A new report published by the International Renewable Energy Agency (IRENA) shows that almost two-thirds or 163 GW of newly installed renewable power in 2021 had lower costs than the world’s cheapest coal-fired option in the G20. IRENA estimates that, given the current high fossil fuel prices, the renewable power added in 2021 saves around US$55 billion from global energy generation costs in 2022.
IRENA’s new report “Renewable Power Generation Costs in 2021“, confirms the critical role that cost-competitive renewables play in addressing today’s energy and climate emergencies by accelerating the transition in line with the 1.5 °C warming limit and the Paris Agreement goals.
Renewables are by far the cheapest form of power today, said Francesco La Camera, Director-General of IRENA.
Costs for renewables continued to fall in 2021 as supply chain challenges and rising commodity prices have yet to show their full impact on project costs.
Solar and wind energy, with their relatively short project lead times, represent vital planks in countries’ efforts to swiftly reduce, and eventually phase out, fossil fuels and limit the macroeconomic damages they cause in pursuit of net zero.
2022 is a stark example of just how economically viable new renewable power generation has become. Renewable power frees economies from volatile fossil fuel prices and imports, curbs energy costs, and enhances market resilience – even more so if today’s energy crunch continues, Francesco La Camera said.
The cost of electricity from onshore wind fell by 15 percent, offshore wind by 13 percent, and solar photovoltaic (PV) by 13 percent compared to 2020.
While a temporary crisis response might be necessary for the current situation, excuses to soften climate goals will not hold mid-to-long term. Today’s situation is a devastating reminder that renewables and energy saving are the future. With the COP27 in Egypt and COP28 in the UAE ahead, renewables provide governments with affordable energy to align with net zero and turn their climate promises into concrete action with real benefits for people on the ground, Francesco La Camera added.
Renewable investments pay
Investments in renewables continue to pay huge dividends in 2022, as highlighted by IRENA’s costs data.
In non-OECD countries, the 109 GW of renewable energy additions in 2021 that cost less than the cheapest new fossil fuel-fired option will reduce costs by at least US$5.7 billion annually for the next 25-30 years.
High coal and fossil gas prices in 2021 and 2022 will also profoundly deteriorate the competitiveness of fossil fuels and make solar and wind even more attractive.
With an unprecedented surge in European fossil gas prices, for example, new fossil gas generation in Europe will increasingly become uneconomic over its lifetime, increasing the risk of stranded assets.
The European example shows that fuel and carbon dioxide (CO2) costs for existing gas plants might average four to six times more in 2022 than the lifetime cost of new solar PV and onshore wind commissioned in 2021.
Between January and May 2022, the generation of solar and wind power may have saved Europe fossil fuel imports in the magnitude of no less than US$50 billion, predominantly fossil gas.
Supply-chain costs are not fully passed through
As to supply chains, IRENA’s data suggests that not all materials cost increases have been passed through into equipment prices and project costs yet.
If material costs remain elevated, the price pressures in 2022 will be more pronounced. Increases might however be dwarfed by the overall gains of cost-competitive renewables in comparison to higher fossil fuel prices.
The global weighted average cost of newly commissioned solar photovoltaic (PV), onshore and offshore wind power projects fell in 2021. This was despite rising materials and equipment costs, given that there is a significant lag in the pass-through to total installed costs.
The global weighted average levelised cost of electricity (LCOE) of new onshore wind projects added in 2021 fell by 15 percent, year-on-year, to US$0.033/kWh, while that of new utility-scale solar PV fell by 13 percent year-on-year to US$0.048/kWh and that of offshore wind declined 13 percent to US$0.075/kWh.
With only one concentrating solar power (CSP) plant commissioned in 2021, the LCOE rose 7 percent year-on-year to US$0.114/kWh.
Biomass can provide low-cost dispatchable power
In the chapter on bioenergy, the report notes that bioenergy can provide “very competitive electricity” where capital costs are relatively low and low-cost feedstocks are available.
The wide range of bioenergy-fired power generation technologies, installed costs, capacity factors, and feedstock costs results in a wide range of observed LCOEs for bioenergy-fired electricity providing dispatchable electricity generation with an LCOE as low as around US$0.040/kWh.
The report finds that most competitive projects make use of agricultural or forestry residues already available at industrial processing sites, where marginal feedstock costs are minimal, or even zero.
Where onsite, industrial process steam or heat loads are required, bioenergy combined heat and power (CHP) systems can also reduce the LCOE for electricity to as little as US$0.03/kWh, depending on the alternative costs for heat or steam available to the site.
Even higher-cost projects in certain developing countries can be attractive, however, because they provide security of supply in conditions where brownouts and blackouts can be particularly problematic for the efficiency of industrial processes.
Projects using low-cost feedstocks such as agricultural or forestry residues, or the residues from processing agricultural or forestry products, tend to have the lowest LCOEs.
For projects in the IRENA Renewable Cost Database, the weighted average project LCOE by feedstock is US$0.06/kWh or less for those using black liquor, primary solid bioenergy (typically wood or woodchips), renewable municipal solid waste, and other vegetal and agricultural waste.
