Engineers graded the country’s energy infrastructure as a D+, these funds are essential in keeping the grid operational for years to come. Therefore, while adding renewables to the grid does cost utility customers, it is by no means the dominant cause of rising electricity rates.