Comparing the cost of renewable energy options to traditional power sources is critical for decision-makers, policy experts, investors, and regulators to determine the most efficient and cost-effective way to supply electricity.

The problem is that comparing these costs “apples-to-apples” can be difficult and confusing. That means that businesses, policymakers, and other groups may be choosing an electricity option based on inaccurate or incomplete information.

With the cost of renewable energy systems falling globally—particularly large-scale wind and solar energy in the United States—these comparisons have become more and more important. WRI’s new fact sheet, Understanding Renewable Energy Cost Parity, explains how the accuracy of these comparisons can be improved. By clearly defining who is making the comparison; what options for electricity supply are being compared; and factors that impact additional costs and benefits, a better “apples-to-apples” comparison can be made.

The following examples from a study on the U.S. supermarket industry illustrate the importance of these three considerations in electricity supply comparisons:

Who Is Making the Comparison?

In a 2013 study, the National Renewable Energy Laboratory found that 40 percent of U.S. supermarkets were located in a utility service area where commercial-scale solar PV systems would either save the supermarket money or break even against the traditional electricity supply.

However, it’s important to note that this study would not necessarily apply to other sectors. For example, the study’s findings don’t necessarily mean that local electric utilities would find commercial PV systems to be the cheapest option for supplying their customers with electricity. As this study was conducted from the supermarket’s perspective, it simply highlights the economic opportunity for some grocery stores in the United States.

What Options Are Being Compared?

In this study, NREL compared the cost of commercial solar PV systems—based on 2012 average installed prices—to the utility retail electricity rate. However, this comparison is not accurate for all renewable energy options.

For example, a supermarket looking to supply their electricity directly from a power purchase agreement (PPA) with off-site wind energy would need to make a slightly different comparison because the power has to move across the grid. In this case, the supermarket would compare the full price of the wind energy—including the PPA price, charges for moving the power (transmission and distribution), and other system-specific charges—with the retail electricity rate.

As of May 2012, these types of off-site wind PPAs are only available in a limited number of states, but now, as these comparisons are showing economic opportunities for companies, major global brands like Mars and Walmart are completing these deals and asking for access in more markets.

What Other Factors to Consider?

Energy price comparisons also have additional factors to consider, including both those that are easy to quantify (e.g. incentives) and those that are more difficult (e.g. environmental impacts or risks). Not accounting for these factors can lead to inaccurate comparisons and less-efficient or higher risk electricity supply decisions. Considering these factors has led states like Minnesota to accept solar over natural gas for peak energy demand supply and Austin Energy to select solar as their preferred energy source.

Further Guidance

Claiming a particular option will provide low-cost electricity means little if supply options are being compared inaccurately. WRI’s Understanding Renewable Energy Cost Parity is a part of a fact sheet series on renewable energy cost parity—helping to demystify how consumers can determine which electricity supply options are actually low cost. Over the coming months, we’ll release more of these go-to resources on how to compare—"apples-to-apples"—renewable energy and other sources of electricity.

Read the related fact sheet: Understanding Renewable Energy Cost Parity.