The International Renewable Energy Agency’s (IRENA) latest report Renewable Power Generation Costs in 2018 details the global weighted-average levelised cost of electricity (LCOE) for all commercially available renewable technologies. It states that renewables are already the lowest-cost source of new power generation in many parts of the world today. By as soon as 2020, onshore wind and solar PV will join hydropower in consistently offering a cheaper source of new electricity than the least-cost fossil fuel alternative, without financial assistance. Other technologies are inexorably catching up too. So rapid have these cost declines been that IRENA says the global investment needed to meet the Paris targets have fallen by 40% compared to their previous estimate. The consequent acceleration of electrification will also boost end-use technologies, from electric cars to heat pumps. Onshore and offshore wind, solar, concentrated solar, hydro, bioenergy and geothermal are all covered. IRENA’s Michael Taylor writes exclusively for Energy Post.
In many parts of the world today, renewables are the lowest-cost source of new power generation. As costs for solar and wind technologies continue falling, this will become the case in even more countries. By 2020, onshore wind and solar photovoltaics (PV) are set to join hydropower in consistently offering a less expensive source of new electricity than the least-cost fossil fuel alternative, without financial assistance.
This has significant implications for the costs of the energy transition and the likely pathways to decarbonising energy production and use beyond the electricity sector. Indeed, the declining and very low costs of electricity for solar PV and onshore wind, as well as the cost reductions for concentrated solar power (CSP) and offshore wind to 2020 and beyond mean that renewable power is becoming the competitive backbone of the global energy sector transformation.
Impressive declines in cost continue
The International Renewable Energy Agency’s (IRENA) latest report Renewable Power Generation Costs in 2018 shows that the global weighted-average levelised cost of electricity (LCOE) from all commercially available renewable power generation technologies experienced declines in 2018, with CSP (-26%), bioenergy (-14%), solar PV and onshore wind (both -13%) experiencing the largest declines. The IRENA Renewable Cost Database – covering 17,000 projects accounting for around half of all capacity added by the end of 2018 – shows that the cost reductions since 2010 have been impressive (Figure 1).
The mature renewable technologies of bioenergy, geothermal and hydropower have provided, on average, new electricity generation at a cost of between USD 0.04 to USD 0.08/kWh, but between 2010 and 2018, the global weighted-average LCOE of newly commissioned onshore wind has fallen 35% to USD 0.056/kWh, only slightly above the cheapest new fossil fuel-fired cost of USD 0.049/kWh. For onshore wind, technology improvements that have seen higher capacity factors for the same wind resource unlocked by larger turbines, with higher hub-heights and swept areas are becoming as important as declines in installed costs.
Over the period 2010 to 2018, the global weighted-average LCOE of CSP has fallen 46% and offshore wind by 20%. The decline in the LCOE of utility-scale solar PV, driven by module price declines of around 90% and continuing reductions in balance of system costs, has been a remarkable 77% between 2010 and 2018 as the global weighted-average LCOE fell to USD 0.085/kWh for project commissioned in 2018. Offshore wind projects commissioned in 2018 remained, on average, more expensive in 2018. But but they are at a much earlier stage of deployment with 23 GW of offshore wind and 5 GW of CSP installed at the end of 2018 and costs are coming down.
Cost reductions for solar and wind power technologies are set to continue to 2020 and beyond. Current auction and PPA data suggests that by 2020, onshore wind and solar PV will consistently offer less expensive electricity than the least-cost fossil fuel alternative – joining hydropower – while by 2022, offshore wind and CSP will offer electricity in the USD 0.06 to US 0.10/kWh range (Figure 2). The data for CSP and offshore wind is thinner than for solar PV and onshore wind, so the situation is likely to evolve as more projects are proposed. For offshore wind in Europe, where strong local supply chains are supported by ever improving technologies, project development practices and efficiency gains in operations and maintenance (O&M); costs will fall into the USD 0.05 to USD 0.10/kWh range in the early- to mid-2020s. Newer offshore wind markets, such as the United States, are likely to follow a similar trend of higher initial costs that fall rapidly as local supply chains scale-up and O&M efficiencies are unlocked.
Although care must be taken in comparing PPA and auction results to LCOE calculations, for onshore wind, the global weighted-average price of electricity from PPA and auction results could fall to USD 0.045/ kWh by 2020 (Figure 2). This would represent a reduction of around 20% compared to the global weighted-average cost of electricity from onshore wind projects commissioned in 2018. For utility-scale solar PV, the auction data suggests that the average price of electricity could fall to USD 0.048/kWh in 2020, a reduction of 44% compared to the global weighted-average LCOE of projects commissioned in 2018. This data suggests that for the projects in the IRENA Auctions and PPA Database, to be commissioned in 2020, 77% of the onshore wind project capacity and 83% of the utility-scale solar PV in the IRENA auction and PPA database have costs that are lower than the cheapest fossil fuel-fired power generation option for new generation.
Renewable power generation will not only increasingly be the cheapest source of new electricity, new solar PV and onshore wind will increasingly be cheaper than the marginal operating cost of existing coal-fired power plants. For instance, in the United States, 135 GW of coal-fired capacity has operating costs only (fuel and O&M) above USD 0.04/kWh, while solar PV and onshore wind will be consistently cheaper than this level in 2020 and beyond.
Unlocking wider decarbonisation opportunities
The continued cost declines for solar PV and onshore wind, to the point where they will be substantially undercutting even the cheapest new source of fossil fuel-fired electricity by 2020, complemented by declines in the cost of dispatchable CSP and battery storage technologies, improvements in grid operation and an emerging suite of electrification technologies in end-uses (from electric vehicles to heat pumps) will see low-cost renewable electricity generation increasingly underpin the energy sector transformation to 2050.
These cost declines and the advances in the ability to securely operate the grid with high shares of variable renewables at low cost, are not only decarbonising the electricity sector, but are unlocking low-cost decarbonisation in the end-use sectors in conjunction with increased electrification. IRENA’s analysis of the Global Energy Transformation: A Roadmap to 2050 (2019) shows that electrification of end-uses will accelerate in a scenario that is consistent with meeting the Paris Agreement goals. By 2050, electricity’s share of total final energy consumption could reach 49%, up from around 19% today (Figure 3).
With falling battery costs, electrification of passenger transport reaches 70% by 2050, and electricity will provide 43% of total energy consumption in the transport sector. With the extensive electrification of space and water heating in buildings, electricity accounts for 68% of energy use in 2050. The falling cost of renewable power is therefore also helping to reduce the cost of decarbonising end-use sectors, with IRENA’s analysis of the investment needs to meet the Paris Agreement goals having fallen by 40% in the 2019 analysis, compared to the previous estimate. Although the complexities of the energy transition should not be underestimated, with falling renewable power generation costs it is clear that the energy transition doesn’t just make environmental sense, it makes economic sense.
Michael Taylor is a Senior Analyst at IRENA
- The LCOE of a given technology is the ratio of lifetime costs to lifetime electricity generation, discounted back to a common year. In this article, all LCOE results are in real 2018 USD (that is to say, taking into account inflation) calculated excluding any financial support and using a fixed assumption of a real cost of capital (discount rate) of 7.5% in OECD countries and China, and 10% in the rest of the world. All data presented here is for the year of commissioning. ↑
- IRENA’s database of PPA and auction results for around 393 GW of capacity from around 9 850 projects or programmes ↑
Octavian Duliu says
It is a remarkable report I would recommend as it proved, based on a thoroughly statistic analysis, that the replacement of the old, carbon emitting energy sources by new renewable ones continues and most probably will continue long time from now.