The International Renewable Energy Agency has released a new report titled “Renewable Power Generation Costs in 2021” which mentions in detail the cost trends of different renewable energy technologies. The report also mentions the impact of rising commodity prices on renewable energy costs going forward. Southeast Asia Infrastructure provides a brief extract of the report…
The emerging supply chain challenges and rising commodity costs in 2021 did not result in higher total installed project cost data for projects commissioned in 2021 due to the lag between equipment cost increases appearing in commissioned projects. As a result of this and due to falling costs in China, the global weighted average cost of electricity from utility-scale solar PV, onshore and offshore wind projects commissioned in 2021 all fell. In terms of onshore wind projects, the global weighted average LCOE of those commissioned in 2021 fell by 15%, year-on-year, (Figure 1.1), from USD 0.039/kWh in 2020 to USD 0.033/kWh. China was once again the largest market for new onshore wind capacity additions in 2021, although its share of new deployment fell to 41%, resulting in markets with higher installed costs increasing their share relative to 2020. Excluding China, the LCOE fell 12% year-on-year in 2021 to USD 0.037/ kWh.
The 13% reduction in LCOE in 2021 for utility-scale solar PV was higher than the 11% decline recorded in 2020. This was because the global weighted average capacity factor of new projects in 2021 returned to a figure above 17%. This was driven partly by some changes in the share of deployment in areas with better solar resources, compared to 2020, while it was also due to the increasing use of single axis trackers and bifacial PV modules.
Similar to the situation for onshore wind, China was the largest market for new capacity added in utility-scale solar PV, accounting for an estimated 35% of the global total in 2021. The offshore wind market, which added 6 GW in 2020, saw unprecedented expansion in 2021, with 21 GW added. China increased its new capacity additions by a factor of 5.7 over an already-record 2020 expansion, adding 17.4 GW in 2021. This deployment saw the global weighted average cost of electricity of new projects fall by 13%, year-on-year, from USD 0.086/kWh to USD 0.075/kWh. This was driven by a fall in global weighted average total installed costs from USD 3,255/kW in 2020 to USD 2,858/kW in 2021, while the global weighted average capacity factor increased from 38% to 39%, restrained by the relatively poor wind resource sites, relative to elsewhere, of Chinese projects. With China accounting for 82% of global offshore capacity additions in 2021, the story of the global offshore wind sector in 2021 is essentially one where the data reflects Chinese offshore wind market conditions in global weighted averages.
The cost declines seen in 2021 may not be repeated for solar PV and wind power in 2022, as supply chain constraints have been having an impact since late 2020, while commodity price rises accelerated in late 2021. These two factors saw equipment prices increase after experiencing lows in the first half of 2020, when the pandemic first took hold. Yet, as noted above, the impact of these factors on projects commissioned in 2021 was not enough to raise the full year weighted average LCOE in many individual markets, nor at a global level. That is not to say that individual projects commissioned towards the end of 2021 did not experience higher costs than in 2020, but that on average the cost of electricity for all projects in 2021 were still lower than in 2020. Although there are limits to what can be extrapolated from IRENA’s data, this is likely to be predominantly explained by five key factors:
- Overall equipment cost increases were modest in late 2020 and into early 2021, when many projects commissioned in 2021 would have placed their orders.
- Larger projects have greater purchasing power and longer lead times, blunting price increases and delaying the impact of price hikes on commissioned projects. Such larger projects are also increasingly dominating capacity additions outside Europe.
- Contingency allowances in most projects will have absorbed some or all of any increased costs.
- Technology improvements (e.g. more efficient PV modules and larger wind turbines) and improvements in manufacturing efficiency and scale continue, reducing the impact of commodity price increases.
- China remains the dominant market for new solar and wind capacity additions and has lower commodity prices and transport costs, while in 2021, its local market/policy dynamics also favoured lower pricing – at least for onshore wind.
After lows in mid-2020, solar PV module and wind turbine pricing had already started to increase, if modestly initially, and was followed by a sustained rise in 2021. In 2020, delivered wind turbine prices outside of China increased by a modest 0% to 3% over the year, with a further 1% to 11% increase in 2021 – albeit with Class I turbines experiencing a decline in price that year (BNEF, 2022). In 2020, the average sales price of Vestas’ order intake in USD terms fell 9%, year-on-year, but rose by 16% in 2021, returning the price to levels not seen since Q4 2017. With lead times for orders of 7 to 12 months, the impact of these order price rises will be more keenly felt in total installed costs in 2022. The experience in China, however, has been quite different, with an end to subsidies resulting in developers aggressively negotiating lower prices in 2021. The result was that Chinese wind turbine prices rose 8% over the year in 2020, then fell by 28% or more in 2021 (BNEF, 2022 and Wood Mackenzie, 2022). In December 2020, solar PV module prices were broadly unchanged from one year earlier for ‘all black’, ‘high-efficiency’ and ‘mainstream’ modules. At the same time, the prices of ‘low cost’ modules were 9% lower, those of bifacial modules 11% lower, and thin-film modules 23% lower.
