PV leads charge as global renewables costs tumble

Renewable technologies such as solar and wind are increasingly competing with conventional forms of generation on cost, with the levelised cost of electricity (LCOE) of PV falling by half over the four years to 2014, the International Renewable Energy Agency (IRENA) said at its fifth assembly in Abu Dhabi this week.

“The cost of generating power from renewable energy sources has reached parity or dropped below the cost of fossil fuels for many technologies in many parts of the world,” Irena said –noting that the RE advantage increasingly often holds true even without the need for subsidies.

PV is at the forefront of the cost declines, with the cost of utility-scale solar installations sliding to the range of fossil-fuel generation in China, North America and South America, according to IRENA's new Renewable Power Generation Costs in 2014 report.

Residential PV systems are now up to 70% cheaper than they were in 2008, with total installed costs of utility-scale systems sliding by as much as 65% between 2010 and 2014.

“Particularly for solar PV and wind, we have some quite rapid cost reductions because of the high learning rates for some renewables. Solar PV is obviously the poster child for this, with module prices coming down by 75% over four years,” said IRENA analyst Michael Taylor.

Renewables continued to become cost-competitive throughout 2013 and 2014, according to IRENA’s figures, which were drawn from 9,000 utility-scale projects across the globe, in addition to partial data gleaned from another 6,000 installations worldwide.

“This is real-world project data… renewables are now increasingly competing head-to-head with fossil fuels without financial support,” Taylor explained, adding that the cost increases associated with the integration of variable renewables into electricity systems does not change this conclusion.

Adnan Amin — reappointed this week as the director-general of IRENA for a second four-year term by 124 of the organisation's member countries — said the cost reductions have been driven by a handful of nations that have done a lot of “heavy lifting” by investing in renewables at scale.

“The Germans were the first. Their investment really turned out to be a public good, in international terms, because they lowered the cost of solar and wind,” Amin said.

“And then the mass production that we began to see in other markets like China dramatically lowered the cost further. Solar PV for example has come down 80% in the past five years. Wind has come down in a comparable period by about 30%. We’re seeing grid parity in a number of technologies and markets already being reached.”

IRENA predicts that costs will continue to decline. But as equipment prices have already fallen to attractively low levels — particularly in the case of PV modules and to a lesser extent, wind turbines — the sources of cost reductions will change moving forward.

“Industry is already thinking about how to continue to reduce balance-of-project, O&M and financing costs. Because they know that this is where the next cost reductions are coming from,” Taylor said. “There are a lot of policy levers in place that (our member states) can use to relatively easily unlock these.”

In many parts of the world — particularly Europe — onshore wind is competitive with or actually cheaper than coal, oil and gas-fired power stations, despite lower oil prices and without the support of subsidies.

“In many countries, including Europe, onshore wind power is one of the most competitive sources of new electricity capacity available. Individual wind projects are consistently delivering electricity for $0.05 per kilowatt-hour (kWh) without financial support, compared to a range of $0.045 to 0.14/kWh for fossil-fuel power plants,” IRENA said in its report. 

“The average cost of wind energy ranges from $0.06/kWh in China and Asia to $0.09/kWh in Africa. North America also has competitive wind projects, with an average cost of USD 0.07/kWh.”

“Onshore wind (is) particularly competitive now where good resources are available,” Taylor said. “Concentrating solar power and offshore wind are in the infancy of their deployment — only 5GW and 8GW respectively. Their costs will come down as well. But that’s for the next era.”

He notes that the ongoing shift from near-shore development to deep-water projects has had “significant cost impacts” for offshore, due in part to investments in foundations and offshore installation infrastructure.

“Costs increased and they've stabilized,” Taylor said. “There’s an expectation going out to 2020 with some of the larger projects… the very large wind turbines starting to be installed, which helps to bring down the unit costs of installation, O&M and so on.”

However, Taylor is quick to add that regardless of the ongoing decline in costs, offshore wind will always be more expensive than onshore. "But of course — particularly in Europe and other parts of the world where you have very high population densities in coastal areas — it’s a very important resource going forward. And because it’s only in the infancy of its deployment — 8GW compared to 310GW for onshore wind — we will see costs come down.”

Some utility-scale PV installations are now generating electricity at just $0.08/kWh without subsidy support, IRENA said.

“There is really a virtuous cycle in terms that policy support for renewables at a global scale,” Taylor said.

“For every doubling in cumulative installed capacity, you often observe a fixed percentage reduction in cost. And for solar PV that’s 18% to 22%… there is a clear relationship between the policy support — which has increased the scale of the market — and technological improvements, leading to cost reductions. That’s the proof of the pudding that the policy is working.

"So we see other countries coming on board, because now renewables are fundamentally competitive.”

Amin said the numbers show that the main challenge for renewable energy is no longer an issue of cost, technology or resource potential.

“The discussion is really about what happens in the next phase, when renewable-energy penetration starts to go to higher levels that imply a change in systems and in costs,” he concluded.

“The models of governance and regulation are becoming much better. And the business case for renewable energy is here today, just on the basis of cost.”