Reductions in costs for wind, solar and battery technologies are threatening gas and coal’s economic viability and position in the world’s electricity generation mix, according to Bloomberg New Energy Finance (BNEF).
Lithium-ion battery costs have fallen 79% since 2010, BNEF found, while the levelised cost of electricity (LCOE) for onshore wind and solar PV have fallen 38% and 77% respectively over the same nine-year period.
Cost reductions for coal, gas, nuclear and large hydro, meanwhile, are described as "modest at best", and in some countries have actually increased, according to BNEF’s analysis.
When wind and solar are combined with battery storage, the two technologies challenge new coal and gas in terms of ‘dispatchable power’ – the ability to respond to grid requests to ramp electricity generation up or down, BNEF concluded. Pairing wind and solar with battery storage enables them to smooth output, and if necessary, shift the timing of supply, the analysts added.
In terms of flexibility – the ability to switch on and off in response to grid electricity shortfalls and surpluses over periods of hours – stand-alone batteries are increasingly cost-effective and are starting to compete on price with open-cycle gas plants, BNEF stated.
And wind and solar PV’s cost reductions mean the two technologies are challenging fossil fuel’s economic viability in terms of ‘bulk generation’, BNEF stated. In both cases, cost reductions were achieved due to falling capital costs and improved efficiency prompted by the ongoing transition to auction systems around the world.
Furthermore, the cost of solar PV and onshore wind are expected to drop by 62% and 48%, respectively, by 2040, BNEF added. This trend will make them the cheapest bulk generation sources almost everywhere by 2023, the analysts stated.
Seb Henbest, head of Europe, the Middle East and Africa for BNEF, explained: "Competitive auctions for new renewable energy capacity have forced developers, equipment providers and financiers to bear down on all the different costs of establishing wind and solar projects.
"Thanks to this and to progressively more efficient technology, we are seeing record-low prices being set for wind and solar, and then those records being broken again and again on a regular basis. This is having a powerful effect: It is changing perceptions."
Elena Giannakopoulou, head of energy economics at BNEF, meanwhile, described the research as "chilling" for the fossil fuel sector.
She added: "Some existing coal and gas power stations, with sunk capital costs, will continue to have a role for many years, doing a combination of bulk generation and balancing, as wind and solar penetration increase.
"But the economic case for building new coal and gas capacity is crumbling, as batteries start to encroach on the flexibility and peaking revenues enjoyed by fossil fuel plants."