Renewables competitive with fossil-fuel power on price despite higher costs – BloombergNEF

Researcher finds that the price gap between new wind and solar projects and fossil fuels continues to widen

A Statkraft wind farm in Brazil, which had the cheapest new-build onshore wind farms in 2021, according to BloombergNEF
A Statkraft wind farm in Brazil, which had the cheapest new-build onshore wind farms in 2021, according to BloombergNEF

The cost of new-build onshore wind and solar power generation has increased in the last year but the sector is undercutting fossil-fuelled power generation by an even wider margin, according to analysts BloombergNEF (BNEF).

The research firm says that the costs of new-build onshore wind power and fixed-axis solar generation have risen by 7% and 14% respectively in the last year.

LCOE of renewables

BNEF’s estimates for the global levelized cost of electricity (LCOE) — which measures the average cost of electricity generation by a facility during its lifetime — saw a rise to an average $45/MWh for utility-scale PV and to $46/MWh for onshore wind power in the first half of 2022.

This was driven by “increases in the cost of materials, freight, fuel and labour”, says BNEF, which notes that shipping costs are still five times their 2019 level, although down from last autumn’s peak.

BNEF’s analysis for onshore wind, solar and battery storage looked at new-build projects that reached financial close in the six months prior to the start of the study in March 2022 or which are currently under construction. For coal, nuclear and hydro — which take much longer to develop — the study looked at the latest financed projects for each market.

Trends

One strong trend is that the gap between renewables and fossil-fuelled plants continued to widen. New-build onshore wind and solar projects undercut new-build coal and gas-fired power by around 40% as fuel and carbon prices surged, with BNEF assessing coal LCOE at $74/MWh and gas-fired power at $81/MWh for first-half 2022.

Despite this year’s blip, solar and onshore wind power are on a long-term downward trend, with falls of 86% and 46% in nominal terms compared with 2010, says BNEF.

Price disparity

There is considerable cost disparity among renewable projects. The cheapest onshore wind power plants had an LCOE as low as $19/MWh for new-build projects in Brazil; for PV’s the low was $21/MWh for tracking solar farms in Chile; and for offshore wind the low was $57/MWh for plants in Danish waters ($43/MWh excluding offshore transmission costs).

BNEF says the battery storage sector is “particularly sensitive to commodity price volatility” — the firm’s benchmark for battery LCOE average rose by 8.4% from first-half 2021 to $153/MWh.

And the battery LCOE is set to rise further with lithium carbonate costs, for example, up by nearly 400% in the last year and yet to have their full impact because of hedging for projects commissioned in the first-half 2022.

‘A rough patch’

Despite the rise in renewables costs since last year, BNEF calls this “a rough patch for renewables, but not an inflection point”.

It sees renewables costs resuming their downward trajectory amid robust demand, an easing supply chain and a ramping up of production, particularly in China.

“Renewables remain the cheapest source of new bulk power in countries comprising two-thirds of the world population and nine-tenths of electricity generation,” says BNEF.

A final note of caution in the research is that less-developed economies should not be left behind because of the impact of higher costs. BNEF urges that extra attention be paid to them in the run-up to November’s Cop27 in Egypt so that they do not “lose valuable time in the race to net zero”.

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