Mint has you covered during coronavirus. Stay up-to-date with the latest financial guidelines and resources here.

MintLife Blog > Trends > What’s Wrong With Renewable Energy?

What’s Wrong With Renewable Energy?


Photo: Wayne National Forest

Gradually replacing fossil fuels with renewable sources has long been at the center of environmentalist agendas.

Renewable energy – power generated from elements of nature such as sunshine, wind, water, the internal heat of the Earth, and the combustion of certain crops – is widely popular with the public and governmental officials. It is thought to be an inexhaustible and environmentally benign source of power. Compared with the supposedly finite and environmentally problematic reliance on fossil fuels and nuclear power, focusing on renewable energy seems like a no-brainer.

The multi-billion-dollar crusade to promote renewable energy is now in its third decade. Today, however, as climate legislation emerges worldwide, the list of renewable fuels that were once promising are being questioned on grounds of practicality. Renewable energy generation is relatively uncompetitive, and skeptics are questioning whether it can respond to climate change and meet the rapidly growing demand for energy at the same time.

Taken as a whole, despite recent improvements in new generation renewable capacity, the notion of a renewable energy economy still has plenty of setbacks.

Still Too Expensive

Because renewable sources of energy are free, it is difficult to compare their costs to energy derived from fossil fuels. There is however, the huge upfront cost of building power plants, whether they are solar energy collectors or fossil fuel power plants. It remains less expensive to build a coal fired power plant per unit of energy produced than to build a solar collector.

Another factor in the cost of electricity is utilization. If you only use the plant one third of the time for peak demand, then the amortized cost for each unit of energy goes up. To get the true cost of energy you have to amortize the cost of the plant and equipment over the amount of energy it will produce over its lifetime and add to that the cost of the fuel. Then you have the true cost to produce the energy.

Coal is still the cheapest way to produce electricity — wind power is slowly catching up.

Despite improvements in efficiency, the cost of generating electricity from renewable sources remains stubbornly uneconomical. The high upfront capital costs of wind power and the erratic opportunity to convert wind to electricity more than cancel out the fact that there is no energy cost for naturally blowing wind.

In the case of solar power, it would be cost prohibitive to make solar energy mainstream for major world consumption in the near future. While the technology is being used by business and consumer applications, it remains far too expensive to replace the current energy infrastructure used for fossil fuel energy. On average, solar power is twice as expensive as new capacity from the most economical fossil-fuel alternative and triple the cost of surplus electricity.

The cost of getting power from renewable sources is steadily decreasing and is expected to intersect with the rising cost of fossil fuels within a few decades. This means that the cost of getting energy from the sun and wind will be cheaper than the cost of buying and refining oil. Until then however, even at the low end of the cost estimate, the total cost of renewable power sources averages to at least double the cost of new gas-fired electricity generation and three times the cost of existing underused generation.

Jumbled Incentives


As the U.S. Congress tries to find a solution to the uneconomical nature of renewable energy, many experts say that the problem is already clear: the tax structure. In simple terms, the the wind and solar industries receive huge tax credits. But, they come with a catch: industry investors need adequate profits to take advantage of them, because the credit is used to offset tax liability.

Developers generally don’t have large enough profits to take full advantage, so they turn to banks, which invest large amounts of money in renewable energy through “tax equity” structures. Until recently, banks invested heavily in both the wind and solar energy industries. That meant, among other things, that the fate of renewables can be closely tied to the fate of investment banks. This explains why the collapse of Lehman Brothers caused problems at a Vermont wind farm.

The details are different for solar and wind, but both are having a hard time raising tax equity. At both state and federal levels, a jumble of tax and grant subsidies exist as incentives to invest in the renewable energy economy. Most are at the state level, with differing definitions of “renewable” and with capped programs that discourage long-term planning. All are vulnerable to abrupt policy changes.

Not In My Backyard!


Renewable-energy projects would reduce pollution and combat climate change. The trade-off is that many more people would have to see wind turbines, solar panels and other energy infrastructure near their homes.

Even as Americans tell pollsters they are eager for alternatives to fossil fuel, some are fighting proposals for solar and wind projects and for the thousands of miles of transmission lines that would be needed to carry the cleaner energy to market. The protests have sounded similar to nuclear plant opposition and is fueled by worries that cumbersome, unsightly renewable-energy projects would occupy vast amounts of land and present threats to safety and biodiversity. The popular “not in my backyard” (NIMBYism) sentiment remains one of the top threats to the growth of renewable energy world-wide.

By now, every major renewable energy source has drawn criticism: hydro for habitat destruction, wind for bird mortality, solar for desert over-development, biomass for air emissions, and geothermal for depletion and toxic discharges.

Yet, the industry as a whole is growing. The criticism coupled with growth serves as a reminder that best solution may have been voiced by the Union of Concerned Scientists: “No single solution can meet our society’s future energy needs. The solution instead will come from a family of diverse energy technologies that share a common thread – they do not deplete our natural resources or destroy our environment.”


Leave a Reply