If renewables are cheap, why is their electricity expensive?

You may have heard that solar and wind energy are now the cheapest forms of electricity in history.

At the same time, opponents of renewable energy often blame building solar panels and wind turbines for increasing the cost of electricity. You might see critics throw around phrases like “green energy scam” or “renewable scam”, implying that electricity might cost less if it came from fossil fuels. 

So which of these is true?

In this Insight, we’ll explain why electricity pricing is too complex to support the simple claims. Electricity bills are tied to an intricate interplay of costs, taxes, subsidies and other government policies, which vary dramatically from country to country and even within countries. For this reason alone, it’s good to be skeptical about claims that pin electricity prices on any one factor – they’re often oversimplifying a complex reality.

Below, we’ll explain how electricity pricing often works, and we’ll show several examples of the complexities at play.

Grids with more solar and wind may not have more expensive electricity

Despite claims from renewable energy opponents like Bjorn Lomborg that grids with more solar and wind have more expensive electricity, there’s not much evidence conclusively showing a direct relationship. For example, data from U.S. states doesn’t show that adding more solar and wind increases the price of electricity.

In the U.S., the poster child of a high-renewables, high-cost state is California, which often attracts claims that its turn to solar and wind has increased electricity prices.

In reality, comparing California with other states tells a different story (Figure 1). While many states less reliant on solar and wind than California do have cheaper electricity, others have electricity that’s almost as expensive than California or even more (upper left cluster in Figure 1). Several additional states have significantly cheaper electricity than California’s, but a significantly higher percentage of solar and wind (lower right cluster in Figure 1). Many of the latter are states in the Great Plains that have built large numbers of wind turbines in recent years.

As Hannah Ritchie points out in a Sustainability by Numbers article, building more wind turbines in states like Texas, Iowa, North Dakota, and South Dakota hasn’t significantly increased their electricity costs. Furthermore, while California’s electricity prices have risen in the past several years – we’ll discuss a potential reason for this later – it’s had some of the most expensive electricity in the U.S. for years prior to building out renewables.

There’s another complication – these numbers talk about the cost per kilowatt-hour, without accounting for how many kilowatt-hours a household actually uses. The total electric bill for the average Californian household is actually close to the U.S. average (Figure 2). California has relatively strict standards for appliances and building insulation, meaning that Californian homes use significantly less energy (and therefore fewer kilowatt-hours) than those in most other states. This is a good example of why focusing on one factor is misleading.

If we take Lomborg’s claims at face value, we might expect U.S. households to pay the most for electricity in states where solar and wind generate the majority of electricity, such as Iowa and South Dakota. The data says otherwise.

What actually causes some electricity to be cheaper, then, and what causes electricity prices to rise and fall?

The price of generating electricity is only one part of an electric bill

Electricity has different prices depending on who is paying. The wholesale cost is the price that electrical providers pay to buy electricity from power plants. Electrical providers then transmit this electricity to homes and businesses. The retail cost is the price that electrical providers charge those customers – the retail cost includes the wholesale cost, but also other factors, like the costs of operating power lines and taxes.

Many commentators conflate wholesale and retail costs, but as we’ll see in a moment, these costs can be quite different.

How do electricity providers decide where to purchase their electricity? Electricity almost never comes from a single source – an electric grid is powered by a mix of different sources. Electricity providers first purchase electricity from the cheapest source, then from increasingly expensive sources until they’ve filled up enough electricity to meet their expected demand (Figure 3). This is known as merit order, the idea being that cheaper electrical sources have more ‘merit’.

The last, priciest source of electricity is what sets the wholesale price. Solar and wind here have an advantage over other sources – after they’re built, they don’t need fuel, and their maintenance costs are lower than those of something like a nuclear plant. On the other hand, fossil fuel sources are often the most expensive, precisely because of their need for fuels like coal or natural gas.