As supply chain constraints and polysilicon shortages relative to growing demand became apparent, the price of polysilicon increased from a low of USD 7/kg in June 2020 to over USD 30/kg by the end of 2021 as cell manufacturers rushed to secure supplies. With industry expansion efforts, prices have recently stabilised for polysilicon, but module prices increased by between 5% and 14% over the year for 2021 for all types, with the exception of ‘low cost’ modules, where prices were broadly flat. With modules typically accounting for between 30% and 40% of total installed costs, these price increases were, however, to some extent, diluted in total installed costs. The impact of freight and commodity price increases on other hardware costs (e.g. on the copper in cabling, or the steel and aluminium used in racking and mounting) were also muted in 2021, but there may be more pass-through of these costs in 2022 if commodity prices remain elevated. These trends are discussed in more detail in the following sections.
Cost trends 2010‑2021
In 2010, onshore wind was the only solar or wind technology to fall within the cost range of new fossil fuel-fired power generation options in the G20. During the period from then until 2021, CSP, offshore wind and utility-scale solar PV all also joined the range of costs for new capacity fired by fossil fuels. This analysis excludes any financial support for renewable technologies, so the economic case for the consumer or project developer is often more compelling. Indeed, the trend is not only one of renewables competing with fossil fuels, but significantly undercutting them when new electricity generation capacity is required. In 2018, the global weighted average LCOE of onshore wind fell below the level of the cheapest new fossil fuel-fired electricity generation option in the G20, while solar PV achieved that feat in 2020.
It is not just in new capacity that solar PV and onshore wind are competitive, however; they are also increasingly cheaper than even the marginal operating costs of existing fossil fuel plants using coal and fossil gas. This was also the case even before the current fossil fuel price crisis. Since 2010, solar PV has experienced the most rapid cost reductions, with the global weighted average LCOE of newly commissioned utility-scale solar PV projects declining by 88% between 2010 and 2021, from USD 0.417/kWh to USD 0.048/kWh (Figure 1.2). This cost reduction occurred as global cumulative installed capacity of all solar PV (utility scale and rooftop) increased from 40 GW to 843 GW. This represented a precipitous decline, from a level more than twice that of the most expensive fossil fuel-fired power generation option to a level in 2021 that undercut by USD 0.008/kWh the bottom of the range for new fossil fuel-fired capacity in the G20. This reduction has been primarily driven by declines in module prices which have – despite the recent uptick – fallen by 91% since 2010. This has been driven by module efficiency improvements, increased manufacturing economies of scale, manufacturing optimisation and reductions in materials intensity.
Total installed costs have also declined due to reductions in balance of system costs, helped by module efficiency improvements and a host of other factors. As a result, the global weighted average total installed cost of utility-scale solar PV fell by 82% between 2010 and 2021, from USD 4 808/kW to just USD 857/kW in 2021. Utility-scale solar PV capacity factors have also risen over time. Initially, this was driven predominantly by growth in new markets that saw a shift in the share of deployment to regions with better solar resources. Technology improvements that have reduced system losses have also played a small but important role in this, but in recent years, it is the increased use of trackers and bifacial modules – which increase yields for a given resource – that has played a more significant role.
Between 2010 and 2021, the global weighted average cost of electricity for onshore wind projects fell by 68%, from USD 0.102/kWh to USD 0.033/kWh. This decline occurred as cumulative installed capacity grew from 178 GW to 769 GW. Cost reductions for onshore wind were driven by falls in turbine prices and balance of plant costs, as the industry scaled-up, average project sizes increased (notably outside Europe), supply chains became more competitive, and the cost of capital fell (including the technology premium for onshore wind); as well as the higher capacity factors achieved by today’s state-of-the-art turbines.
The global weighted average total installed cost of newly-commissioned onshore wind projects fell from USD 2,042/kW in 2010 to USD 1,325/kW in 2021, a decline of 35%. At the same time, continued improvements in wind turbine technology, wind farm siting and reliability have led to an increase in average capacity factors, with the global weighted average of newly commissioned projects increasing from 27% in 2010 to 39% for those commissioned in 2021. Technology improvements, such as higher hub heights, larger turbines and swept blade areas, mean today’s wind turbines can achieve higher capacity factors from the same wind site than their smaller predecessors. Compared to 2020, there was also a significant increase in the global 2021 weighted average capacity factor. In 2021, the share of new deployment in China declined and that of areas with excellent wind resources rose. The technology improvement since 2010 is greater than that implied by the increase in the global weighted average capacity factor too, because, on average, major markets in 2020 – and, likely, in 2021 – were deploying in areas of poorer wind resources than in 2010.
