Wood Mackenzie: Asia Pacific onshore wind costs edge closer to fossil fuels despite price rises

Inflationary spikes for gas especially lead to increased competitiveness for wind and solar in 2021, analysts note

Both onshore wind and solar will be at a discount or at parity with gas and coal power in India by 2030, Wood Mackenzie believes (pic credit: Suzlon)
Both onshore wind and solar will be at a discount or at parity with gas and coal power in India by 2030, Wood Mackenzie believes (pic credit: Suzlon)

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The levelised cost of electricity (LCoE) for renewable power in the Asia Pacific region rose for the first time in 2021 but still gained ground against fossil fuel-generated power, according to analysis by Wood Mackenzie. 

In 2021, increased equipment and logistics costs meant that solar and wind power were hit by cost inflation, with LCoE increases of 9% for new solar projects ($86/MWh in 2021) and 2% for onshore wind ($103/MWh).

But costs for coal-generated power (just over $70/MWh, or $149/MWh with carbon capture and storage) rose by 19%, while costs for gas-generated power (just over $100/MWh, or $178/MWh with carbon capture and storage) were up by 46% due to spot market prices increasing amid strong demand and tight supply chains. This meant the gap between the LCoE of fossil fuels and renewables — currently standing at 16% — has narrowed in favour of the greener energy sources.

Onshore wind in Asia Pacific was cheaper than gas in 2021, but not coal. However, when you add carbon capture and storage to either coal and gas, then onshore wind was cheaper than either power source.

“Renewables’ supply chain bottlenecks are expected to ease in 2022 and beyond, and the respective LCoE will return to a declining trend,” said Wood Mackenzie senior analyst Rishab Shrestha.

Asia Pacific average LCoE for low-carbon power-generating options, US$/MWh (credit: Wood Mackenzie)

Wood Mackenzie forecasts that, by 2030, electricity from renewables (mostly utility-scale solar PV) will be at a 28% discount to coal across the region.

India, Australia and China remain low-cost champions for renewable power with LCoE 50-55% below coal prices by the end of the decade. Both onshore wind and solar will be at a discount or at parity with gas and coal power in these markets by 2030.

However, offshore wind LCoE in Asia Pacific will not be competitive against gas-fired power until the 2030s, except for China which will hit this milestone in the early 2020s, Wood Mackenzie believes.

Among other low-carbon power technologies, nuclear, hydro and geothermal are already cheaper than gas-fired power.

Renewables integrated with battery storage, currently at a 50% premium over gas power, is expected to be competitive by around 2030.

Carbon capture and storage (CCS) is expected to add 70-100% to generation costs and struggles to compete with firmed renewables and other low carbon options in the longer term. 

The fossil fuel share of the Asia Pacific power system sits at around 70% currently. Although wind and solar costs are falling, Wood Mckenzie forecasts that options for reliable and dispatchable power to support decarbonisation will continue to be very expensive for years to come.

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