Are The Prices Of Renewable Energy Rising Or Dropping?

Renewable energy comes from natural sources or processes that are constantly replenished. Some of the most common renewable energy sources are solar, wind, hydropower, geothermal, and biomass. These energy sources are considered renewable because they are continuously replenished by sunlight, wind, water, heat from the earth’s core, or plant material https://www.un.org/en/climatechange/what-is-renewable-energy.

Renewable energy technologies harness these natural energy sources and convert them into usable forms of energy like electricity. For example, solar panels convert sunlight into electricity, wind turbines convert wind into electricity, and hydropower plants use flowing water to generate electricity. Using renewable energy sources helps reduce dependence on fossil fuels like coal, oil, and natural gas, which release greenhouse gases responsible for climate change when burned https://understand-energy.stanford.edu/energy-resources/renewable-energy/introduction-renewable-energy.

Current Prices

According to IRENA, the global weighted average costs in 2022 for newly commissioned renewable energy projects are $0.033 per kWh for onshore wind and $0.053 per kWh for solar PV (https://www.irena.org/Publications/2023/Aug/Renewable-Power-Generation-Costs-in-2022). Compared to fossil fuels, these costs are very competitive – the EIA reports an average cost of $0.07 per kWh for natural gas and $0.09 per kWh for coal power plants (https://www.eia.gov/todayinenergy/detail.php?id=54519).

For other renewable technologies, the IEA reports a global weighted average LCOE of $0.115 per kWh for offshore wind, $0.078 per kWh for hydropower, $0.182 per kWh for concentrated solar power, and $0.243 per kWh for geothermal power in 2022 (https://www.iea.org/reports/renewable-energy-market-update-june-2023/will-solar-pv-and-wind-costs-finally-begin-to-fall-again-in-2023-and-2024).

So in summary, wind and solar PV currently lead as the lowest cost renewable energy sources, significantly undercutting fossil fuel costs in many markets around the world.

Historic Price Trends

Over the past 10-20 years, the costs of solar and wind power have seen dramatic declines. According to the International Energy Agency (IEA), the global weighted average levelized cost of electricity (LCOE) for onshore wind declined by 56% between 2010 and 2021, while utility-scale solar PV declined by 85% over the same period (IEA).

An analysis by BloombergNEF shows that the LCOE for solar PV fell by 90% between 2009 and 2020. The cost of onshore wind declined by 56% over the same period, while offshore wind declined by 48% (Canary Media).

The declines have been driven by a combination of technological improvements, economies of scale in manufacturing and installation, and favorable policies. Solar module prices in particular have plummeted as production has scaled up massively, especially in China.

What’s Driving the Price Drops

There are several key factors driving down the prices of renewable energy in recent years:

Manufacturing improvements and economies of scale have significantly reduced production costs. As demand for solar panels, wind turbines, and other renewable technologies has grown, manufacturers have been able to achieve greater efficiencies and lower costs per unit. Increased scale and output from factories has enabled lower component and material costs.[1]

Technological advances have also played a major role. Innovations in solar cell efficiency, turbine design, power electronics, and other areas have improved performance and lowered costs. For example, more efficient solar panels can generate more kilowatt-hours over their lifetime, reducing the levelized cost of electricity.[2]

Additionally, wind and solar projects are being built at increasingly larger scales, which spreads capital costs over more energy output and leads to lower prices per kilowatt-hour. The rapid growth in renewable energy deployment globally has supported larger and more competitive supply chains as well.[3]

Projected Future Prices

Expert organizations project continued reductions in renewable energy costs in the coming years. According to the International Renewable Energy Agency (IRENA), costs for onshore wind and solar PV are expected to decline by 10-20% by 2025 compared to 2020 levels.

The U.S. Energy Information Administration (EIA) forecasts that by 2025, the levelized cost of energy for new onshore wind plants will decline by 15% compared to 2022 costs. For utility-scale solar PV, they project a drop of 24% over the same period.

Factors driving continued decreases include technology improvements, manufacturing scale and supply chain efficiencies, and competitive procurement practices. However, the rate of cost reduction is expected to slow compared to the dramatic drops seen over the past decade.

Pushing costs lower will require overcoming challenges like integrating high shares of variable renewables, transmission constraints, rising commodity prices, and inflationary pressures. But most experts agree renewable energy will continue its trajectory as the lowest-cost option for new electricity generation.

