Renewables, Especially Solar, Becoming Cost Competitive for Electricity

Written by Andrea Rangel, GEI Associate

The cost of solar and wind energy has been falling steeply in the past few years. Solar Photovoltaic (PV) modules in 2014 cost 75% less than in 2009, while wind turbine prices declined by almost a third over the same period. The cost of electricity from utility-scale PV systems across the globe has fallen by around half since 2010. Renewable energy sources are becoming competitive with fossil fuels.

A report, Renewable Power Generation Costs, published by the International Renewable Energy Agency (IRENA) in January of 2015, analyzes equipment costs, total installed costs, and LCOE (levelized cost of electricity), in order to identify traits of competitiveness for each factor. There are no technical barriers to the increased integration of variable renewable resources, such as solar and wind energy. According to the study, even when fossil fuel base costs (with no externalities) are taken into consideration, costs of grid integration including renewable sources seem to be looking more positive. Even though there is a high competition for electricity generation and a million externalities to be considered, renewable sources are becoming more and more competitive on the simplest analysis level.

The power generation sector is experiencing giant transformations. The decline in cost of electricity from renewable sources is due to cheaper and more efficient power generation equipment. Contrary to popular belief, renewable power generation technologies are becoming more and more efficient and competitive.

The report takes a look into different countries installed and total cost for different renewable sources. For example, China and India’s total installed cost and contrasts it with that of all countries belonging to the Organization for Economic Co-Operation and Development (OECD). China and India seem to be leading the way in low cost and efficiency compared to those nations belonging to OECD. In the fourth quarter of 2009, module costs alone averaged USD 2.646/kW. However, they fell to USD 1.670/kW in 2013 and 2014. Additionally, the report highlights that

“Total installed costs for solar PV and onshore wind are now typically similar to, or lower than, the installed costs for the average coal-fired plant in OECD countries.”

Due to the volatility of the oil price, the high costs of small-scale diesel-fired electricity generation, infrastructure costs, and transportation costs, renewable power generation technologies seem to be the key to efficient, low-cost energy generation. It is expected that there will be potential cost reductions for renewables as a result of lower equipment costs. The report highlights hydropower, geothermal and biomass-combustible technologies as mature and identifies CSP, solar PV and wind power technologies as the ones with the highest potential to have a reduction in cost.

Finally, IRENA mentions that small-scale residential solar PV costs continue to rapidly decline. In their studies, the LCOE of residential systems is lower than the retail price of electricity. Their figures were calculated without taking into account any financial support. The report highlights how adding subsidies only help the price to the consumer. For example, Germany and China have the most competitive small-scale residential rooftop systems in the world. Germany’s costs have fallen 70% between 2008 and 2014. The average solar PV LCOE in Australia, China, Germany, Italy and the U.S. have fallen between 42%-64%

Total costs of renewable power generation technologies differ from country to country as well as from different types of technologies. Because there is not a standard LCOE value for a given power generation technology, it is hard to measure real costs across the borders. IRENA highlights that it is necessary to pay more attention to data analysis in each country to be able to formulate better estimates to lead to potential cost reduction alternatives in the near future.

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