A major new global report has predicted huge reductions in the cost of electricity generated by renewables over the coming decade, that could see the global average cost of electricity from solar PV and onshore wind fall to roughly 5-6 US cents per kilowatt hour by 2025.
The report, published by the International Renewable Energy Agency (IRENA), forecasts that by 2025, the levellised cost of electricity (LCOE) generated by solar thermal by 43 per cent (depending on the technology used), by 26 per cent for onshore wind and by 35 per cent for onshore wind.
In the case of solar PV, IRENA estimates the average LCOE could fall by as much as 59 per cent – mirroring the 58 per cent price drop that occurred between 2010-15, that has already made the technology increasingly competitive at utility scale.
“A bottom-up technology-based analysis of crystalline technologies points to module costs falling to between $US0.30 and $US0.41/W by 2025,” the report says.
“However, with the projected growth in solar PV deployment, learning rates suggest that module cost reductions could exceed the conventional wisdom of the industry (with module prices falling to between $US0.28 and $US0.46/W by 2025).
“This could see a repeat of the experience between 2009 and 2013, as the solar PV industry squeezes materials costs, improves manufacturing processes and innovates towards ever higher module efficiencies at rates not anticipated today,” the report says.
The stunning forecast far outstrips that of Bloomberg New Energy Finance, published just last week, which also predicted a 60 per cent fall in solar PV power costs – but not until 2040. Although, as we noted in the BNEF story, in some countries, that cost has already been beaten.
The IRENA report, The Power to Change: Solar and Wind Cost Reduction Potential to 2025, says that these huge solar and wind cost reductions will be driven by increasing economies of scale, more competitive supply chains, and technology improvements that will raise capacity factors and/or reduce installed costs.
All of this will take place against a backdrop of increasing competitive pressures – and presuming the right regulatory and policy frameworks are in place – that will drive innovation, the report says.
And while the estimates seem ambitious, IRENA notes that biomass, hydropower, geothermal and onshore wind can all now provide electricity competitively, compared to fossil fuel-fired power generation.
“It is growth in the ‘new’ renewable power generation technologies of solar and wind, however, that has pushed renewable power generation capacity additions to record levels,” the report says.
“A virtuous circle of support policies driving increased deployment, technological improvements and cost reductions has seen onshore wind become one of the most competitive options for new generation capacity.
In this way, the report adds, the cost of onshore wind farms will continue to fall, following an historical pattern that has seen installed costs declined by 7 per cent every time global installed capacity has doubled. By 2025, the total installed costs of onshore wind farms could decline by around 12 per cent, IRENA says.
For concentrating solar thermal technology, which has been much slower to take off in many parts of the world, but which promises to play a key role in the global shift to renewable electricity generation, the IRENA forecasts – shown in the chart below – are promising.
IRENA forecasts that parabolic trough concentrating solar systems with 7.5 hours storage could see their total installed costs fall from $US5,550/kW today to $US3,700/kW in 2025. The total installed costs of solar thermal tower technologies with nine hours of storage could decline from around $US5,700 today to $US3,600/kW by 2025.
The outlook is particularly positive, according to IRENA, for solar thermal technologies using molten salt: “The transition to the use of molten salt… means that a much higher cost reduction potential exists,” the report says.
“By 2025, the use of molten salt …will raise operating temperatures and allow the storage medium requirements to be decreased by around half while maintaining the same number of hours of operation. As a result, the installed costs of the storage medium (per kWh-thermal) for a … system using molten salt … are around 50% lower compared to the 2015 reference.”
As the report notes, most of the installed cost reductions for concentrating solar technologies will be driven by technological improvements in the solar field elements, such as the heliostats, and by learning effects from larger deployment volumes.
In terms of solar PV, the report says that, historically, with every doubling of cumulative installed capacity, solar PV module prices drop 20 per cent, due to economies of scale and technology improvements.
And it notes that, “importantly for policy makers, cost reductions to 2025 will depend increasingly on balance of system costs (e.g. inverters, racking and mounting systems, civil works, etc.), technology innovations, operations and maintenance costs and quality project management.
The report highlights this using the below chart, which breaks down the various costs of solar in different parts of the world (Note Australia’s position on the right-hand side of the graph), and the potential, therefore, for future reductions.
As the report says, “the data highlight the importance of the structuring of support policies and their impact on competitive pressures, as well as the benefits that accrue to established and mature markets with a wealth of domestic experience in implementing PV projects.
“The focus in many countries must therefore shift to adopting policies that can reduce costs in these areas,” it says.
IRENA Director-General Adnan Z. Amin says that, given solar and wind are already the cheapest source of new generation capacity in many markets around the world, the further cost reduction forecast in the report will broaden that trend and strengthen the business case to switch from fossil fuels to renewables.
“Historically, cost has been cited as one of the primary barriers to switching from fossil-based energy sources to renewable energy sources, but the narrative has now changed,” said Amin.
“To continue driving the energy transition, we must now shift policy focus to support areas that will result in even greater cost declines and thus maximise the tremendous economic opportunity at hand.”