The Price of Energy Consumption - The Renaissance of Renewable Energy - page 215

viable. Steel prices affect the initial cost of any facility, while solar PV is highly sensitive
to fluctuations in silicon and aluminium costs. Economies of scale also play an important
role, as has been seen in the case of wind and solar where mass production significantly
reduced the cost of the turbines and the PV cells.
Notwithstanding these variables, energy economists are able to calculate the relative
costs per kilowatt-hour of different energy sources. These are referred to as the levelized
cost of energy (LCOE) (see Figure 6.16 ). 15
Figure 6.16. LCOE for selected renewable energy technologies compared with
nonrenewable sources. This shows that renewables technologies are cost-competitive with
conventional sources only in specific circumstances. Source: Fischedick et al. ( 2011 )
(modified).
On average, the costs of renewable energy are higher than those of fossil-based energy.
Indeed, only large-scale hydropower, geothermal projects of more than 30 megawatts and
(if the cost of carbon is reflected in the markets) wind onshore power plants are already
competitive in the marketplace without incentives. Renewable energy may be competitive
in niche power markets, such as remote areas where no grid-based electricity is available.
Some applications may also be competitive in certain contexts, such as solar thermal in
sunny regions, biofuels in Brazil and pellets in Europe (Fischedick et al. 2011 ) . However,
the monetary costs of a litre of petrol or a kilowatt-hour of fossil-generated electricity do
not tell the full story.
6.13 External Costs of Energy Production
When the Nobel Prize-winning economist Milton Friedman was asked to sum up his ideas
in one sentence, he responded, “There ain't no such thing as a free lunch.” 16 The free
lunch was a marketing ploy used by American bars in the nineteenth century. Patrons were
offered free food if they purchased just one beer. However, the food was heavy on salt, and
as a result the customers purchased more beer to quench their thirst. The analogy to energy
economics is that no energy comes to us for free; if the cost is not obvious, it is hidden.
In the case of sun, water, wind and geothermal energy, the primary source is free, but the
costs of harnessing it are high. In the case of fossil fuels, the costs of extracting the primary
source are low, but there are major social and environmental costs involved in burning
them. The hidden costs of fossil fuels include air and water pollution which affect human,