Renewable energy is becoming ever more popular, but has a reputation for being more expensive than traditional brown electricity supplied via the grid. In this article, our energy management experts take a dive into the world of renewable energy to determine whether or not renewables are more expensive than traditional energy sources, and what impacts the price of energy.
So, is renewable energy cheaper? Renewable energy is significantly cheaper than traditional energy sources, but only if the end user is generating the energy themselves, e.g. via solar panels or contracting with a third party to take power from an off-site installation via a Power Purchase Agreement. When renewable energy is bought from the grid, you do get green energy but it comes at a premium; due to how the energy markets work, suppliers who operate the renewable generation assets are able to inflate the sale price to align with higher cost sources of generation such as gas and nuclear, maximising their profit margins as opposed to offering their customers a bargain.
Read on to learn more about how and why renewable energy is (often) cheaper, as well as a few top tips from our energy management experts at Boxfish on how to go green in the workplace.
In short, yes. Renewables are typically much cheaper over other sources of electricity such as gas and nuclear and as the uptake of renewables increases, the costs are expected to decrease even further. Where the end user generates the energy themselves on-site, (e.g. via solar panels or a wind turbine) it can often cost less than 10p/kWh as an averaged unit rate over the lifetime of the system. Off-site renewables owned, in part or in full, by the operator provides another option but these tend to be slightly more expensive due to the need for a third party sleeved contracts although they’re still way below current market values – at the time of writing (May 2023), grid delivered electricity is around 28 – 30p/kWh.
Renewable energy bought via the grid, provides a fantastic carbon benefit but unfortunately comes at a premium – UK electricity prices are pegged to the cost of gas peaking plants, so while large renewable wind farms or solar installations will generate the energy much cheaper, the suppliers are able to sell it at the market rate, ramping up their profits. Unfortunately, there’s currently no mechanism or incentive for suppliers to split these costs out, but the UK Government is looking at ways to reduce the overall cost of renewable energy.
Solar power was crowned as the cheapest energy source in 2021, closely followed by offshore and onshore wind energy. Energy experts estimate that renewable energy such as solar and wind is around £10 cheaper per MWh than gas and around £100 cheaper per MWh than nuclear when supplied by the grid. Our experts at Boxfish estimate that on-site renewables would cost less than a third of the price of renewable energy supplied by the grid.
One of the main reasons why renewable energy is cheaper than fossil fuels is that it’s cheaper to produce once the solar farm or wind turbine has been built. Fossil fuels such as natural gas, oil and coal, are tradable commodities and while there is a plentiful supply available, the price is influenced by a variety of other factors such as geopolitics (e.g. the Invasion of Ukraine and the subsequent embargoes on russian oil and gas) and global warming (e.g. increasing levies and taxes on carbon emissions) which can push prices up. With renewables, the fuel – wind and sunshine – is free, unlimited and doesn’t cost money to get to where you need it (assuming you’ve built your wind turbines and solar plants in the right spot), all of which leads to a much lower cost to generate electricity.
Further to this, the global pressures to switch to greener, lower carbon sources of energy has seen massive investment in renewable technology over the last few years which has seen an increase in their efficiency and lifespan. These improvements have led to greater demand which incentivises further improvements, creating a virtuous cycle that drives prices lower still.
However, as noted above, generating cheaper sources of energy only reduces your utility spend if you have ownership of the generating asset. If CAPEX isn’t available, you can still get a carbon saving by buying electricity from a large centralised solar or wind farm, built and operated by a third party supplier, (great from an ESG viewpoint) but you will pay market prices (set by the cost of generating electricity from gas peaking plants) and these might not help the bottom line, at least in the short term (there are other less tangible benefits from buying green energy such as improved sustainability of your operations, increased green credentials, improving your ability to attract and retain new clients and staff etc.).
Renewable energy isn’t the only way you can help the environment; there are loads of ways to go green at work that may seem small but, in the long-run, will make a difference.
It sounds simple because it is. Simply turning off lights when not in use and conserving heat by closing doors and windows will help to reduce your energy usage and bills. Similarly, turning off electrical equipment like computers and monitors at the end of the day instead of leaving them on standby can also help.
An oldie but a goodie. Reducing, reusing and recycling are still some of the best ways to go green and help the planet. And this doesn’t exclude the office. Examples here could include:
Not the simplest way to go green in the workplace, but it is one of the more significant actions you can take. Review the ethics of your supplies and their attitudes towards sustainability, animals, workers’ rights and pollution. Holding your suppliers accountable sends a clear message that your business is eco-conscious and is a sure-fire way to bring about change.
Do your employees travel a lot for work? It might be time to review whether or not it is absolutely necessary that they do, and the mode of transportation used. Are they travelling by car but could travel by train? Are they regularly flying for work but could hold meetings over video calls?
Creating a travel policy with strict rules will make a huge impact on your company’s carbon footprint and mass enactment of this would go a long way in protecting the planet.
Gaining the international standard on Environmental Management (ISO 14001) demonstrates commitment to continuous improvement of environmental performance which helps to reduce your company’s negative impacts, increases team efficiency and, in the long run, can save you money.
Even if you currently can’t afford to become certified, conducting a gap analysis allows you to begin working towards the standards required to become certified.
Boxfish are passionate about helping businesses save money on their energy bills, whilst achieving a net-zero carbon future. Our team of experts are on hand to advise businesses on a range of energy management topics, including suitable renewable energy sources in parallel with self-generation.
If you choose to purchase grid supplied renewable energy it’s important to note that not only is this more expensive than making it yourself, you’ll usually pay a small cost premium on your unit rates over the price of brown energy (e.g. energy from a mix of generating sources), but you wont need to find the necessary CAPEX to set up your own on-site installation.
If there is CAPEX available, on-site renewable energy generation is a much better option as it will further reduce your electricity costs – around 10p/kWh is possible, compared to current market rates of around 28 – 30 p/kWh.
Both options of course help to reduce your Scope 2 carbon emissions as well, creating a much more sustainable and profitable business. .
Get in touch via the contact form below or give us a call on 0141 226 8525 to see how we can manage your business’ energy.