The prices of those fossil fuels can be very unstable. A 2023 study determined that, while fossil fuels generated 34% of Europe’s electricity in 2021, fossil fuels set wholesale prices 58% of the time between 2015 and 2021^[1].

This structure, placing often-expensive fossil fuels in competition with renewables that are indeed cheap to generate, often encourages electricity providers to rely on renewables. Werner Antweiler, Associate Professor of Business at the University of British Columbia, told Science Feedback:

“Because renewable energy such as solar power and wind power operate at close to zero marginal cost, they get priority access to deliver to the grid. The merit order determines which generators deliver energy into the grid, based on the rank order of their marginal cost from lowest cost to highest cost. This means that the most expensive ‘peak load’ plants only run as needed.”

However, due to intermittency – the fact that solar panels and wind turbines only generate electricity when there is sun and wind, respectively – there are still situations where solar and wind need backups. Grids may rely on energy storage like hydro reservoirs and grid-scale batteries, which will likely become more common in the future. At the moment, however, the backup is often expensive fossil fuel electricity.

Mario Liebensteiner, Professor of Economics at FAU Erlangen-Nürnberg, told Science Feedback:

“During periods of unfavorable weather, dispatchable backup technologies remain essential to ensure sufficient electricity supply. In these situations, gas- or coal-fired power plants often set the marginal price, which can lead to higher spot prices despite high renewable generation.“

How do these wholesale costs relate to retail costs? As we’ve said, retail costs include wholesale costs. They can also account for the costs of operating the infrastructure that actually distributes that electricity to homes and businesses. They can additionally include taxes, levies, or other government initiatives (Figure 4). Some of this money is dedicated to building new infrastructure – this is quite important for solar and wind, as we’ll discuss later.

Depending on where you are, wholesale costs can be the largest part of retail costs. They can sometimes determine whether retail costs rise or fall. When European electricity prices dramatically spiked in 2022 and 2023, the culprit was the skyrocketing wholesale price of natural gas electricity due to the Russian invasion of Ukraine (Figure 4). 

There is plenty of evidence that adding more solar and wind to a grid reduces wholesale prices. For example, more solar and wind can reduce the need for electricity providers to tap into expensive fossil fuel power. Studies have demonstrated this effect in Germany and Australia, amongst other places, even accounting for intermittency^[2-4]. 

There’s also evidence that adding solar and wind could actually reduce the effects of 2022-like fossil fuel price surges on wholesale electricity prices. According to a 2025 study, a 1€ increase in the price of natural gas in 2024 increased wholesale prices in Europe by about 1.40€. The study estimated that in 2030, assuming that European countries realized their plans to increase their proportions of wind and solar power a 1€ increase in the price of natural gas would only increase prices by about 1€^[5].

Adding more solar and wind can increase the retail cost of electricity

However, these wholesale price reductions may not necessarily translate into lower retail costs. This is because, as we’ve mentioned, retail costs account for the price of adapting the grid’s infrastructure for these new sorts of energy sources.

Solar and wind tend to be more decentralized than fossil fuel electricity – to generate the same capacity as an average gas power plant, for instance, you need many solar panels or wind turbines. There are costs associated with connecting all of these to the grid, especially in countries where the grid itself is ageing and may need upgrading. 

These costs are typically added to the retail cost in some form. In the UK and Germany, for instance, retail costs include fees (sometimes called ‘green levies’) that governments in turn use to fund future renewable energy construction. (There’s considerable debate over whether ‘green levies’ are the most effective or equitable means of finance.)

Additionally, while the intermittency of solar and wind may not push up wholesale costs, it can contribute to retail costs as electricity providers adjust accordingly. Liebensteiner told Science Feedback:

“The intermittency of wind and solar electricity necessitates additional backup technologies to balance supply and demand. […] These investments make the energy transition costly and tend to substantially increase retail electricity prices.”

