According to the latest analysis by BloombergNEF (BNEF) solar photovoltaic (PV) and onshore wind projects currently have the cheapest levelised cost of electricity (LCOE) of all new-build generation for at least two-thirds of the world population.
In gas-importing regions, such as Europe, China or Japan, battery storage is now cheaper compared to other new-build peaker plants.
The BNEF report said the global benchmark LCOE for onshore wind dropped by nine per cent to US$44 per MWh since the second half of 2019.
For fixed-axis utility-scale PV systems, it went down four per cent to US$50/MWh in the same period, BNEF figures show.
At US$150/MWh, the benchmark LCOE for battery storage with a four-hour duration came down by about half compared to two years ago.
BNEF said the downward trend for all three technologies had been observed in all major markets across the world.
For onshore wind, the competitive edge is mainly owed to improvements in turbine capacity, which now averages 4.1MW, and a cost of around US$700,000 per MW for recently financed projects.
Top wind projects in Brazil enjoy an LCOE of US$24/MWh, the lowest in the world, followed by the United States with US$26/MWh, and India and Spain with US$29/MWh, excluding subsidies.
In China, the PV benchmark LCOE is at US$38/MWh, a nine per cent decline from the second half of 2019, whereas the running cost of coal-fired power plants averages US$35/MWh.
Elsewhere in Australia, China, Chile and the UAE, the latest crop of financed PV projects will be able to bring the LCOE down to between US$23 and US$29 per MWh.
According to Tifenn Brandily, BNEF associate and lead author of the report, part of the reason for the lower LCOE is that onshore wind and solar have gotten better at utilising their resources.
“Our analysis also suggests that since 2016, auctions are forcing developers to realise cost savings by scaling up project size and portfolios.
“Larger scale enables them to slash balance-of-plant, operations and maintenance expenses, and have a stronger negotiating position when ordering equipment,” said Mr Brandily.
Resorting to scale has also brought down costs of battery storage.
The average capacity of storage projects reaches around 30MWh currently compared to 7.0MWh per projects four years ago.
In China, the storage LCOE can go as low as US$115/MWh, which is cheaper than the levelised cost of open-cycle gas turbines per MWh in the country.
BNEF based the analysis using information on real projects starting construction, proprietary pricing information from suppliers and deals concluded over recent months.
Its report does not take into account changes in the LCOEs of different technologies in the post-coronavirus pandemic economy.
The ongoing COVID-19 coronavirus pandemic will likely have an impact of energy costs, not only impacting fossil fuels but also renewables, researchers said.
BNEF chief economist Seb Henbest commented: “The coronavirus will have a range of impacts on the relative cost of fossil and renewable electricity.
“One important question is what happens to the costs of finance over the short and medium term.
“Another concerns commodity prices, coal and gas prices have weakened on world markets. If sustained, this could help shield fossil fuel generation for a while from the cost onslaught from renewables.”
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