The renewable energy revolution is under way. Renewable power generation now accounts for around 50% of all new power generation capacity installed worldwide.
The combination of rapid deployment and high learning rates for technology “has produced a virtuous circle that is leading to significant cost declines and is helping fuel a renewable revolution,” according to a new global study of renewable power generation costs in 2012 produced by IRENA, the International Renewable Energy Agency, which announced it is establishing its global headquarters in the United Arab Emirates during last week’s Abu Dhabi Sustainability Week.
“Renewable technologies are now the most economic solution for new capacity in an increasing number of countries and regions,” IRENA concluded upon analyzing the levelized cost of electricity (LCOE) among the some 8,000 renewable power projects in its database and related literature.
IRENA: “Renewable Power Generation Costs in 2012: An Overview”
According to the IRENA report authors:
“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.”
Rapid Deployment + Fast Rates of Learning = Levelized Cost Reductions
The combination of rapid deployment, high rates of learning, and supportive government policy is helping drive a sharp fall in prices for crystalline silicon (c-Si) PV panel prices. The “learning rate” is the percentage reduction in installation cost for every doubling of cumulative installed power generation capacity.
Noting that average prices for Chinese PV modules have fallen more than 65% in the last two years to under $0.75/watt as of September 2012, the IRENA report authors conclude that rapid growth and the emergence of supply chains and markets for renewable energy globally has resulted in competitive markets for renewable energy technology.
By and large, seven major components determine the levelized cost of energy (LCOE) for renewable power generation technologies:
- resource quality;
- equipment cost and performance (including capacity factor);
- the balance of project costs;
- fuel (if any);
- operations and maintenance costs (and reliability);
- economic life of the project; and
- the cost of capital.
IRENA’s analysts emphasize that while calculating a single global LCOE for the wide variety of renewable energy systems being deployed today offers a general indication of cost trends, attempts to to do so entail making numerous substantive, generalized assumptions and somewhat arbitrary choices regarding inputs that can substantially alter results. Hence, they are not only generalized and abstract, they are prone to be outdated even at the time of publication.
For instance, “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,” they write in the report.
More generally, “The costs of renewables are very site specific, and resources are distributed unevenly across regions, countries and within a country. There is therefore no single ‘true’ LCOE value for each renewable power generation technology. It is thus vital to collect national data to analyze renewable power generation costs and potentials.”
Renewable Power LCOEs
All that said, looking at LCOE among particular segments of the renewable energy sector, IRENA analysts found that depending on location and assuming a uniform 10% cost of capital:
- the weighted average LCOE for new small hydro power project is between $0.032 and $0.07 per kilowatt-hour (kWh) and between $0.03 and $0.06/kWh for large hydro power installations;
- the weighted average LCOE for new biomass power generation capacity among non-OECD countries varies between $0.05-$0.06/kWh;
- the weighted average LCOE for geothermal by region varies from $0.05 and $0.09/kWh;
- that for onshore wind varies between $0.08-$0.12/kWh;
- that for utility-scale solar PV is between $0.15-$0.31/kWh; and
- that for CSP by region varies from $0.22-$0.25/kWh.
Forecasting ongoing declines in equipment costs across the range of renewable energy technology, the report authors go on to focus on the growing share of so-called “soft costs” – those in addition to equipment costs, such as permitting, installation, operations, and maintenance – in the overall cost of deploying renewable power systems, and the need to drive these balance-of-system (BOS) costs lower as rapidly as possible.
“As equipment costs decline, the share of balance of project costs and operations and maintenance costs in the LCOE will increase unless increased efforts are made to accelerate their decline as well.”
Driving BOS costs lower will drive ongoing reductions in the total cost of installing new renewable power capacity, they note. Singling out solar PV system costs, “The range for LCOE of solar PV systems will decline more slowly in absolute terms than in the past, given that module prices have fallen so far.”
“However markets which have higher than average cost structures for BoS today could see dramatic cost reductions in installed prices by 2020, lowering the weighted average costs significantly,” they conclude.
“As equipment costs drop, the importance of the balance of project, or balance of system (BoS), and operations and maintenance (O&M) costs, and the cost of capital increases.For instance, BoS costs in the United States have not declined as fast as in more competitive markets, meaning that the average installed price for residential PV systems were more than twice as expensive as in Germany in the second quarter of 2012.”
“This is particularly true for smaller systems,” they point out. “For residential PV systems, BoS costs (including installation) can account for 60% to 80% of the total project cost.”
“Non-equipment costs are also higher in developing countries where transmission lines and roads must be built as part of the project. The share of the BoS or balance of project costs and the importance of O&M costs, indicate the order of magnitude of the opportunities for local content and value added, that may help meet local social and economic development goals.”
“In contrast, O&M costs for wind in most major European markets are typically twice as high as in the United States. These issues merit much more analysis and policy attention than they receive today in order to prevent a slowing in the rate of reduction in the LCOE of renewables.”
Renewable Energy Technologies: Cost Reduction and Access to Affordable Financing
IRENA report authors see CSP, solar PV, and wind power as having the greatest potential for further cost reductions. Ongoing cost reduction potential is less for hydro power, which is both mature and limited in terms of geographic suitability and availability. The same can be said of geothermal and biomass combustion technologies, according to the report authors.
Access to affordable financing is another essential factor in the drive towards ongoing renewable energy growth. To this point, access to affordable financing is not yet the norm globally, IRENA report authors find.
“In new markets for renewables, special attention needs to be paid to ensure the regulatory and investment framework is favorable and that projects can access funds in the initial growth phase of the market. Once banks and other local financing sources have experience with new technologies in their markets, financing should, but may not be necessarily always, then be easier to access on favorable terms.”
This article was originally posted on Cleantechnica. Re-posted with permission.