The Economics of Renewable Energy: Analyzing Costs and Benefits for Consumers

The growth of renewable power brings both opportunities and challenges for utility companies seeking to provide affordable, reliable electricity to customers. As renewables expand, analyzing their costs and benefits for consumers is crucial to driving continued adoption while maintaining competitiveness.

This article examines key economic factors impacting the value proposition of renewables from the customer perspective. We will focus on utility-scale wind and solar generation.

Falling Technology Costs

The levelized cost of electricity (LCOE) from renewables has declined dramatically in the past decade, making them cost-competitive with conventional fuels. Key drivers include:

• Improved manufacturing efficiency for solar panels and wind turbines.
• Advances in power electronics and control systems.
• Scaling of supply chains and project development expertise.
• Low operating costs without fuel expenses.

In many areas, new solar or wind costs less than existing coal plants. Renewables also avoid future fuel price volatility.

Grid Integration Expenses

• While generation costs have decreased, integrating renewables incurs grid costs related to:
• Transmission buildout to access remote wind/solar sites.
• Upgraded inverters, switches, and other “smart” devices to manage two-way flows.
• Increased operating reserves to balance solar/wind variability.

• Market design changes to improve dispatch efficiency.

There is debate about exactly quantifying integration costs. However, they are generally modest if renewables are properly planned for.

Environmental and Health Benefits

By generating emission-free power, renewables create environmental and public health value not captured in LCOE. These societal benefits include –

• Avoided premature deaths from air pollution.
• It reduced respiratory and cardiovascular impacts.
• Lower healthcare costs.
• Decreased climate change impacts from avoiding CO2 and methane emissions.  

Studies estimate each MWh of renewable generation provides $20-$60 in environmental benefits. Factoring in these externalities further improves the economy.

Economic Development Renewable energy investment strengthens local economies via:

• Construction jobs building projects.
• Lease payments to landowners hosting projects.
• Increased tax revenue for communities.
• Local manufacturing and supply chain development.
• New tourism opportunities.

The economic multiplier effect from renewables can be 1.5-3 times the initial project investment. Local job creation and tax base growth are powerful incentives for communities.

Customer Energy Choice

Many consumers and corporations increasingly prioritize clean energy. Renewables allow customers to:  

• Directly buy renewable power through green tariffs or PPAs.
• Invest in distributed solar to meet sustainability goals.

• Certify operations with green attributes from renewables.
• Limit exposure to fossil fuel price volatility.
• Meet ESG (environmental, social, governance) objectives.

Offering renewable energy choices strengthens consumer relationships and brand loyalty.

Evaluating the Total Value Proposition

To assess the consumer value proposition of renewables, utilities must evaluate the complete range of quantifiable cost and benefit factors – not just technology costs.

Robust modeling and analytics are essential to quantifying cost-benefit tradeoffs and informing renewable energy planning decisions. An integrated approach considers:

• Projected LCOE under different scenarios.
• Grid integration infrastructure needs and costs.
• Environmental and health externalities.

• Local economic impacts.
• Customer preferences and energy choices.

By analyzing the full costs and benefits to consumers, utilities can continue driving renewable growth while maintaining affordability, reliability and community vitality. Capturing the complete economic picture enables power sector transformation.