A power system with a 95 percent share of renewables has the same or even lower costs than a fossil-based system under most assumptions for future fuel and CO₂ prices.
A coal-based system would only be significantly less expensive if extremely low CO₂ prices are expected in 2050 (20 euros/t). Similarly, a natural gas-based system would only be significantly less expensive if gas prices are low and CO₂ prices are not high (i.e. below 100 euros/t).
A renewables-based system insulates the economy against volatile commodity prices, as the costs of fossil-based systems heavily depend on fuel and CO₂ price trends.
Variable costs (largely for fuel and CO₂) account for 30 to 67 percent of the total costs of the fossil-based systems. By contrast, variable costs represent just 5 percent of costs in the renewables-based systems.
A power system with a 95 percent share of renewables reduces CO₂ emissions by 96 percent their 1990 levels at CO₂ abatement costs of about 50 euros/t.
A renewables based energy transition can thus be considered efficient climate policy, as CO₂ damage costs are estimated a lot higher (80 euros/t over the short-term, and at 145 to 260 euros/t over the long term).
The year 2050 is associated with many hopes and fears. By this year, Germany aims to complete its
transition to a power system based almost completely on renewables. But will such a system be financially feasible?
To answer this question, we asked experts at the Öko-Institut to study various options for the future design of the power system, and to compare their costs.
The study considers four different scenarios for the power system in 2050: two scenarios based on fossil fuels (one on coal, and one on natural gas), and two scenarios for renewables-based systems that differ in their deployment of storage technology. In this “2x2” comparison, the authors assess the total system costs and CO₂ emissions produced by alternative configurations of the power system.
A key finding of the study is that the relative advantages associated with each scenario heavily depend on future fuel and CO₂ prices. And while it is difficult to estimate the prices that will prevail in 2050, the thought experiment conducted in this study does make one thing clear: abandoning the energy transition does not mean that energy costs vanish – it just leads to different costs. And these might just turn out to be higher than expected.
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Renewables versus fossil fuels – comparing the costs of electricity systems
Electricity system designs for 2050 – An analysis of renewable and conventional power systems in Germany
Mara Marthe Kleiner
Head of the Executive Director’s office (until December 2021)