A new analysis suggests that we continue to move into a world in which it makes more economic sense to draw electricity from the sun or the winds, rather than from fossil fuels.
The report, from Bloomberg New Energy Finance, examined the “levelized cost of electricity” around the world in the second half of 2015 – a metric that seeks to take a comprehensive look at costs including capital expenditures, interest rates and operating costs. It’s an approach that is able to “put technologies on a level playing field and enable that comparison, which is valuable,” says Seb Henbest, head of Europe, Middle East, and Africa analysis for Bloomberg New Energy Finance.
The report was based on analysis of some 55,000 projects around the world, says Henbest. And it found that globally, onshore wind now on average costs $83 per megawatt-hour of electricity ($2 cheaper than in the first half of the year), and thin film solar photovoltaics costs $122 per megawatt-hour – a drop of $7 in just half a year.
That presents an increasingly favorable comparison with fossil fuels – though it still depends greatly on where you are located. Coal-fired electricity cost $75 per megawatt-hour in the Americas, but $105 in Europe. Gas-fired generation cost $82 in the Americas and $118 in Europe, on average, the report found.
Cost differences in different areas reflect a large variety of factors, ranging from the cost of fuels themselves on the open market to assumptions about the price of carbon. But there’s no mistaking the punchline.
“Onshore wind is today competitive in many places in the U.S. and around the world with coal and gas fired generation technology,” Henbest says. Solar generally remains pricier, but prices are also dropping fast.
The report actually found that in the UK and in Germany, electricity from wind is now considerably cheaper than from fossil fuels. The average cost of wind in the two countries was $85 and $80 per megawatt-hour, respectively, while the average cost of coal and natural gas generation in both countries was more than $100 per megawatt hour.
In China, by contrast, coal-fired electricity generation remained extremely cheap – just $44 per megawatt hour. Wind, in contrast, cost $77 and solar photovoltaics, $109.
The United States lies somewhere between China on the one hand, and the UK and Germany on the other – wind here costs about $80 per megawatt hour on average, and solar, $107. In contrast, the average cost for coal and gas fired electricity is $65.
Nonetheless, the pattern is changing, and as Henbest explains, once there are more renewables online, there can actually be a process in which their utilization undermines fossil fuels. That’s because renewable installations don’t require any fuel to operate, and thus don’t have that recurring cost that fossil fuel-fired generation has.
So as renewables bid in low to supply power to the grid, they come to supply more of it – meaning that fossil fuel plants operate less.
“You start to go from a world where renewables are expensive, to a world where renewables are actually cheap. And that’s very meaningful,” Henbest says.
Still, some renewables remain quite expensive. Marine and tidal power both cost more than $400 per megawatt hour, and offshore wind – a technology with much hope attached to it for major expansion – came in at $174, suggesting it still has a ways to go.
“It’s expensive because it’s expensive to put this technology out in the sea, and it’s still very much in its early stages. We do expect costs to come down,” Henbest says.
At least one environmental group head heralded the Bloomberg New Energy Finance analysis Tuesday. “Clean energy solutions like wind and solar are getting more affordable and more accessible by the day, meaning they are increasingly the smartest long-term financial investments for utilities and other electricity producers across America,” said Michael Brune, the executive director of the Sierra Club, in a statement. “The transition to a clean energy economy is going full speed ahead and pushing dangerous, dirty fossil fuels to the back of the line.”
The report comes amid a season of intensive analysis as the world prepares for the November-December United Nations conference in Paris, France, which will seek to forge a new global climate agreement. The assembled nations will set plans to cut their carbon emissions and to revisit and strengthen those cuts over time – and the more renewables costs decline, the more ambitious they’ll be able to be.