It’s possible that, over the long term, retail costs will decrease as the infrastructure is built out, but we can’t know for certain. Antweiler told Science Feedback:

“Overall, I reckon that retail electricity prices will not decline much in the next two decades in most developed countries as the energy transition needs to be financed. In the long term I can see significant potential cost advantages from the energy transition. That has been the hallmark of all previous energy transitions: a more plentiful and cheaper resource displaces the previous generation of a more expensive resource. I also see potential for retail electricity prices to decline in many developing countries as a more decentralized electricity grid may become increasingly affordable, and actually expand electrification.”

So, there are cases when adding solar and wind can increase retail costs. However, as we’ve seen, electrical pricing is complex, and these increases often have more to do with policy decisions than with the actual renewable technology.

For example, evidence suggests that California’s electricity prices have increased largely due to homeowners installing their own solar panels. Californians who do this can reduce their electricity bills by essentially generating their own electricity at home. However, in doing so, they push the costs of operating the grid onto everybody else.

This isn’t necessarily a result of solar panels themselves – it’s a result of how California policymakers have decided to structure their electricity market. In fact, California is discussing electricity market reforms that may address this problem.

Solar and wind have health and environmental benefits

It’s also important to note that switching from fossil fuels to lower-carbon electricity sources has benefits that can’t directly be measured in cost.

A major reason that renewable advocates want to build more solar and wind is to reduce our reliance on fossil fuels. Decades of scientific evidence have shown that humans burning fossil fuels – for electricity, as well as for vehicle fuel and by industry – are the primary driver of recent climate change^[6]. The effects of fossil fuel use are already damaging ecosystems^[7], worsening natural disasters^[8], and increasing the dangers to the health and livelihoods of millions of people around the world^[9]. 

Moreover, as we’ve covered in a prior article, burning fossil fuels creates other types of air pollution like particulate matter and ozone. These air pollutants are linked with cardiovascular and respiratory health concerns. A 2023 study estimated that the air pollution from all fossil fuel use killed 3 to 6 million people in a single year, 2019^[10].

Although that study didn’t specify how many deaths came from electricity, a 2007 study estimated that electricity from gas caused 2.8 air-pollution-related deaths per terawatt-hour (a terawatt-hour is, on average, roughly how much electricity the U.S. consumes in about 2 hours), compared to 18.4 for oil and 24.5 for coal^[11].

The low costs of solar and wind mean that, from an economic point of view, they’re very attractive replacements for fossil fuels.

You might see critics of solar and wind claim that these renewables are only widespread because they benefit from subsidies. This type of claim ignores the considerable subsidies given to fossil fuels, far more than to solar panels and wind turbines in many parts of the world, including many developing countries. While we can’t directly compare the two types of subsidies, it’s important to keep this context in mind.

References

• 1 – Zakeri et al. (2023) The role of natural gas in setting electricity prices in Europe. Energy Reports.
• 2 – de Lagarde and Lantz (2018) How renewable production depresses electricity prices: Evidence from the German market. Energy Policy.
• 3 – Csereklyei et al. (2019) The effect of wind and solar power generation on wholesale electricity prices in Australia. Energy Policy.
• 4 – Liebensteiner et al. (2025) High electricity price despite expansion in renewables: How market trends shape Germany’s power market in the coming years. Energy Policy.
• 5 – Simon and Diaz Anadon (2025) Power price stability and the insurance value of renewable technologies. Nature Energy.
• 6 – IPCC (2023) Climate Change 2023: Synthesis Report.
• 7 – Hughes et al. (2017) Coral reefs in the Anthropocene. Nature.
• 8 – Yuan et al. (2023) A global transition to flash droughts under climate change. Science.
• 9 – Franzke et al. (2020) Risk of extreme high fatalities due to weather and climate hazards and its connection to large-scale climate variability. Climatic Change.
• 10 – Lelieveld et al. (2023) Air pollution deaths attributable to fossil fuels: observational and modelling study. The British Medical Journal.
• 11 – Markandya and Wilkinson (2007) Electricity generation and health. The Lancet.