Renewable energy cost competitive with fossil fuels

19th January 2015

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Renuka Thakore

Many renewable energy technologies have costs equal or lower than fossil fuels even without financial support and despite falling oil prices, according to the International Renewable Energy Agency (IRENA).

The agency analysed the latest data from renewable and fossil fuel sources using the “levelised cost of energy” (LCOE), which represents the per-kilowatt cost of building and operating a plant over its lifecycle, taking into account the costs of capital, fuel, operations and maintenance, finance and use rate.

Solar photovoltaic (PV) is leading the cost decline, found IRENA, with cost of PV modules falling 75% since the end of 2009, while the cost of generating electricity from utility-scale solar PV has fallen 50% since 2010. Residential solar PV systems are now up to 70% cheaper than in 2008, the agency says.

Onshore wind is one of the most competitive sources of new electricity capacity in many countries, including Europe, according to the report. Individual projects are consistently providing electricity for $0.05 per kilowatt-hour (kWh) without financial support in regions of the world with good wind resources and low cost structures.

Average regional values for onshore wind ranged from $0.06/kWh in Asia, Eurasia and North America to around $0.08/kWh in the rest of the world. This compares with a range of $0.045 to 0.14/kWh for fossil-fuel power plants, says IRENA.

Concentrated solar power and offshore wind are still typically more expensive than fossil fuels, however.

The agency says that current falling oil prices do not substantially alter the competitiveness of renewables since the LCOE does not take into account future unpredictable prices of fossil fuels. Renewable technologies typically have lower investment risk profiles than fossil fuels, as most of their costs are known upfront and operations and maintenance costs are predictable, IRENA says.

The LCOE also does not consider the external costs associated with burning fossil fuels, including health costs and rises in CO2 emissions. When these are included, the cost of power generation from fossil fuels increases by between $0.01/kWh to $0.13/kWh, IRENA estimates.

It also calculated that the cost of integrating renewables onto power grids is “negative or very small” where there is a low penetration of renewables in the overall mix, increasing to between $0.035/kWh to $0.05/kWh, if renewable penetration reaches 40%.

IRENA concludes that when all factors are taken into account, renewables become “virtually always” the cheapest form of energy.

Decision-makers need to be made aware of just how competitive renewables are, IRENA recommends. Policymakers should shift their emphasis from individual technology support to a system-wide approach, it adds.

A record high of 120 gigawatts of renewable energy was added to the global energy mix in 2013, with similar additions forecast for 2014, IRENA says. Renewable energy accounted for 22% of global electricity generation in 2013.

IRENA claims that the energy sector is “undergoing a transformation that represents the beginning of the transition to the renewables-dominated, truly sustainable power sector required to avoid the dangerous effects of climate change.”

Adnan Amin, director-general at IRENA, said: “It has never been cheaper to avoid dangerous climate change, create jobs, reduce fuel import bills and future-proof our energy system with renewables. This requires public acknowledgement of the low price of renewables, an end to subsidies for fossil fuels, and regulations and infrastructure to support the global energy transition.”

IRENA has also launched an online knowledge platform which enables users to find country-specific data on renewable use and deployment; market statistics; policies; finance; costs; benefits; innovations and education.

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