The hidden costs of renewable energy
It matters when electricity is produced. A barrel of oil may be a barrel of oil whether it is pumped at midday or midnight, but a megawatt hour (mwh) of electricity is worth a great deal less when you are sleeping than during the middle of the day or, indeed, during moments when everyone decides to boil the kettle. The difficulty of bottling electricity makes its economics unusual: it is a question not just of “how much" but also “when".
At the same time, if there is one thing that everyone knows about renewable energy, it is that it is getting cheaper. Each year, or so the story goes, the costs of wind and solar power fall as the world improves its ability to harness natural resources. In 2014 the levelised cost of offshore wind, a measure for comparing different methods of generating electricity, was around $200 per mwh, according to America’s Energy Information Administration (eia), an official agency; by 2023 it had fallen to $127, excluding subsidies.
Yet the industry is struggling. Six state governors recently begged Joe Biden to intervene to keep producers alive, according to Bloomberg, a news service. In Britain the latest annual offshore wind auction attracted no bids whatsoever.
To understand what is going on, consider the levelised cost of energy in more detail. Do away with sun and wind, too, and return to a world where the choice is gas, coal or nuclear energy. These differ in terms of both their fixed and variable costs.
The costs of a nuclear plant are mostly fixed: once built it is inexpensive to produce another unit of electricity. Natural-gas plants are the opposite: most of the costs are the fuel, and are thus variable. A levelised cost means taking these fixed and variable costs over the lifetime of
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