Renewable power was already rapidly replacing fossil fuels as the cheapest source of electricity. Thanks to rocketing fuel prices last year, it is now the clear winner when it comes to cost-effectiveness.
For decades, solar and wind power was substantially more expensive than fossil fuels and most projects were heavily reliant on government subsidies to survive. But rapidly falling costs mean renewables now match or even outperform traditional power sources in a wide range of markets.
That transition has now accelerated significantly, according to a new report from the International Renewable Energy Agency (IRENA). Thanks in large part to a major spike in fossil fuel prices, 86 percent of newly commissioned, grid-scale renewable electricity capacity in 2022 had lower costs than fossil-fuel-derived electricity. That’s despite all kinds of costs having gone up across the world due to rising inflation and disruption to supply chains caused by the Covid pandemic and war in Ukraine.
“IRENA sees 2022 as a veritable turning point in the deployment for renewables as its cost-competitiveness has never been greater despite the lingering commodity and equipment cost inflation around the world,” IRENA’s director-general Francesco La Camera said in a press release.
The findings are just the latest data point showing the dramatic fall in prices renewables have experienced in recent years. According to the report, in 2010 solar power was 710 percent more expensive than the cheapest fossil fuel option, while onshore wind was 95 percent more expensive.
Last year, the average cost of electricity from solar fell by 3 percent to almost one-third less than the cheapest fossil fuel globally, while onshore wind costs fell by 5 percent to slightly less than half that of the cheapest fossil fuel option.
Cost declines weren’t evenly distributed though, the report notes. The significant improvements in both solar and onshore wind were both driven by deployments in China. If the Asian giant had been excluded from the calculations, the average cost of onshore wind would have remained level. And countries like France, Germany, and Greece experienced significant increases in the cost of solar.
The costs of offshore wind projects and hydropower projects also both increased in 2022. The former saw a 2 percent rise due to a drop in China’s rate of deployment, while the latter saw costs jump 18 percent due to overruns in a number of large projects.
Nonetheless, the report found the combined renewable power capacity deployed around the world since the year 2000 saved roughly $521 billion in fuel costs in 2022. The authors suggest the rapid build-out of green energy in recent years probably prevented the spike in fossil fuel prices from developing into an all-out energy crisis last year, highlighting the energy security benefits of renewables.
“The most affected regions by the historic price shock were remarkably resilient, in large part thanks to the massive increase of solar and wind in the last decade,” said La Camera.
Even in places where renewable installation costs increased, the report says that fossil fuel prices typically rose by far more. With those prices expected to remain high for, the authors conclude that this will cement a structural change in the energy market with renewables becoming the cheapest source of power globally.
Whether this shift in cost dynamics will be enough to avert the climate crisis remains to be seen. La Camera notes that annual deployments of renewable power need to hit 1,000 gigawatts every year until 2030 if we want to keep alive the goal of limiting global warming to 1.5 degrees Celsius. That’s an ambitious goal that will need all the help it can get from market forces.