Framework and calculation principles
Our aim is to investigate what it really costs to remove all fossil-fuelled generation assets and replace by renewable. We invite you to scrutinise our calculations and input assumptions; and propose improvements.
The calculations we present are an update on the original version we published in April 2021, following feedback received from our network, and further research. A warm thank you to all who contributed.
The calculations are a global view of the electricity sector. Electricity accounts for some 25% of world final energy consumption. Of this, some 60% is made from fossil fuels.
We first consider the financial effects of replacing all existing fossil-fueled power generation with renewables. Our base case has CO2 emissions costing 85 Euro per tonne, and looks like this:
ongoing savings from not having to buy fuels or CO2 allowances (or equivalent), if we remove fossil fuels from the generation mix: 3,0 trillion Eur per year
cost of decommissioning fossil-fuelled plants: 2,2 trillion Eur
cost of building replacement electricity generation capacity from solar and wind: 12,5 trillion Eur
the cost of strengthening the electricity grid, and enlarging energy storage capacity, to accommodate the increased solar and wind-produced electricity: 24 trillion Eur
We estimate the net effect of capex, financing and opex costs, and savings in fuel and emissions allowance costs, is equivalent to a saving of Eur 28 for every MWh consumed. This figure should be compared to current electricity tariffs including energy, load balancing costs, network fees, and green levies (but excluding energy tax and VAT). Figures published by Eurostat indicate that a typical European business electricity user would have paid 170-270 Eur/MWh for these elements in 2023-2024.
Please use the link above to see our calculations in a spreadsheet. The notes below explain the logic we followed.
All inputs to the calculation can be adjusted and are shown in the yellow cells in the spreadsheet. Our intention is only to demonstrate the order of size of the costs involved.
Inputs to our calculation are either taken directly from published sources (listed in the spreadsheet), or derived from those sources, or our own expert estimates. We invite you to scrutinise the input assumptions and calculations and propose improvements.
Please note, we include in our calculation costs related to CO2 emissions from fossil fuels. We do not take into account at this stage:
environmental impacts other than CO2. Producing and burning fossil fuels creates many other forms of pollution, as does the supply chain for production of new (wind or solar) power plants. We have not attempted to create a fully costed environmental picture here.
the 'embedded CO2 emissions' from manufacturing new plant. These certainly exist, and we believe are small in relation to continued use of fossil fuels (wind or solar power having in the order of 5 to 10% life cycle emissions of fossil fueled).
The first step in the calculation is to estimate the cost of scrapping and decommissioning the existing fossil-fueled power plants. We take the world installed base per fuel technology. We then estimate the remaining book value of the plant from typical historical construction costs, plant age, and design life. We also estimate decommissioning costs including typical compensation to staff.
We also estimate the savings in ongoing costs - maintenance, fuel, and CO2 emissions costs - from closing down these plants.
We do this for two scenarios: fast (5 years to completely replace fossil fuelled power stations by renewables) and slow (20 years).
The second step is to estimate the cost of building replacement electricity generation from wind and solar. We estimate the capacity needed based on typical load factors for wind and solar, and the costs based on typical current prices. Additionally, we estimate the ongoing spending in maintenance.
The third step is to estimate the cost of grid strengthening and storage needed to accommodate this capacity. The investment in grid and storage is estimated from the amount wind and solar generation capacity to be added, using factors derived from published studies. This area is one of the largest uncertainties in our estimates, and particularly welcome any information or inputs that will help improve it.
The fourth step is to estimate the cost of financing the investments needed, and finally express the net costs minus savings as an amount per MWh over the lifetime of the assets.
The above steps address a simple replacement of fossil-fuels by renewables in electricity generation. They do not cater for future increases in electricity demand.