“Virtuous Circle” cuts renewable costs dramatically

IRENA’s analysis of around 8 000 projects and range of literature sources shows that the rapid deployment of renewables, working in combination with the high learning rates for some technologies, has produced a virtuous circle that is leading to significant cost declines and is helping fuel a renewable revolution. While cost reductions to 2020 in mature biomass applications are not expected to be as great as in other renewables, bioenergy starts with a significantly lower cost than many other options.

In 2011 additions included 41 GW of new wind power capacity, 30 GW of solar photovoltaic (PV), 25 GW of hydropower, 6 GW of biomass, 0.5 GW of concentrated solar power (CSP) and 0.1 GW of geothermal power.

The levelised cost of electricity (LCOE) is declining for wind, solar PV, CSP and some biomass technologies, while hydropower and geothermal electricity produced at good sites are still the cheapest way to generate electricity.

Renewable technologies are now the most economic solution for new capacity in an increasing number of countries and regions. Where oil-fired generation is the predominant power generation source (e.g. on islands, off-grid and in some countries) a lower-cost renewable solution almost always exists today. Renewables are also increasingly the most economic solution for new grid-connected capacity where good resources are available. As the cost of renewable power drops, the scope of economically viable applications will increase even further.

Crystalline silicon (c-Si) PV module prices are a good example. Average prices for Chinese modules have fallen by more than 65% over the last two years to below USD 0.75/watt (W) in September 2012. The increasing size of global renewable markets and the diversity of suppliers has produced more competitive markets for renewable technologies.

For those regions with significant remaining small hydropower potential, the weighted average LCOE for new small hydropower projects is between USD 0.032 and USD 0.07/kWh depending on the region, while for large hydropower the weighted average for a region is between USD 0.03 and USD 0.06/kWh assuming a 10% cost of capital. For biomass, the weighted average LCOE for non-OECD regions varies between USD 0.05 and USD 0.06/kWh. For geothermal, the weighted average LCOE by region is between USD 0.05 and USD 0.09/kWh, while for onshore wind the range is between USD 0.08 and USD 0.12/kWh. CSP and utility-scale solar PV are more expensive, with the weighted average LCOE for utility-scale solar PV varying between USD 0.15 and USD 0.31/kWh. The weighted average LCOE for CSP for a region varies between USD 0.22 and USD 0.25/kWh.

The importance of the level of existing good quality resources that are available or remain to be exploited is also highlighted in the report. Europe has higher LCOEs for hydropower and biomass-fired electricity because, in the former case, most of the economic potential has already been exploited, while in the latter case feedstock costs are typically high. Similarly, with the exception of Italy and Iceland, the geothermal resources in Europe are generally poor in quality and require expensive investment to exploit.

It is important to note that distributed renewable technologies, such as rooftop solar PV and small wind, can’t be directly compared to large utility-scale solutions where transmission and distribution costs of USD 0.05 to USD 0.15/kWh must be added to the total costs.

For the complete working paper, click here.