Challenges to Further Cost Reductions

While renewable energy prices have fallen dramatically in recent years, there are still challenges to reducing costs further. Two key challenges are limits to technology and scale improvements, and supply chain constraints.

Most renewable energy technologies like wind and solar have already seen significant improvements, so the rate of future cost reductions from tech advances may begin to slow. There is also a limit to how much economies of scale can further bring down costs as adoption expands globally. As the International Energy Agency notes, the pace of cost decreases is likely to moderate compared to the last decade.

Furthermore, supply chain issues pose a challenge. Constraints around raw materials, manufacturing, and logistics can hamper the rollout of renewable projects. Bottlenecks in the supply chain drive up costs. Building out renewable energy infrastructure requires vast amounts of copper, aluminum, steel, concrete and other materials. Scarcity and volatile prices for these inputs put upward pressure on renewable energy costs.

Impact on Fossil Fuels

The falling costs of renewable energy is having a major impact on fossil fuels like coal, gas, and oil. Renewable energy prices have reached cost parity or even become cheaper than fossil fuels in many parts of the world.

For example, according to IRENA, solar and wind power costs declined between 2010 and 2019 while fossil fuel prices fluctuated. In 2021, renewables became cheaper than the cheapest new coal plants. This cost parity means renewables are now often the most economical option for new power generation capacity. As a result, coal plant utilization rates have declined while renewables adoption continues growing rapidly.

For the oil and gas industry, renewables present a growing competitive threat. As electric vehicles become cheaper, they undermine gasoline and diesel demand. Rooftop solar and battery storage allows consumers to generate their own power rather than buy from utilities. Large corporations are also opting for renewable power purchase agreements over traditional fossil fuel contracts. While fossil fuels still dominate, renewables are steadily capturing more market share.

Impact on Consumers

The dropping prices of renewable energy are having a significant impact on consumers, both homeowners and businesses. As the costs of solar panels, wind turbines, and other renewable technologies decrease, it is becoming increasingly affordable for consumers to adopt them.

For homeowners, installing solar panels or other renewable energy systems allows them to reduce their electricity bills and save money over time. The savings can be substantial – some estimates suggest solar panels can help homeowners save anywhere from $1,050 to $2,585 per year on average. This is because once the system is installed, the “fuel” from the sun or wind is free. So homeowners can drastically cut their electric bills by relying more on renewables.

Businesses are also capitalizing on cheaper renewable energy systems to reduce operating costs. Retailers like Walmart and IKEA have installed massive solar panel systems on their buildings to power their stores for less. Other companies like Apple and Google are signing power purchase agreements (PPAs) that allow them to buy renewable energy directly from wind and solar farms at very low rates. For businesses with large facilities or high energy needs, renewables can lead to millions in energy savings each year.

Impact on Energy Markets

The increased penetration of renewable energy is fundamentally changing energy markets around the world. According to the IEA, the share of renewables in global electricity generation jumped to 29% in 2019 from 24% in 2018 (IEA). This is increasing competition and driving down costs across the electricity sector.

As more solar and wind generation is added to the grid, there are new challenges for balancing supply and demand. Short term variability in renewable output requires more flexible generation and grid management techniques. Longer term shifts in peak demand times also require changes to the structure of electricity markets (UN).

Despite the challenges, most experts expect the transition to continue. Renewables are on track to overtake coal and gas as the dominant source of electricity generation in many markets within the next decade.

Conclusion

The prices of renewable energy, especially solar and wind power, have declined significantly in recent years. According to the International Energy Agency (IEA), electricity generation costs from new onshore wind and solar PV plants are projected to decline 10-15% by 2024, but remain above pre-pandemic levels [1]. Historical analysis shows that from 2009 to 2019, solar energy costs dropped 89% and wind power costs fell 70%, while coal power prices only declined 2% [2].

Several factors are driving continued cost reductions for renewables, including technology improvements, scaling of production, and streamlining of supply chains and installation processes. Renewables are now often the cheapest form of new electricity generation. This is disrupting fossil fuel markets and enabling growth in renewable capacity. The falling prices benefit energy consumers and support the transition to clean energy systems.

However, challenges remain to further reduce renewable energy costs. Policy support, sustained investment, and addressing integration costs will be needed to maintain the strong momentum for low-cost renewables. But the outlook is positive, with projections that innovation and economies of scale will drive costs down further in the years ahead.