Renewables remain extremely cost-competitive with prices in the industry dropping last year, even as the energy market tackles a global fossil fuel crisis, a new report by the International Renewable Energy Agency has said.
The cost of electricity from onshore wind dropped by 15 per cent, offshore wind by 13 per cent and solar photovoltaic by 13 per cent last year, compared with 2020, the Abu Dhabi-headquartered agency said in its “Renewable Power Generation Costs in 2021" report.
Nearly two thirds or 163 gigawatts of newly-installed renewable power last year had lower costs than the world’s cheapest coal-fired option in the G20, it said, adding that pandemic-induced supply chain disruptions and rising commodity prices have yet to show their full impact on renewable project costs.
Given the current high prices of fossil fuel generation, the renewable power added in 2021 saved about $55 billion from global energy generation costs in 2022, the agency estimates.
“Renewables are by far the cheapest form of power today,” said Irena's director general Francesco La Camera.
“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.”
The oil market has remained extremely volatile this year following the war in Ukraine.
Brent, the benchmark for two thirds of the world's oil, rose 67 per cent on the back of last year's faster-than-expected global economic rebound. It carried the positive momentum into 2022, rising to a notch below $140 a barrel in March after Russia invaded Ukraine. It has since given up some gains, but is still trading near $100 a barrel despite mounting recession fears that have affected demand.
Meanwhile, gas prices have also increased as the conflict in Ukraine affects supply in Europe.
Renewables will reduce fossil fuel import bills and average electricity system costs, and lessen the damaging impacts of high electricity prices on consumers and industry, Irena said.
Between January and May in Europe, solar and wind generation avoided fossil fuel imports of at least $50bn, the report found.
Overall, the growth in new capacity additions for fossil fuels and nuclear lagged that of renewables last year, it said.
Renewables’ share of total power generation capacity growth reached 81 per cent last year — up from 79 per cent in 2020. Since 2012, renewables have accounted for at least half of all new net capacity additions worldwide.
Investments in renewables are expected to pay huge dividends.
In non-OECD (Organisation for Economic Co-operation and Development) countries, the 109 gigawatts of renewable energy additions in 2021 will reduce costs by at least $5.7bn annually for the next 25-30 years.
In terms of supply chain disruptions, not all materials cost increases have been passed through into equipment prices and project costs yet, Irena said.
“If material costs remain elevated, the price pressures in 2022 will be more pronounced. Increases might however be dwarfed by the overall gains of cost-competitive renewables in comparison to higher fossil fuel prices,” the report said.
Looking ahead, higher coal and fossil fuel prices will weaken their competitiveness and make solar and wind even more attractive, said Irena.
This will enable renewables to address climate challenges by accelerating the energy transition in line with the Paris Agreement goals.
“If ever there was a year to dramatically increase the deployment of renewable power generation, it is 2022,” Mr La Camera said.
“This year’s fossil fuel price crisis demands a response; renewables and energy efficiency provide the answer, bringing unprecedented benefits for consumers, the environment and the global economy.”
The current situation is a “devastating reminder” that renewables and energy saving are the future, he said.
“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,” he added.