Welcome to Alberta's Experts in Renewable Energy

The Economics of Renewable Energy

One of the things we often encounter here at Boyd Solar is a misunderstanding about the economics of renewable energy. Renewables are becoming increasingly popular, so people think that there must be a cost saving of some sort. However, until large grants are in place to offset the purchase costs, or the price of non-renewable energy climbs further, renewables remain more expensive than conventional power.  When we compare the price of buying a solar system against grid power, we are making an unfair comparison since in fact they are two completely different things. Let us explore why:

Three major factors make your own solar or wind system more expensive than conventional power at the present time: 

1) You are buying you own power plant, not just the power.

In renewables you are purchasing your own hardware and creating an infrastructure where none has existed before, and you are building it all new.  Where as when buying power you are jumping into an on going system that has a large part of its structure bought and paid for many years ago, (and may have certain government given advantages in land and taxation). The utilities have been amassing infrastructure for 100 years and in places use plants and buildings 50 to 70 years old. They were bought and paid for a long time ago. Consider the economics if all of a sudden the utilities had to start from scratch and build every bit of infrastructure they use now, completely new in say the next 2 years, What would the cost of power be there after?

2) Economics of scale:

The larger you build something the cheaper it gets. Utility scale hydro or even solar is cheaper than buying your own.

3) More expensive technologies than coal or natural gas.

On a per-Watt basis it is still cheaper to produce power or heat with non-renewable resources. These prices are slowly moving towards each other and this may be the first of these road blocks of cost to be But solar and wind are much better for small-scale applications (much easier than building your own coal fired plant for example) giving you the ability to own your own power, and it is clean, quiet power at that.  This gives you freedom to do with it what you want, when you want, because it is yours, not someone else’s. It also can afford the security of a set price for your power or heat that, once bought, never rises. This is exactly like large corporations that buy commodities for later use on the futures markets, most often paying a premium to ensure a known price and supply.

So why Own your own Power?

The same reason that you bought your home. Financial analysts agree on the fact that it makes better sense to rent your home than buy it.  It is actually more cost effective. So why did you buy your home? Security? Peace of mind? Possibly to guard against sudden rises in the market and increases in your rent?  Renewable energy offers those exact same benefits but just like your house,  it costs more than simply paying monthly for just the service.

To be fair, if we are asking renewables to save us money, we need to look at which other life improvements give us as a return on investment, which, with the exception of adding insulation, the answer is none.

What is usually missed in asking solar to pay back is that the value of the system does not disappear, it adds that value to your building, and it retains that value for a very long time, and pays you by lowering utility costs. When considered this way, then it is superior to any other improvement you can make. It would be like buying a new car that lasts forty years, holds its original value (or in some places goes up) and you have to pour gas out of the tank daily. Would you buy that car even if the bus was cheaper?

Deciding what is important to you. If price is the only determining factor then grid power is your best short term choice. If you consider investment value, security, the environment, and price stability other important factors, then renewable energy gives you those things of value. However, the only one who can balance those values against the dollars is you. There are many good reasons for going to renewable energy sources but saving money quickly is not the overriding factor at this time .

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