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 calculation we present is 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 calculation is a global view and takes in the following elements:
the ongoing savings from not having to buy fuels or CO2 allowances (or equivalent), if we remove fossil fuels from the generation mix
the cost of decommissioning fossil-fuelled plants
the cost of building replacement electricity generation capacity from solar and wind
the cost of strengthening the electricity grid, and enlarging energy storage capacity, to accommodate the increased solar and wind-produced electricity
We estimate
the cost of enlarging electricity production capacity to meet future increases in electricity demand
the cost of strengthening the electricity grid, and enlarging energy storage capacity, to accommodate this increased solar and wind-produced electricity
Our base case has CO2 emissions costing 80 Eur/Te, and looks like this:
yearly savings: 2,6 trillion Eur
cost of removing fossil-fuelled plants: 1,7 trillion Eur (with a wide uncertainty band up to 3,5 trillion)
cost of building replacement generation: 10 trillion Eur
cost of grid strengthening and storage: 20 trillion Eur
Further, we anticipate a large increase in electricity demand in the coming decades as many parts of our economy switch from fossil fuels to electricity (for example, transport).
We estimate that the capex and opex costs of such new capacity are equivalent 107 Eur/MWh. 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 small business electricity user would have paid 192 Eur/MWh for these elements in 2019-2020.
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.
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 above steps address a simple replacement of fossil-fuels by renewables in electricity generation. They do not cater for future increases in electricity demand.
As an additional, separate, calculation we estimate the amount of additional wind and solar generation capacity needed to satisfy future increases in electricity demand (we expect demand at least to double in the next 20 years as many sectors of our economy transition away from fossil fuels). We then estimate the cost of grid strengthening and storage needed to accommodate the additional generation (using the same factors as in step 3). Finally, we express this investment as an amount per MWh.