The renewable energy industry has steadily grown around the world in the past few decades. A combination of factors has driven this growth rate. Rising costs associated with fossil-fuel dependent electricity generation and falling prices of technologies like solar modules and wind turbines are two examples. Another reason for the migration toward renewable resources is a growing concern over climate change and greenhouse gas emissions.
Installations of rooftop-mounted solar energy systems in the sunbelt of the US is a booming trend that seems logical. Other locations that seem less likely as good candidates because of their geographic location in northern latitudes are also seeing significant growth. Unexpected announcements about solar power New Jersey seem counterintuitive. Understanding the economics of renewable energy is an important step in explaining such occurrences.
Energy Supply and Demand
Electricity can be compared to water in a pipeline in some respects. The electrical generation, transmission and distribution systems maintain a careful balance between energy in and out. Part of the nature of the electrical energy system dictates that electricity can only be fed into the system in proportion to the demand. Storing electricity is not quite yet an affordable option.
Energy Market Dynamics
This careful balance of supply and demand creates interesting market dynamics that limit the willingness of suppliers to invest in new generating resources. Until there is a dramatic demonstration of an energy system shortfall limited incentive exists to undertake capital intensive generating projects. As a result, price volatility occurs during peak demand times. Standby generating assets are much more expensive to operate and drive up the average cost of energy in the system.
Energy Pricing of Renewables
The energy price component attributable to fuel in expensive standby generating facilities has little effect on the price of fuel-less renewable energy. This is one of the reasons that solar energy can compete on price even in regions where the solar resource might seem less than ideal.
Electrical energy is a fundamental component of modern life. Energy market dynamics and concerns about climate change have supported renewable energy’s introduction to the market. As demand for electrical energy grows it is likely that renewable energy resources will play a larger role in the future.