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Renewable power remains cost-competitive amid fossil fuel crisis

20/7/2022

Wind turbine and solar panel near mountains Photo: Shutterstock
‘Renewables provide governments with affordable energy to align with net zero and turn their climate promises into concrete action with real benefits for people on the ground,’ says Francesco La Camera, Director General, IRENA

Photo: Shutterstock

Almost two-thirds, or 163 GW, of newly installed renewable power in 2021 had lower costs than the cheapest coal-fired options in G20 countries, according to the latest analysis from the International Renewable Energy Agency (IRENA).

Its new report says that costs for renewable power generation continued to fall in 2021 as supply chain challenges and rising commodity prices have yet to show their full impact on project costs. The cost of electricity from onshore wind fell by 15% to $0.033/kWh, offshore wind by 13% to $0.075/kWh and solar PV by 13% $0.048/kWh compared to 2020.

 

IRENA estimates that, given the current high fossil fuel prices, the renewable power added in 2021 saves around $55bn from global energy generation costs in 2022.

 

The report confirms the critical role that cost-competitive renewables play in addressing today’s energy and climate emergencies by accelerating the transition in line with the 1.5°C warming limit and the Paris Agreement goals.

 

‘Renewables are by far the cheapest form of power today,’ says Francesco La Camera, Director General of IRENA. ‘2022 is a stark example of just how economically viable new renewable power generation has become. Renewable power frees economies from volatile fossil fuel prices and imports, curbs energy costs and enhances market resilience – even more so if today’s energy crunch continues.’

 

He adds: ‘While a temporary crisis response might be necessary in the current situation, excuses to soften climate goals will not hold mid-to-long-term. Today’s situation is a devastating reminder that renewables and energy saving are the future. With the COP27 in Egypt and COP28 in the UAE ahead, renewables provide governments with affordable energy to align with net zero and turn their climate promises into concrete action with real benefits for people on the ground.’

 

Investments in renewables are expected to continue to pay huge dividends in 2022, as highlighted by IRENA’s costs data. In non-OECD countries, the 109 GW of renewable energy additions in 2021 that cost less than the cheapest new fossil fuel-fired option are forecast to reduce costs by at least $5.7bn/y for the next 25–30 years.

 

High coal and fossil gas prices in 2021 and 2022 will also profoundly deteriorate the competitiveness of fossil fuels and make solar and wind even more attractive. With an unprecedented surge in European fossil gas prices for example, new fossil gas generation in Europe will increasingly become uneconomic over its lifetime, increasing the risk of stranded assets, says the report.

 

The European example shows that fuel and CO2 costs for existing gas plants might average 4–6 times more in 2022 than the lifetime cost of new solar PV and onshore wind commissioned in 2021. Between January–May 2022, the generation of solar and wind power may have saved Europe fossil fuel imports in the magnitude of no less than $50bn, predominantly fossil gas, says IRENA.

 

As to supply chains, the report data suggests that not all material cost increases have been passed through into equipment prices and project costs yet. If material costs remain elevated, the price pressures in 2022 will be more pronounced, it notes. However, increases might be dwarfed by the overall gains of cost-competitive renewables in comparison to higher fossil fuel prices.