The Transition From Fossils To Renewables And Its Impact On Consumer Prices

Renewable energy technologies will in the next two years be competitive on price with fossil fuels. Shutterstock

The transition from fossil fuels to cleaner energies is a global pursuit. But it’s faster and more intensive in some countries than others. Take the case of South Africa. Heavily dependent on coal, the country is proceeding with a more intense transition in which renewable energies are set to play a growing role.

Renewable energy technologies have recently established their role in the global energy supply mix. This is because they have begun to overcome two big hurdles. The first was concerns about high cost. The second was their inability to provide secure energy supply. A number of factors have improved their accessibility and affordability. These include technological improvements, economies of scale and increased competition.

The share of renewable energies in the overall energy mix will certainly have an impact on electricity market dynamics. This includes energy prices. Prices are the most effective signal to users and potential investors about alternative energy sources.

That’s why understanding how a higher share of renewable energy in the energy mix influences electricity prices can help policy makers.

The impact on retail prices of electricity isn’t uniform. It differs from country to country, and is influenced by regulatory frameworks. Nor is it the same over time. For example, in Spain, the higher renewable energy share in the mix led to higher electricity prices between 2002 and 2009. This was due to the high costs of the renewable energy technologies at the time. After 2009 prices fell. This was attributed mostly to the reduction of production cost of the renewable energy technologies as well as the economies of scale created.

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