IRENA: Renewables remain price-competitive amid fossil fuel crisis

Nearly two-thirds of new renewable energy added in 2021 will cost less than the cheapest coal-fired energy source in G20 countries, according to a new report from IRENA. Renewable energy costs continue to decline in 2021 as supply chain challenges and rising commodity prices have not yet fully demonstrated their impact on project costs. Compared to 2020, the cost of onshore wind has fallen by 15%, the cost of offshore wind by 13% and the cost of solar PV by 13%.

Nearly two-thirds or 163 gigawatts (GW) of new renewable energy capacity added in 2021 will cost less than the G20 world, according to the International Renewable Energy Agency's (IRENA) 2021 Renewable Energy Generation Costs report. The cheapest coal-fired power generation option. IRENA estimates that new renewable energy additions in 2021 will save about $55 billion in global electricity generation costs in 2022, given current high fossil fuel prices.

A new report from IRENA confirms the critical role that price-competitive renewables play in addressing today's energy and climate emergency, namely an accelerated transition to the 1.5°C warming limit and the goals of the Paris Climate Agreement. Solar and wind energy, with relatively short project lead times, is an important pillar of countries' efforts to rapidly reduce and eventually phase out fossil fuels and limit the macroeconomic damage they cause to achieve net-zero carbon emissions.

IRENA Director General Francesco La Camera said: “Renewable energy is by far the cheapest energy source and 2022 is a stark example of the economic viability of new renewable energy generation. Renewable energy enables economies to move away from It reduces volatility in fossil fuel prices and imports, dampens energy costs, and increases market resilience – even more so if today’s energy crunch persists.”

“While the current situation may require a temporary response to the crisis, the pretext for softening climate targets is untenable in the medium to long term. Today’s dire energy situation is a wake-up call for everyone that renewable energy and energy conservation are the future. With COP27 in Egypt and COP28 in the UAE, renewable energy provides governments with affordable energy to meet zero-emission targets and improve their climate.” He added, “We will take concrete actions to Bring real benefits to the local people."

As IRENA's cost data underscores, renewable energy investments continue to generate huge returns in 2022. In non-OECD countries, the 109 gigawatts of renewable energy added in 2021 will cost less than the cheapest new fossil power generation and will reduce costs by at least $5.7 billion a year over the next 25 to 30 years.

High coal and fossil gas prices in 2021 and 2022 will also severely reduce the competitiveness of fossil fuels, making solar and wind more attractive. For example, with the unprecedented surge in European fossil gas prices, the economic benefits of European fossil gas power generation over its life cycle will continue to decrease, increasing the risk of stranded assets.

The European example shows that the fuel and CO2 costs of existing gas-fired power plants in 2022 may be on average four to six times higher than the lifetime costs of new solar PV and onshore wind commissioned in 2021. Between January and May 2022, solar and wind power could save Europe no less than $50 billion in fossil fuel imports, dominated by fossil gas.

As for the supply chain, IRENA data suggests that not all material cost increases have translated into equipment prices and project costs. Commodity price pressures will be more pronounced in 2022 if raw material costs continue to rise. However, this rise is insignificant for the overall gains from price-competitive renewables compared with higher fossil fuel prices.