By Lilly Price & Rachel Gass – 7/31/25
What’s Driving the Price of Renewable Electricity Bills?
Renewable energy is becoming increasingly cheaper to produce, often more so than fossil fuels. Yet with energy prices on the rise in our region, many consumers are left wondering why clean energy is usually still more expensive to consume than its polluting counterpart.
Clean energy has the potential to be a much lower-cost energy to consume, because while fossil fuels have extraction and processing costs, “fuels” for renewables like wind and sunlight are free and ubiquitous. As a relatively new technology, the cost of building systems to harness clean energy is dropping quickly. It comes as no surprise, then, that in 2024, 91% of new large-scale renewable energy generation projects globally delivered cheaper energy than the cheapest new fossil fuel generators.
Renewable energy storage costs, one of the biggest barriers to widespread adoption, have dropped by half since 2010. Consequently, clean energy capacity is currently on a growth curve: in 2014, just 53% of new electricity generation capacity came from wind, solar, or batteries. By 2025, that number reached 93%, according to the U.S. Energy Information Administration.
U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory, December 2024
The Levelized Cost of Energy (LCOE) metric similarly reflects the cost-effectiveness of clean energy generation compared to fossil fuels. LCOE represents the minimum price at which electricity must be sold to recoup building and operating costs over a projects’ lifetime. By standardizing costs against a consistent metric, LCOE allows governments, businesses, and investors to compare energy generation technologies with unequal upfront costs, sizes, and lifespans to determine which are most cost-effective and worthy of pursuing. Wind and solar now frequently undercut coal and gas on LCOE measurements even without subsidies, signaling that they are some of the most cost-effective energy technologies. In fact, the low-end cost of new wind and solar, including storage for reliability, is often cheaper than simply keeping a gas plant running.
Levelized cost of energy (LCOE) estimates for various energy sources. Source: Lazard LCOE+ Version 16 (2024), graphic by RCraig09 via Wikimedia Commons.
Despite renewable energy being cheaper to produce, it generally remains more expensive on the consumer market than fossil-fuel-heavy energy products due to the structure of the energy market, technical and physical barriers, and inadequate accounting for fossil fuels’ hidden costs.
ENERGY MARKET DESIGN & STRUCTURAL ISSUES
Wholesale market: Energy is sold on the wholesale market on a real-time or hourly basis. In Pennsylvania, PJM, the regional grid operator, manages the wholesale process. PJM collects electricity offers from different generators and selects the lowest-cost options to meet demand throughout the day. PJM continues to select electricity offers in order of cheapest to most expensive until supply meets demand. The last and most expensive source PJM selects sets the market rate for everyone, and this source is usually a natural gas plant. Therefore, even though wind and solar power are cheaper to produce and are purchased first, they sell for the same amount as nonrenewable options on the wholesale market. You can read a more detailed blog post about how natural gas impacts renewable electricity prices here.
Additionally, price offers are highest during moments of peak electricity use. At those times, fossil fuel power plants can ramp up quickly and capitalize on higher prices. Solar and wind sources may or may not be able to do so due to weather factors, which disadvantage clean energy sources in the market.
Capacity market: Power generators receive payments not only for the electricity they produce today, but for the capacity they have ready to produce electricity in the future. The capacity market is designed to ensure short- and long-term electricity supply by rewarding sources that can respond quickly when demand spikes. This system privileges fossil fuel generators that can deploy on short notice, making them eligible for payment for most of their nameplate capacity. Renewable sources, on the other hand, face limits and penalties because their energy output is harder to predict. Consequently, renewable plants are often capped at selling only 10% to 38% of their nameplate capacity, significantly limiting their revenue.
As energy demand increases, capacity payments make up an increasing portion of generator revenue, but renewables cannot take advantage to the extent fossil fuel generators can. The costs of these limits affect all energy consumers —especially renewable energy consumers — in the form of higher prices. See this previous blog post for more details.
