This question arises when looking at the energy marked now a day. It doesn't seem to make sense that renewable energy is in general less cost effective compared to non-renewable energy. Because the first is in most of the cases widely, free, local and to everyone available plus it (most of the time) only involves one conversion step (for example solar energy to electrical energy or wind energy to mechanical energy, mechanical energy to electrical energy). While the second one on the other hand is concentrated in small parts of the world (often political unstable regions), includes costly extraction, processing and transportation over large distances and to make things worse more conversion steps (chemical energy to heat, heat to mechanical energy, mechanical energy to electrical energy). So the whole production consumption chain is longer, involves more actors, and in each addition step losses are present. Besides that the harmful emission associated with the use of renewable energy are small (mostly associated with production of technical artifacts) and could theoretical be close to zero, while the emission associated with non-renewable energy form a huge global problem. What could be possible explanations for this situation?
First to analyze this problem some boundaries to this question have to be stated. Because the question is rather broth the way it's presented, I will narrow it down a bit. So we're going to be looking at cost of energy, let's just focus on electrical energy for public use in the Netherlands. However the possible explanations for this situation will probably apply to larger parts of the world in particular Western Europe. There are numerous explanations to this question and this blog can't and won't give a total explanation to this question. But it might be interesting to look into some possible explanation to gain more knowledge of the nature of this question.
One possible explanation would be the difference in scale. It's obviously that the renewable energy sector is of a much smaller scale than the non-renewable energy sector. There are several disadvantages concerning costs which are inherent to a relatively small sector. Let's start at financing, for companies operating in a small sector which hasn't really proven itself, it might be a lot harder to get investors or attract loans from banks. Even if they manage to gain enough capital the interest on their loans might be higher because of the higher risks. The reason that this might be the case has to do with the amount of trust that investors have in these companies. Even though the public opinion is turning in favor of the renewable energy sector, banks and private investors are thoughtful when it comes to investing in these kinds of activities.
Then there is production cost, in this context this mean the cost associated with the production of renewable energy generating systems like windmills and solar cells. Obviously cost will go down when more and more of the same products are produced, mass production. At present this is not the case, again more cost to achieve the same goal are involved when comparing renewable energy (systems) to non-renewable energy (systems).
Besides financing and production, there are several other links in the chain where the costs are higher compared to non-renewable energy because of scale. For example in installation, maintenance and advertising. These disadvantages of scale all together make renewable energy less cost effective.
Another argument would be that the real cost of non-renewable energy are in fact already higher at present than the costs of renewable energy. It's just that not all these cost are passed on to the final consumers of the primary energy. Let's start with subsidizing. From the beginning and still present the non-renewable energy sector is subsidized by national governments. There are numerous constructions how this happened and happens. I will just give a couple examples. From early on governments invested in research and development of non-renewable systems, in particularly nuclear energy and although there are some investments in renewable energy systems these are nothing compared to non-renewable energy systems. Most energy intensive industrial sectors still don't have to pay fuel duty on their fuels or receive tax discounts. Even so taxes and duties on fuel for international shipping and air transport are low or negligible.
Also often the national government is co-financing facilities and transportation systems necessary for the long non-renewable energy supply chains. In fact, when looking at electrical energy prices, a large chunk of the costs of electrical energy is determined by these transportation systems. While in the case of renewable energy this doesn't have to be necessary. In many cases renewable energy could be used on the same location it's generated. So in a way a portion of the high transportation cost of non-renewable energy is added to the cost of renewable energy.
Then there is the case of cost related to damage to the environment, depletion of resources and public health. Let's start with the extra costs of damage to the environment caused by non-renewable energy. It is obviously a hard task to express these costs in figures or money. But since the effects are global and possibly destructive we're talking about huge figures. Then there are the costs associated with the depletion of resources, similar to the cost of environmental damage these cost are hard to express in absolute figures or money. But even though they might be an order of magnitude lower than the environmental cost there still inconceivable high. The last example, although there are more, is the extra cost associated with public health. There's no doubt that the emission of for example sulfur dioxide, carbon monoxide and soot fine partials form a threat to public health. Along the whole supply chain of non-renewable energy different forms of emissions and threats to public health do exist. Again the actual costs associated with public health are hard to estimate.
