ELI5/ Why is the cost of electricity constantly increasing despite the increasing amount of renewable and green energy?

Question

I understand there is installation, maintenance and servicing costs, but shouldn’t the free power from the sun, wind and tidal eventually pay this off and start providing free power?

In: Engineering

Answer 1

Strictly speaking, fossil fuels are also free energy. You just gotta dig them up, refine and transport them. Well renewables are “free” in the same way. I hope that makes sense.

Now on to the ELI20 part…

There are a few different ways utilities are operated, but the most common is a decoupled model. There’s 2 parts to your electric bill, the energy cost and the delivery cost. The energy cost goes to the generating station operators to cover investments, maintenance, and fuel costs. Generation operators compete with each other and are incentivised to reduce costs.

Delivery is a regulated monopoly and owned by a single company. This company’s rates are set by the regulatory agency, which is usually the state legislature or administrative agency like a commerce commission. This incentivises the regulated utility to operate very efficiently to maximize *their* profit. It also gives the state direct control over how the utility will spend on investments.

Generation costs are generally going down and up at the same time, but at different parts of the day. Renewables are very cheap to harvest when available, but making up the difference when they’re unavailable with fossil fueled peaker plants is very expensive. Nuclear plants are both very expensive to operate and slow to react to changes in demand, so they are being undercut on both sides.

Edit: Eventually the peaker plants will start phasing out as grid storage comes online to fill that role. Grid storage is usually considered generation, so it has to be profitable for companies to do it. It will become more and more profitable as fossil fuel prices increase, so more and more storage will be deployed over time. /Edit

The delivery costs are generally going up across the country as states direct their utilities to invest in reliability and capacity improvements for electrification of cars and homes.

All in all, costs are rising but this should be transitory as the investments are made and electrification unfolds.

Source: I’m a distribution engineer working on grid improvements in my state.