Interconnection queue & permitting: Adding more renewable energy to the grid would help lower costs across the board, but before new projects can connect to the grid, they must pass through an approval process. PJM’s interconnection queue is years long, which creates risks for clean energy developers and slows competition with fossil fuel sources. This allows older, fossil-fuel plants to retain greater market influence and prevents cheaper renewable sources from entering the grid and pushing energy costs down.
Renewable energy credits: A large part of the price difference for consumers comes from renewable energy credits (RECs), which represent one megawatt hour (MWh) of renewable energy generation delivered to the grid. RECs are regulated to ensure that when a consumer buys renewable energy, that money supports proportional clean energy production.
In Pennsylvania, RECs are particularly expensive because the state generates relatively little renewable energy compared to demand. Additionally, all suppliers must buy a second type of credit for lower impact, but not necessarily clean, sources. This policy, while aimed at nudging fossil fuel suppliers toward cleaner energy, adds an extra cost for providers that are already 100% renewable.
PHYSICAL & TECHNICAL BARRIERS
Learning curve: New technologies tend to follow a pattern: as they develop, costs drop quickly and then level off. While fossil fuel technology hit that plateau long ago, renewables are still early in this cycle, meaning that we can expect further cost reductions in the future. For example, wind energy costs in newer markets like the U.S., Japan, and South Korea are expected to fall another 40% in the next decade, while fossil fuel energy costs are not expected to drop.
Learning curve and technology adoption feedback loop. Data from Our World in Data / Max Roser (December 1, 2020); graphic published under CC BY 4.0 via Wikimedia Commons.
Infrastructure inertia: Fossil fuel plants are typically located near cities and already have the specialized infrastructure needed to deliver large amounts of power to the grid. Renewable energy projects, on the other hand, often need to be built in remote areas, which requires new and costly transmission infrastructure to bring them online. Complex politics surround transmission infrastructure due to the ecosystem of stakeholders involved, complicating transmission buildout and renewable energy interconnection. Recently, a federal loan guarantee for massive transmission lines intended to carry wind power from the Midwest to the grid-stressed eastern U.S. was canceled, highlighting the obstacles to bringing more affordable clean energy online and reducing energy costs.
Supply chain issues: Major obstacles in renewable energy supply chains include limited access to critical materials, heavy reliance on overseas manufacturing, and global shipping delays for large components like wind turbine blades or special components with long production cycles like gearboxes. Trade tensions and shifting industrial policies further complicate access to materials and equipment, making supply chains a major factor in how quickly clean energy can scale. In 2023, developers canceled plans for two major wind farms that would have powered half a million homes, highlighting the effect supply chain obstacles have on renewable energy buildout.
Map showing the planned electrical interconnections for Ocean Wind 1. Source: Bureau of Ocean Energy Management, via Ocean Wind 1 Final Environmental Impact Statement (May 26, 2023); public domain U.S. federal government image.
EXTERNALITIES & POLICY GAPS
Externalized costs: One key reason fossil fuels appear inexpensive is that their environmental and social costs are not accounted for in their market price. Pollution, climate damage, and health impacts are passed on to the public, and there is currently no policy in place to fully account for this damage. Renewables avoid many of these public and environmental health costs, making them lower-cost overall.
Many researchers have tried to estimate the social cost of carbon, or the economic damage caused by each ton of CO2 emissions. One widely-cited meta-analysis estimates this cost at $112.86 per ton. In our region, that equates to an additional 3.6 cents per kilowatt-hour, or approximately $23.55 per month for a typical household using 700 kWh. This cost would be quite noticeable to consumers comparing electricity options, which shows how steep the social and environmental costs of carbon really are. Additionally, that figure doesn’t account for pollutants and other powerful greenhouse gases aside from CO2.
Despite policy, market, and technical challenges, renewables are making rapid progress. Their ability to compete with fossil fuels under such conditions is a testament to how far clean energy has come and how far it has yet to go.
But we’re not there yet. The market still favors fossil fuels in many ways, and this is where consumers come in. Every person who chooses renewable electricity helps shift demand, fund better infrastructure, and support a fairer, more sustainable energy system.
Those extra few dollars? They’re not just covering the cost of power. They’re an investment in the future of the planet and people across the world. Choosing clean energy helps build a more livable future for everyone.