The offshore wind sector experienced unprecedented growth in 2021. While Europe added around 3 GW of new capacity – a figure similar to 2020’s additions – China added an unprecedented 17.4 GW. Between 2010 and 2021, the global weighted average LCOE of newly commissioned offshore wind projects declined from USD 0.188/kWh to USD 0.075/kWh, a reduction of 60%. Over the same period, the global weighted average total installed costs of offshore wind farms fell 41%, from USD 4,876/kW to USD 2,858/kW. With relatively modest capacity additions each year prior to 2021, however, annual values for global weighted average total installed costs, capacity factors and LCOEs had been relatively volatile, over the years. More recently, growth in new markets – both within Europe, where offshore wind markets first developed, and globally – have also added more ‘noise’ to the data. Yet, in the last two years, with China accounting for 50% of new capacity additions in 2020 and 82% in 2021, the global-weighted average cost and performance metrics have therefore increasingly represented Chinese circumstances.
Regarding CSP, over the period 2010 to 2021, its global weighted average cost of electricity fell from USD 0.358/kWh to USD 0.114/kWh – a decline of 68%. After two projects came online in 2020 – both in China – just one project was commissioned in 2021, however, the long-delayed Cerro Dominador project in Chile. The above decline in the cost of electricity from CSP, which has placed it in the mid-cost range of new capacity from fossil fuels, remains a remarkable achievement, however, given the cumulative global capacity of just 6.4 GW, which is 130 times smaller than the capacity of solar PV installed at the end of 2021. Similarly, to solar PV, the decline in the cost of electricity from CSP has been driven by reductions in total installed costs. Yet, improvements in technology that have seen the economic level of storage increase significantly have also played a role in increasing capacity factors. This is abundantly evident in the Cerro Dominador project, which has 17.5 hours of storage and a location that has one of the highest direct normal irradiance (DNI) resources in the whole world. As a result, Cerro Dominador has an annual capacity factor of at least 80% – slightly less than twice the weighted average of the two Chinese projects commissioned in 2020. The Cerro Dominador project also has higher total installed costs than the Chinese projects having suffered cost increases due to delays. Although the Chilean CSP plant was never expected to record Chinese cost levels, Cerro Dominador’s total installed cost of USD 9,019/kW is more in line with projects developed between 2010 and 2015, than with recent ones. The very high-capacity factor offsets these high installed costs to a large extent, though, with the project’s LCOE only slightly higher than the weighted average of the two Chinese plants commissioned in 2020.
For 2010 to 2021 inclusive, hydropower added 333 GW of new capacity, with 19 GW commissioned in 2021. Over the same period, the global weighted average LCOE rose by 24%, from USD 0.039/kWh to USD 0.048/kWh. This was still lower than the cheapest new fossil fuel-fired electricity option, despite the fact that costs increased by 5% in 2021, year-on-year. With the global weighted average capacity factor largely unchanged at 44% to 45% between 2010 and 2021, this LCOE increase has been predominantly driven by the 62% increase in total installed costs per kW over that period (10% year-on-year in 2021). This occurred as developments increasingly shifted to projects in less ideal areas, further from existing infrastructure and/or with challenging conditions that have higher development costs.
Between 2010 and 2021 inclusive, 72 GW of new bioenergy for power capacity was added, including the 9 GW added in 2021. The global weighted average LCOE of bioenergy for power projects experienced a certain degree of volatility during this period, but without a notable trend upwards or downwards. In 2021, however, bioenergy’s global weighted average LCOE of USD 0.067/kWh was 14% lower than the 2010 value of USD 0.078/kWh, given that this value was at the upper end of the range of USD 0.055/kWh to USD 0.082/kWh experienced by the global weighted average for the period. The global weighted average LCOE of geothermal was USD 0.068/kWh in 2021, 34% higher than in 2010, but well within the range seen between 2013 and 2021, of USD 0.054/kWh to USD 0.071/kWh. Annual new capacity additions remain modest, allowing one project with an atypically low-capacity factor – 42% – to drag down the global weighted average capacity factor of projects commissioned in 2021 to 77%.
