Have renewables decreased electricity prices?
Empirical evidence in the US over the past 24 years points to yes
There is a persistent argument in certain circles that renewable energy is associated with higher costs than fossil fuels, and that states who have build lots of renewables (California is often brought up in this regard) are paying for it in the form of higher electricity prices.
Variable renewable energy – wind and solar – are fundamentally fuel-saving resources. They are effectively zero marginal cost to run when the wind is blowing and the sun is shining, and can reduce the need to run costly gas and coal capacity. As utility scale battery storage scales up, some fossil plants may be fully retired, though much of our current gas capacity will likely remain utilized at lower capacity factors to deal with seasonal variability in renewable output or extended periods of low generation.1
My colleague Andrew has published a number of Climate Brink posts over the past year on how the deployment of renewable energy can lower electricity costs. I thought I would add some empirical evidence: specifically, how the large-scale build out of renewables across the United States has impacted electricity prices over the past 24 years.2
While there have been a number of analyses published showing the relationship between average electricity prices and percentage of renewable generation (including in Andy’s tCB post earlier this year), the approach taken by these is somewhat imperfect. There are many structural factors (e.g. fuel transport costs to Hawaii, wildfire management in California) that result in high baseline state electricity prices somewhat independent of their renewable generation.
A more robust approach is to look at how the change in electricity prices is correlated with the change in renewable generation (as a % of total generation) over time; this better (but still imperfectly) isolates the effects of renewable build-outs vs other factors.
The figure below shows the change in electricity prices between 2001-2024 on the y-axis, and the change in the % generation from utility-scale3 non-hydro renewables4 on the x-axis. There is a reasonably strong negative relationship between the two – states that have added more renewables have seen smaller increases in electricity prices – but it falls a tad short of statistical significance (e.g. we have ~88% confidence in the effect rather than >95% confidence).
A few things stand out as interesting in this figure:
The states that have added the most utility scale renewables are mostly red: Iowa, South Dakota, Kansas, Oklaholma, Texas, etc. Only Colorado, New Mexico, and Vermont are blue states that have added more than around 30% renewable generation since 2001.
Texas has added more utility scale renewables than California, both in absolute terms and as a percentage of total generation. However, California would likely surpass Texas if rooftop solar were included here.
Wind has been the biggest driver of renewable generation expansions to-date. This reflects the fact that low-cost solar has only emerged in recent years.
We can also expand this analysis to look at all clean energy (including hydro and nuclear). Here, interestingly, the increase in clean energy share is generally a bit smaller than the increase in non-hydro renewable share. This reflects the regrettable decision to retire a large number of nuclear reactors over the past two decades across the US. Because of this a number of states (Idaho, Connecticut, Pennsylvania, Oregon, New Jersey, Arkansas, Louisiana, and Mississippi) have actually seen their % of electricity coming from clean energy sources decline over the past 24 years.
There is still a negative relationship between change in clean energy share and electricity prices, but it is a little less strong than the relationship we found for non-hydro renewables alone.
Finally, we can look at both the relationship between renewable / clean energy shares and cost for the current year (top panels in the figure below) compared to changes over the past 24 years (bottom panels). Interestingly, there is a much stronger negative relationship between changes in prices and renewables / clean energy share over time than when simply looking at a current snapshot, reflecting the role of other factors in driving differences in electricity prices across states.
It is worth noting that overall system costs will increase as variable renewables reach higher penetrations due to the increased need for energy storage and dispatchable resources to fill in gaps in generation. This is why energy system models tend to rely on a combination of clean energy sources rather than 100% wind/hydro/solar to minimize costs. But the portion of energy from renewables remains relatively low in most states, and there is a lot of room for additional renewables to continue to drive down costs in the near-term.
The end of the investment tax credit (ITC) and production tax credit (PTC) for wind and solar with the passage of the so-called “one big beautiful bill” (OBBB) are expected to increase the costs of renewables projects by 30% to 50%. This will likely significantly reduce the rate of non-hydro renewable expansion in the near term, leading to higher electricity prices for ratepayers in many states.
At the same time, the costs of renewables have continued to fall at a remarkable pace. Utility scale solar generation is around 66% cheaper today than it was a decade ago, and wind is around 33% cheaper, excluding the effects of any changes in tax credits.
While there are differing views on continued tax credits for more mature renewable energy technologies, renewables remain one of the most cost effective decarbonization options available today. Climate change fundamentally represents an externality: the damages of emissions are borne by society as a whole, but not those who emit CO2 and other greenhouse gases. While the falling costs of clean energy are a huge boon to mitigation, getting to (net) zero emissions and stopping the earth from warming will ultimately either require the penalization of emissions or subsidies for clean energy technologies.
Update 7/15/25: Richard Meyer noticed that my renewable % numbers were off due to a “total” row in the EIA data being counted as a type of generation. The figures have been updated accordingly, resulting in accurate state-level renewable % values. However, the underlying relationship between renewable % change and lower price increases remains unchanged.
This might on its face seem to add to overall system costs, but gas plants have quite low CapEx and high OpEx, so operating them at low capacity factors and using renewables to displace expensive gas is generally cost-saving.
24 is not a very round number, but the US DOE EIA data I’m using is only readily available in a consistent format back to 2001.
This currently excludes rooftop solar due a lack of easy data availability by state over the timeframe I’m using here. Utility scale renewables are generally what reduces costs; in the US rooftop solar is quite a bit (~3x) more expensive than utility scale today, unfortunately. We should try and learn the lessons of Australia, which has succeeded in making rooftop solar almost as cheap as utility scale.
While I’m showing non-hydro renewables (primarily wind and solar) here, including hydro would not change the picture all that much given the limited additions of new large hydro resources in the past 24 years.
The late Harvard Prof. James McCarthy gave a talk years ago in which he said that the climate-change denial story would have three phases: (1) it’s not true; and when that became untenable, (2) it’s too expensive to do anything about it; then finally (3) it’s too late. While (1) hangs on forever in some form or other, the current administration seems to be somewhere between (2) and (3). This Substack and previous ones by Dr. Dessler are great demonstrations that refute (2). I have to fear the future if (3) is the path we choose.
I find it incomprehensible that somehow the rising cost of electricity is a news story with nary a mention of the fact that renewable energy is the solution.