According to the latest Levelised Cost of Electricity (LCOE) Update from BloombergNEF new wind and solar plants are now cheaper than new coal and gas plants in countries than cover two thirds of the global population and are capable of undercutting wholesale power prices in a growing number of key markets.
The influential analyst firm has just released its twice-yearly update on the cost competitiveness of different power generation and energy storage technologies, excluding subsidies.
The British environmental news website BusinessGreen reports its headline finding was that new solar and onshore wind power plants have now reached parity with average wholesale prices in California and parts of Europe, while in China levelised costs for wind and solar are now below the average regulated coal power price.
The milestones were the result of continued sharp reduction in renewable energy costs with BNEF calculating that its global benchmark levelised cost figures for onshore wind and PV projects financed in the last six months stood at US$47 and US$51/MWh, down six per cent and 11 per cent respectively compared to the first half of 2019.
The fall in wind energy costs was attributed to continuing reductions in wind turbine prices, while solar cost reductions were partly the result of intense competition in a Chinese market experiencing relatively slow demand which has in turn put pressure on capital expenditure for new projects.
BusinessGreen reports there are also encouraging signs the cost reduction trends are likely to continue, as some of the leading projects delivered in the past six months point to some remarkably low prices in key markets.
“We estimate that some of the cheapest PV projects financed recently will be able to achieve an LCOE of US$27-36/MWh, assuming competitive returns for their equity investors,” BNEF said.
“Those can be found in India, Chile and Australia.
“Best-in-class onshore wind farms in Brazil, India, Mexico and Texas can reach levelised costs as low as US$26-31/MWh already.”
The report also provided an update on the remarkable cost reductions delivered by the most recent wave of new offshore wind projects.
It confirmed that costs for new projects are down 32 per cent from just a year ago and 12 per cent compared to the first half of 2019.
The current global benchmark LCOE estimate puts offshore wind costs at US$78/MWh, but the report notes that in Denmark and the Netherlands BNEF expects the most recent projects financed to achieve US$53-US$64/MWh excluding transmission.
Tifenn Brandily, associate in BNEF’s energy economics team and the report’s author, said the continuing cost reductions will have huge implications for both how energy systems operate and global decarbonisation efforts.
“This is a three-stage process,” he predicted.
“”In phase one, new solar and wind get cheaper than new coal and gas plants on a cost-of-energy basis. In phase two, renewable energy reaches parity with power prices.
“In phase three, they become even cheaper than running existing thermal plants.
“Our analysis shows that phase one has now been reached for two-thirds of the global population. Phase two started with California, China and parts of Europe.
“We expect phase three to be reached on a global scale by 2030.”
Some critics of renewable energy argue that LCOE is a blunt metric that fails to fully account for the costs associated with managing the integration of high levels of variable renewable energy generation capacity onto the grid.
BusinessGreen reports a growing band of energy industry experts maintain that grid integration issues can be addressed and that emerging energy storage and smart grid technologies mean that renewable energy is increasingly cost competitive with fossil fuels by any measure.
“As this all plays out, thermal power plants will increasingly be relegated to a balancing role, looking for opportunities to generate when the sun doesn’t shine or the wind doesn’t blow,” argued Mr Brandily.
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