Renewable Power – the competitive solution for new capacity
Between 2001 and 2021, CSP, offshore wind and utility-scale solar PV all joined onshore wind within the cost range of new, fossil fuel-fired capacity, when calculated without the benefit of financial support. Indeed, the data suggest that since 2018, the trend is not only one of renewables competing with fossil fuels, but significantly undercutting them when new electricity generation capacity is required. In areas with excellent solar and wind resources, we are also seeing an increasing number of projects undercutting even the marginal operating costs of coal and fossil gas-fired power plants – even before the latest fossil fuel price crisis is factored in. In 2021, around 73% (163 GW) of newly commissioned, utility-scale18 renewable power generation capacity had costs of electricity lower than the cheapest fossil fuel-fired option in the G20. This is only slightly lower than the estimate for competitive renewable electricity capacity deployed in 2020.
In 2021, 69 GW of the onshore wind projects commissioned had electricity costs that were lower than the cheapest fossil fuel-fired option. This was an amount lower than the figure of 103 GW recorded in 2020, due to the decline in new capacity additions in China in 2021, but represents an almost identical percentage of global new onshore wind capacity additions (96% in both years).
The continued decline in the costs of solar PV also meant that in 2021 a record 67 GW of utility-scale solar PV projects commissioned had lower costs than the cheapest fossil fuel-fired option, up from 44 GW in 2020 and 40 GW in 2019. The year 2018 was also a seminal one for onshore wind and utility-scale solar PV, as it was the first year when both technologies saw over half of their new capacity additions register below the cost of the most competitive new fossil fuel-fired option.
For wind, this breakthrough had been building up over the three previous years, but for solar PV, it was a more rapid result. To some extent, this highlighted the more homogeneous nature of the competitive cost structure for solar PV (although, despite this, wide discrepancies in installed cost for solar PV still exist) when compared to onshore wind, given larger variations in the latter’s installed costs (per kW) and capacity factors in mature markets.
In 2021, too, for the first time, significant offshore wind capacity was estimated to have a lower cost of electricity than the cheapest fossil fuel-fired costs, with 2.3 GW in total – all outside of China – and 1.8 GW of that capacity in Europe. Although this total was only 11% of 2021’s total global new capacity additions, given a surge in Chinese deployment that year, the 2.3 GW represented around 60% of global new capacity additions outside of China. This is a sign of future deployment trends, as the increasing number of projects that have been procured at very competitive prices in auctions and tenders comes online in the next few years.
For hydropower, in 2021, 22 GW of the projects commissioned had costs that were less than the lowest cost fossil fuel-fired power generation option. In geothermal and bioenergy, around 440 MW of power plants also had an LCOE lower than the cheapest new fossil fuel-fired capacity option that year. In total, between 2010 and 2021, 786 GW of renewable power generation with a lower cost than the cheapest G20 fossil fuel-fired option was deployed. The rapidly improved economics of onshore wind in recent years means that both this and hydropower represent around 300 GW each of the total, with an additional 183 GW from utility-scale solar PV.
In markets where electricity demand is stagnant or falling, new renewables projects need to be able to earn sufficient revenue to match their lifetime costs. In this case, it is not new fossil fuel plants against which they are being benchmarked, but the revenue gained in these markets. In that respect, reform of electricity market structures is essential and increasingly urgent, if electricity markets are to be fit for a future dominated by large shares of variable renewables, rather than the current paradigm of the past based on an electricity system built around large, centrally despatched power stations.
In economies where electricity demand is growing and new capacity is needed, these renewable power generation projects will significantly reduce electricity system costs over the life of their operation.
In 2022, in non-OECD countries, the 109 GW of projects with costs lower than the cheapest fossil fuel-fired cost option will reduce costs in the electricity sector by at least USD 5.7 billion annually, relative to the long-term cost of adding the same amount of fossil fuel-fired generation. The majority of these savings – a total of USD 3.4 billion – will come from onshore wind. Hydropower, with its higher capacity factors, contributes around USD 1 billion to these savings, with utility-scale solar PV accounting for most of the remaining USD 1.3 billion.
The cumulative un-discounted savings of the new projects deployed in 2021, over their economic lives, will reach at least USD 149 billion. In addition to these direct cost savings, too, the substantial economic benefits of reducing carbon dioxide emissions and local air pollutants also need to be factored in, when considering the total benefits. Between 2010 and 2021, inclusive, globally, around 635 GW of renewable power generation capacity has been added in non-OECD countries that had costs lower than the cheapest fossil fuel-fired option in that year. Of this total, 294 GW is hydropower (46%), 189 GW onshore wind (30%) and 142 GW (22%) utility-scale solar PV. In 2022, this 635 GW will reduce electricity system costs by at least USD 36 billion.
With the highest capacity factor, it is hydropower that dominates the savings, contributing USD 23 billion, or 64% of the total. With USD 9.7 billion in savings annually, onshore wind is the second largest contributor, followed by solar PV, with USD 2.7 billion annually (7.5% of the total).
The entire report can be accessed here.