The Renewable Energy Paradox: Why Clean Power Isn't Replacing Fossil Fuels Fast Enough Despite Lower Costs

In numerous developing nations, financing wind and solar projects is more expensive than coal or gas developments.

Despite what recent headlines might suggest, there's encouraging progress in the global battle against climate change.

A decade ago, constructing more coal or natural gas power plants was the most economical solution to meet growing electricity demands. That's no longer the case. Today, solar and wind power aren't just environmentally superior; they're also more cost-effective at utility scale and less detrimental to human health than fossil fuels.

Nevertheless, renewable energy projects encounter significant obstacles, particularly in rapidly growing developing countries. As a researcher studying energy and climate solutions and their societal impacts, I see pathways to overcome these challenges and expand renewable energy adoption, though this will necessitate international collaboration.

The cost of clean energy has decreased substantially as technologies have matured, making solar and wind power more affordable than coal and natural gas for utility-scale electricity generation in most regions, largely because the fuel source is free. In 2024 alone, global power generation from renewable sources saved approximately US$467 billion in avoided fuel costs.

This price reduction has resulted in over 90% of all electricity-generating capacity added worldwide in 2024 coming from clean energy sources, according to International Renewable Energy Agency data.

By the end of 2024, renewable energy constituted 46% of global installed electric power capacity, with a record 585 gigawatts of renewable capacity added that year—approximately three times Texas's total generating capacity.

Beyond economic advantages, replacing fossil fuels with renewable energy yields significant health benefits.

Fossil fuel combustion releases microscopic particles and toxic gases that cause illness. A recent study determined that air pollution from fossil fuels causes approximately 5 million deaths worldwide annually, based on 2019 data.

For instance, natural gas used in stoves and appliances emits benzene, a known carcinogen. The health risks from this exposure in some homes have been found comparable to secondhand tobacco smoke. Natural gas combustion has also been linked to childhood asthma, with an estimated 12.7% of US childhood asthma cases attributable to gas stoves, according to research.

Additionally, fossil fuels are primary sources of climate-warming greenhouse gases. When burned for electricity generation or to power factories, vehicles, and appliances, they release carbon dioxide and other gases that accumulate in the atmosphere, trapping heat near Earth's surface. This accumulation increases global temperatures, causing more heat stress, respiratory illnesses, and disease spread.

Electrifying buildings, vehicles, and appliances with renewable energy reduces these pollutants while mitigating climate change.

Despite the proven economic and health advantages of transitioning to renewable energy, regulatory inertia, political gridlock, and insufficient investment are impeding renewable energy deployment across much of the world.

In the United States, for example, major energy projects require an average of 4.5 years to permit, and approval for new transmission lines can take a decade or longer. Most planned new power projects in the US utilize solar power, and these delays are significantly hindering progress.

The 2024 Energy Permitting Reform Act, introduced by Senators Joe Manchin (D-West Virginia) and John Barrasso (R-Wyoming) to expedite approvals, failed to pass. Manchin described this as "just another example of politics getting in the way of doing what's best for the country."

Developing countries with rapidly growing economies face even greater challenges.

These nations must satisfy surging energy demands. The International Energy Agency expects emerging economies to account for 85% of additional electricity demand from 2025 through 2027. Yet renewable energy development lags in most of these countries, primarily due to the high financing costs for renewable energy construction.

In many developing countries, financing wind and solar projects is more expensive than coal or gas projects. Fossil fuel projects have a longer history, and financial and policy mechanisms developed over decades have reduced lender risk for these projects. These include government payment guarantees, stable fuel contracts, and long-term revenue agreements that help ensure lender repayment.

Both lenders and governments have less experience with renewable energy projects. Consequently, these projects often have weaker government guarantees, increasing risk to lenders who then charge higher interest rates. This makes renewable projects more expensive initially, even though they have lower lifetime costs.

To reduce borrowing costs, governments and international development banks can implement measures to make renewable projects safer investments. For example, they can maintain stable energy policies and utilize public funds or insurance to cover portions of lenders' investment risk.

When investors are confident they'll be repaid, interest rates decrease dramatically, making renewable energy the more economical option.

Without international cooperation to reduce financing costs, developing economies might miss the renewable energy revolution and lock in decades of increasing greenhouse gas emissions from fossil fuels, exacerbating climate change.

To prevent the worst climate change effects, countries have agreed to reduce their greenhouse gas emissions in coming decades.

While achieving this goal presents challenges, it's considerably more feasible now that renewable energy is more affordable long-term than fossil fuels.

Converting the world's power supply to renewable energy and electrifying buildings and local transportation would eliminate approximately half of current greenhouse gas emissions. The remainder comes from sectors where emission reduction is more challenging—steel, cement, and chemical production, aviation and shipping, and agriculture and land use. Solutions are developing but require time to mature. Good governance, political support, and accessible financing will be crucial for these sectors as well.

The transition to renewable energy offers substantial economic and health benefits alongside reduced climate risks—if countries can overcome domestic political obstacles and cooperate to expand financing for developing economies.

(Author: Jay Gulledge, Visiting Professor of Practice in Global Affairs, University of Notre Dame; University of Tennessee)

(This article is republished from The Conversation under a Creative Commons license. Read the original article.)