All these extra cost associated with non-renewable energy are not or at least not substantial paid by the producers of non-renewable energy and because of that not passed on to the final consumers. I should note though that the cost or values given to for example environmental damage are normative values. One could argue if these discussed costs are in fact realistic. But in my opinion they are for sure.
Adding all the discussed costs to the actual costs of non-renewable energy there's a big chance that the real costs of non-renewable energy are in fact a lot higher than the real costs of renewable energy. But because these costs aren't passed on to the final consumer’s one could argue that the prices of non-renewable energy are artificial. The main cause for these artificial prices to be the case is that the global economy fails in determining appropriate costs of damage to the environment and public health.
A third possible explanation could be that the actual price difference between renewable and non-renewable energy is in fact real. That no matter how big the renewable energy sector gets, even when including the damage to the environment and public health, the price of renewable energy will always be higher. The main reason why this could be a logical explanation is that the energy densities concerning renewable energy are much lower compared to non-renewable energy. In order to extract the same amount of energy from renewable resources compared to non-renewable resources more area, labor and technical artifacts are necessary. Because of these facts renewable energy can never compete to non-renewable energy.
Let's summarize and see to what extend the nature of the question is understood. Although the first explanation, the advantages regarding scale, is legitimate, it's not the whole story in my opinion. Maybe interesting to note though, when looking from a social science perspective, I used words as trust and risk. While risk may be to some extent a quantitative measure, trust certainly isn't. The reason that most inverters don't have this trust when it comes to investing in renewable energy might have several reasons. One could be that they don't believe or even don't want, again a normative statement, a future with a large renewable energy sector. Another, although perhaps controversial and hard to prove, reason could be that a lot of the global investment banks have big stakes in the non-renewable energy, and investing in competing technology might put them to risk.
Then the second explanation is in my opinion perhaps the closest to the truth. This explanation can be divided into three part, harm to the global ecosystem (including public health), subsidizing and system properties. The first one, harm to the global ecosystem is for a big extend based on normative statements. Al though if we assume that for example the global emissions of CO2 will result in severe climate changes, more tropic storms, floods, deserts and so on the costs associated with harm to the global environment can be put down in figures or at least to some degree. The problem is that since our global ecosystem is a very complicated system, scientists are still arguing if and to what extend climate change will influence the global ecosystem, although there is some consensus about that the climate is changing anthropogenic or not. So than again it comes down to, first, if groups or individuals see this as a problem, and second, if they think the risk that this might happen is acceptable. As soon as we, humans, together decide that the impact and risk of this impact to our global ecosystem is not desirable and that it has the highest priority. Only then will we make appropriate laws, regulations and taxes, derived from new social and ethical norms (one could say it's not ethical to take risks that can affect future generations for example), to make non-renewable energy less cost effective compared to renewable energy.
Then there is subsidizing, this might be a somewhat controversial subject to some extent. But in my opinion the real power lies in the hands of the big multinationals, especially the ones in the non-renewable energy sector and not in national governments. Quit often there is also a big entanglement of interest. All of these results in a system which is very much in favor of the established non-renewable energy sector. Where all the rules and regulations make it possible that a non-sustainable energy system is sustained. Other than the examples I already gave, the way that this emerges and is maintained goes to the very core of social interaction and human behavior. One could use words as corruption or cartels, even though this would apply to many cases; the problem is probably more fundamental and simple in a way. It comes down to (personal) values and believes which make people and groups handle the way they do. If people would truly realize that we are in many ways a part of the global ecosystem and that one’s own stakes aren't more valuable than the stakes of others, the system would change overnight so to say. I guess this discussion goes beyond the scope of this blog, so let's continue with the third point of the second explanation. The properties of our current non-renewable energy system are not really in favor of the renewable energy sector. The main difference is in the length of the supply chains. In my opinion renewable energy has a big advantage over non-renewable because of the shorter supply chains. And trying to mix renewable energy into the expensive transportation system of non-renewable doesn't make sense in many cases. By doing this a big advantages of renewable energy is removed and costs associated with non-renewable energy are added to renewable energy.
After this brief discussion about the stated question, why is renewable energy in general less cost effective compared to non-renewable energy, the text hasn't provided all the answers as I wrote at the beginning. But it gave some more insights in the nature of the question. Both social, economical, political and technical aspects of this question where discussed. Some part where objective while others clearly stated the opinion of the author. One thing that it for sure, is that this question (if it can) can only be answered completely by looking at it from various perspectives
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