With Fossil Fuel Crisis, Renewable Energy Remains Competitive

The International Renewable Energy Agency’s (IRENA) report, Renewable Power Generation Prices in 2021, shows that renewable power generation costs continued to decline in 2021. Supply chain challenges and rising commodities prices have yet to fully impact project costs. By comparison to 2020, the cost of electricity from offshore wind and onshore wind decreased by 15%, 13%, and 13% respectively.

The report also shows that almost two-thirds or 163 GW of newly installed renewable power in 2021 had lower costs than the world’s cheapest coal-fired option in the G20. IRENA estimates that renewable power will save $55 billion in global energy generation costs in 2022, despite the current high prices for fossil fuels.

IRENA’s new report confirms the critical role that cost-competitive renewables play in addressing today’s energy and climate emergencies by accelerating the transition in line with the 1.5°C warming limit and the Paris Agreement goals. Solar and wind energy, with their relatively short project lead times, represent vital planks in countries’ efforts to swiftly reduce, and eventually phase out, fossil fuels and limit the macroeconomic damages they cause in pursuit of net zero.

“Renewables are by far the cheapest form of power today,” states Francesco La Camera, director-general of IRENA. “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.”

“While a temporary crisis response might be necessary in the current situation, excuses to soften climate goals will not hold mid-to-long-term,” La Camera adds. “Today’s situation is a devastating reminder that renewables and energy saving are the future. 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.”

Investments in renewables continue to pay huge dividends in 2022, as highlighted by IRENA’s costs data. Non-OECD countries will see a 109 GW increase in renewable energy that is less expensive than the cheapest fossil fuel-fired option over the next 25-30 year.

High prices for fossil gas and coal in 2021/2022 will also severely impact the competitiveness of fossil fuels. This will make solar and wind more attractive. A record-breaking rise in European fossil fuel prices will make new European gas generation increasingly uneconomical over its lifetime. This will increase the risk for stranded assets.

The European example shows how fuel and CO2 costs for existing natural gas plants could be four to six times higher in 2022 than what it would cost to build new solar PV or onshore wind facilities in 2021. Between January 2022 and May 2022, Europe may have been able to save USD 50 billion on fossil fuel imports by generating solar and wind power. This includes mainly fossil gas.

As to supply chains, IRENA’s data suggests that not all materials cost increases have been passed through into equipment prices and project costs yet. If material costs are high, 2022 will see more price pressures. However, these increases may be offset by the overall gains made possible by cost-competitive renewables compared to higher fossil fuel prices.