Renewables – set to undercut fossil fuels, IRENA reports

By 2020, the best wind and solar projects should provide electricity as low as 3 US cents/kWh.
Published: Wed 17 Jan 2018

By 2020 all the renewable power generation technologies that are now in commercial use are expected to fall within the fossil fuel-fired cost range, with most at the lower end or undercutting fossil fuels, according to the latest review from the International Renewables Energy Agency (IRENA).

Thus after years of steady cost decline for solar and wind technologies, renewable power is becoming an increasingly competitive way to meet new generation needs.

Renewables cost drivers

The study attributes the cost reductions to three main drivers.

These are technology improvements which improve the performance and manufacturing capabilities, competitive procurement in a globalised power market and a growing base of experienced project developers expanding internationally as they build their business.

Alongside these, the maturity and proven track record of the technologies has led to a reduction in project risk and a consequent lowering of the cost of capital.

For owners, the growth of real time and ‘big’ data also is leading to improved asset management with predictive maintenance and reduced operation and maintenance costs.

Wind and solar lead

According to the study, the cost of onshore wind power has fallen by around a quarter since 2010, while solar photovoltaic (PV) electricity costs fell by almost three-quarters in that period.

For new onshore wind commissioned in 2017, the average cost globally weighted was around $0.06/kWh and for solar PV $0.10/kWh.

New hydro was slightly cheaper, around $0.05/kWh, while geothermal and bioenergy was around $0.07/kWh.

Most expensive was concentrated solar power at $0.22/kWh, while offshore wind was in between at $0.14/kWh. However, recent auctions, such as that for offshore wind in UK, indicate a drop to $0.10/kWh or less for new projects of both these technologies after 2020.

For new onshore wind a 2020 price around $0.05/kWh is anticipated while solar PV is projected to be marginally more in the $0.05-0.06/kWh range. Moreover, given these are averages, and as new projects in Dubai, Mexico, Peru, Chile, Abu Dhabi and Saudi Arabia have shown, the best projects will be as low as $0.03/kWh.

Commenting on these findings, IRENA Director-General Adnan Z. Amin says this new dynamic signals a significant shift in the energy paradigm.

“These cost declines across technologies are unprecedented and representative of the degree to which renewable energy is disrupting the global energy system.

“Turning to renewables for new power generation is not simply an environmentally conscious decision, it is now – overwhelmingly – a smart economic one.”

Renewables impact

Among the impacts of these falling prices, the IRENA report suggests the low costs mean that previously uneconomic strategies in the power sector can become profitable. For example, curtailment could become a rational economic decision, maximising the variable renewable penetration and minimising overall system costs.

Similarly, low prices could open up the economic potential of power-to-gas technologies such as hydrogen production, which could become important for transportation. Vehicle to grid could also benefit with electric vehicles taking advantage of cheap renewable power when it is available, while potentially feeding electricity back into the grid when needed.

However, this needs to be balanced against the increased costs of integrating the renewables, which increase with increasing penetration, and the increased flexibility required to manage such systems, the report notes.

With the growth of renewables, IRENA has launched a commission to examine the geopolitical implications of the global energy transformation driven by large scale-up of renewable energy in the context of global efforts to tackle climate change and advance sustainable development.

The Commission, which has the support of the governments of Germany, Norway and the United Arab Emirates, will be chaired by the former President of Iceland, Olafur Grimsson. It will report to IRENA’s Assembly in January 2019.

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