Home The C-SuiteChief Green Officer (CGO) Is Energy Derived from Coal-Power Stations Cheaper than That from Renewable-Energy Stations?

Is Energy Derived from Coal-Power Stations Cheaper than That from Renewable-Energy Stations?

by internationaldirector

Written By: Matthew Hemmings – Corporate Finance

One of the most interesting topics when discussing the switch from coal to green energy is the price. This discussion was raised when US President Donald Trump decided to withdraw from the COP21 Paris Agreement. By doing this, he pointed out economic reasons, which until then had not been prioritized ahead of the pure willingness to protect our planet.

What about financial figures?

Today, according to an Australian study, the marginal cost of generating power from an already existing coal station is less than A$40 per megawatt, while wind-farm energy is still higher at A$60-70 per megawatt. In the United States, and according to the latest Annual Energy Outlook 2017 report of the US Energy Information Administration (EIA), the predicted 2022 price of energy produced by gas plants with conventional technology is US$36.8 per megawatt, while wind energy is US$39.8 per megawatt.

Many economies of scale have been realized in the costs of wind and solar energy, thanks to the competition that now exists worldwide (especially with China entering the market, demonstrating a strong willingness to develop). However, today the cheapest renewable energy, onshore wind energy, remains a little more expensive than fossil energy.

But, apart from the pollution they create, coal-fired power stations are quite old and well-established around the world. The consequence is that their investments have been totally amortized for a while. On the contrary, new wind farms and solar equipment have to be implemented, and investment efforts can be expensive. To be transparent, the important question for the future should take into account the replacement costs of the old coal-fired power stations. In such a way, the total costs of producing energy would be comparable between one kind of energy and the other.

Making the distinction between the cost of existing energy generation and the cost of new-build energy generation in this debate is very important. Current prices are based on existing installations, while new-build prices compare the costs of different technologies if their operating lives started today.

Comparing prices for different sources of electricity.

An interesting article on the Australian website http://theconversation.com has calculated the cost of electricity produced by Australian coal-fired plants compared to that produced by wind farms, including costs of investments. It took into consideration all components of these costs:

  • costs to establish the source in the first place (initial investment),
  • costs to operate and maintain that facility over its lifetime,
  • and costs of capital (such as the interest paid on the investments).

The difficulty in finding the investment costs is real when talking about new fossil-fuel energy: recently very few coal-fired power stations have been built around the world. On the contrary, recent prices for new-build renewable farms do exist.

However, new coal-power prices can be found in recent studies. Those studies refer mainly to the new supercritical steam generators that are now being implemented in fuel-based plants and that are “more green” for the planet than the old technologies. For instance, according to an Australian study “The Finkel Review of the National Electricity Market”, the projected price for new supercritical coal power comes in at around A$75 per megawatt. These projections for new supercritical coal-power costs are higher than the recent prices for newly installed wind power. Indeed, in a document called “ACT Wind Auction II Review”, the current price over a 20-year contract period has been published at A$60-70 per megawatt. So, taking into consideration the investment costs of implementing new power stations, the costs of energy are likely to be cheaper if produced by wind farms, according to those Australian studies.

What about the future?

The good news is that wind farms are becoming less costly than fuel-based plants, and one can expect that improvements in technology could further reduce the price of producing renewable energy. Still, there is a topic that is considered a potential threat: the cost of green-energy storage.

At the moment, the share of green energy in the total energy production is too small to lead to storage problems. But in the future, as the share of green energy can be expected to increase to over 50 percent of all energy supply, storage will become an important matter. The race to find acceptable devices to store green energy has already started worldwide. A positive attitude would bet on the progressive increase of storage capacities and decrease in the costs of this storage. Also, one can certainly count on political willingness to increase carbon taxes, so that traditional fuel-based stations will be more and more penalised in the future.

In conclusion, the cost of electricity produced by renewable-energy power stations is becoming cheaper than the cost of electricity produced by fossil-fuel-based plants, if we take into account the necessary investments to modernize old existing plants. Future trends would also be favourable toward renewable-energy farms, provided the issue of storage is solved at reasonable costs.


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