Is Solar Or Wind Cheaper?

Introduction

Both solar and wind power are renewable energy sources that are playing an increasingly important role in electricity generation worldwide. Renewable energy sources accounted for over 42% of global electricity generation in 2028, with the share from wind and solar doubling to 25% (IEA). In the US, renewables made up 19.8% of electricity generation in 2020, with expectations to rise to 35% (C2ES). Solar and wind energy offer clean alternatives to fossil fuels and have seen tremendous growth in recent years. This article examines whether solar or wind power is more cost effective.

Costs Over Time

The costs for both solar and wind power have declined significantly over the past decade. According to a 2017 report by the International Renewable Energy Agency (IRENA), “Renewable Power: Sharply falling generation costs”, the installed costs for solar PV fell 73% between 2010 and 2017. Onshore wind costs fell 23% during the same period. IRENA predicts installed costs for solar PV could decline an additional 56-60% by 2030.

The declining costs are driven by economies of scale, technology improvements, and competitive procurement practices. As more solar and wind capacity is added globally, manufacturing scales up driving down component costs. Advancements in turbine design, panel efficiency, and other innovations also contribute to reducing costs over time.

Upfront Costs

The upfront costs for building solar and wind energy projects can vary significantly depending on the size of the project, equipment, installation expenses, location, available incentives, and other factors.

According to a cost analysis from Energy5 comparing wind turbines and solar panels, the installation expenses for a wind turbine can range from $2,000 to $10,000 per kilowatt (kW), while a typical residential solar system may cost around $2,500 to $3,500 per kW. For utility-scale projects, the upfront capital costs for solar tend to be lower than wind.[1]

The U.S. Energy Information Administration found the average construction costs for solar farms of all types fell to $1,655 per kW in 2020, an 8% drop from 2019. Meanwhile, average onshore wind farm construction costs rose to $1,470 per kW in 2020, a 13% increase over 2019.[2] So currently solar enjoys a slight edge in upfront construction costs.

However, as noted on Quora, the costs can change significantly depending on location, available tax credits and rebates, permits, labor, interconnection fees, and other variables.[3] Overall the upfront costs are quite comparable between solar and wind.

Operating Costs

When looking at the operating costs of wind and solar energy, wind tends to have lower costs overall. Wind turbines have relatively low maintenance requirements, with minimal operational costs after installation. Routine maintenance is estimated at around 1-3% of total wind system costs per year. Solar requires more maintenance, like cleaning panels, and has estimated operating costs of around 4-8% of total system costs annually.[1] This is partly because solar panels degrade over time, losing efficiency each year.

A 2021 Lazard study found the levelized cost of energy (LCOE) for wind to be $28-54 per MWh, while utility-scale solar was $29-38 per MWh.[2] So while costs are fairly comparable, wind tends to edge out solar in operating costs due to lower maintenance needs.

Capacity Factors

Capacity factor is a measure of how much energy a power plant produces compared to its maximum capacity. It is calculated by taking the total amount of energy produced in a year divided by the amount of energy the plant could have produced if it ran at full capacity all year. Capacity factors impact the overall costs of wind and solar because they determine how much energy these renewable sources can realistically provide.

According to research by the National Renewable Energy Laboratory, capacity factors for wind power plants range from 25-45%, with an average of around 35% globally [1]. This means that wind turbines do not generate their full rated capacity consistently due to variations in wind speed. Solar PV capacity factors range from 15-30% on average, again depending on location and weather conditions [2].

The lower capacity factors for solar and wind compared to conventional sources like coal or nuclear means more installed capacity is needed to generate the same amount of electricity over a year. This increases the upfront system costs. However, wind and solar have no ongoing fuel costs, which provides long-term savings.

Location Impacts

The costs of solar and wind can vary significantly depending on geographic location and local resources. According to an IRENA report, the lowest cost solar PV projects are found in Chile, Australia, United Arab Emirates, and Spain where solar resources are abundant (Renewable Power Generation Costs in 2022). Solar costs are generally higher in countries further from the equator like Germany and Japan. Wind power is cheapest in locations with consistently strong wind resources like the Great Plains in the United States, coastal regions, and certain mountain passes. According to the EIA, wind projects located in the interior U.S. had lower average construction costs per kW compared to coastal regions in 2020, largely due to better wind resources (Average U.S. construction costs drop for solar, rise for wind).

Government Incentives

Both solar and wind power benefit from federal government incentives that help reduce costs. The main incentive is an investment tax credit (ITC) that allows taxpayers to deduct a percentage of qualified solar or wind expenses from their federal income taxes. According to the Wind Exchange, the federal ITC for wind power projects is 26% for systems installed in 2020-2022. The ITC for solar was recently extended and increased to 30% for systems installed before the end of 2032, after which it will fall to 26% until a permanent 10% credit begins in 2033, according to the Department of Energy. These credits make solar and wind power more affordable by reducing net costs.

State and local governments also offer additional incentives like rebates and tax credits that further reduce costs. The savings from government incentives can make the economics of solar and wind more competitive with conventional power sources.

Economies of Scale

One important factor in the declining cost of renewable energy systems like wind and solar is economies of scale. As the scale of solar and wind projects increases, costs are driven down through efficiencies in manufacturing, purchasing, installation, and maintenance.

Larger solar farms and wind farms allow developers to spread fixed costs over more energy production capacity. Bulk purchasing and standardized installation processes further reduce costs per unit. Larger equipment like taller wind turbines and bigger solar panels harness more renewable energy, lowering generation costs. Ongoing operation and maintenance costs are lower for centralized large-scale projects compared to smaller distributed systems.

Studies show that every doubling of wind or solar capacity drives down costs by 10-20%. As more large-scale renewable projects are built to meet rising clean energy demand, these economies of scale will further reduce costs.

Storage Needs

One of the major challenges with relying on solar and wind energy is their intermittent nature, which requires energy storage to smooth out supply and meet demand. According to research, high penetration of solar and wind into the electrical grid will likely require significant energy storage capabilities.

Solar energy is only available when the sun is shining, so solar farms need some form of storage to provide power at night. Battery storage is one solution, but it is still quite expensive at grid scale. Other options like pumped hydro require specific geographic conditions. For a high solar grid, multiple days worth of storage may be needed to ensure reliable electricity 24/7.

Wind power can be more consistent than solar, but output depends on wind speed and weather conditions. High wind penetration would still require storage, but less than solar. One study found 12 hours of storage could support an 80% wind/solar grid in the US. Other estimates range from 12 hours to a few days for optimal storage.

In summary, both solar and wind require energy storage at high grid penetrations, but solar likely needs more due to its daily intermittency. Several days of storage may be optimal for a grid dominated by solar versus around 12 hours for one dominated by wind.

Conclusion

In summary, the findings show that utility-scale solar and wind power have experienced remarkable cost declines in recent years, with the levelized cost of energy falling by around 80% for solar PV and 40% for wind from 2009 to 2021.

The most recent data from IRENA indicates that in 2022, the global weighted average LCOE for newly commissioned onshore wind projects was around $0.033/kWh, while the LCOE for utility-scale solar PV was around $0.039/kWh. This reflects continued cost improvements, with solar PV costs falling around 15% annually over the last five years.

The economics now strongly favor new solar and wind over new fossil fuel power plants in most markets. However, wind power maintains a slight cost edge over solar in many locations due to higher capacity factors. Ultimately, both technologies are affordable, proven, and complementary options for rapidly decarbonizing electricity systems worldwide.