The BloombergNEF (BNEF), the latest analysis, has shown that the cost to build onshore wind has increased by 7% and fixed-axis sun has risen 14%. Temporarily the global benchmark levelized cost for electricity (LCOE), has retreated back to where it was in 2019 Cost increases are linked to rising costs of materials, fuel, and labor.
BloombergNEF’s estimates for the global LCOE for utility-scale PV and onshore wind rose to $45 and $46 per MWh, respectively, in the first half of 2022. Although this is a slight decrease in nominal terms, it still represents an 86% and 46% increase since 2010. Global benchmarks hide a range country-level estimates. These vary depending on market maturity, resource availability and project characteristics. The lowest-cost renewable power projects in 2022’s first half achieved an LCOE of $19/MWh. This includes best-in-class offshore wind farms in Brazil and Chile. It also allowed for $21/MWh tracking PV farms in Chile and $57/MWh offshore wind in Denmark. The final estimate is $43/MWh if you exclude the offshore transmission costs.
Despite temporary price increases for renewables, the gap between fossil fuel power generation and fossil fuel power generation continues its widening due to rising fuel and carbon prices. New-build onshore wind and solar projects are now around 40% lower than BNEF’s global benchmarks for new coal- and gas-fired power. The former cost $74 and $81 per megawatt, respectively.
Although demand for low-carbon technologies has rebounded strongly in the second quarter of 2021, the supply has struggled with its growth. Global supply chains were weakened by investment deferrals and staff layoffs. Trade flows have been disrupted by challenges in logistics and transportation, trade barriers, and a re-wiring of relationships following Russia’s invasion of Ukraine.
Shipping rates to Asia have fallen since their peak in September 2021, but they are still five-fold higher than in 2019. Shipping from Asia is crucial to transport solar panels, inverters, and other components. In recent years, labor costs have risen. The cost of labor in the United States is 16% higher than 18 months ago. Although the price of key metals such as aluminum, copper, cobalt, and molybdenum has fallen since February 2022 it is still relatively high.
“These cost hikes mark a rough patch for renewables, but not an inflection point,” says Amar Vasdev, a co-author of the report at BNEF. “We see a return to long-term technology cost decline trajectories as demand continues to be strong, supply chain pressures ease and production capacity, particularly in China, comes back online.”
The volatility of commodity prices is particularly important for the battery storage sector. Our battery LCOE benchmark stands at $153/MWh today. This is 8.4% higher than 1H 2021. Prices for lithium carbonate, one of the key inputs for lithium-iron-phosphate (LFP) battery systems, surged 379% over the past year. Materials hedging in 1H 2022 for projects that were to be commissioned is slowing the impact on rising material costs. BNEF’s sensitivity analysis shows that system costs subject to 2022 commodity prices should be 22% higher year-on-year at $323/kWh in June 2022, compared with $264/kWh in June 2021. However, projects that were commissioned in the last six months would likely have hedged their supply prior to the sharp rise in material costs.
Renewables are the cheapest source to generate new bulk power in the countries with two-thirds of the world’s population and nine-tenths respectively of electricity generation.
“Low-carbon technologies may be insulated from an economic downturn, but they are not isolated,” comments David Hostert, global head of economics and modeling at BloombergNEF. “There is also a risk that lesser-developed economies will be disproportionately affected by price hikes. Leading up to COP27 in Egypt in November, extra attention should be paid to these markets as it will be crucial to make sure they don’t fall behind and lose valuable time in the race to net zero.”