The average cost of electricity generated by solar and wind technologies could decrease dramatically, diminishing and, in some cases, eliminating the price barrier for renewable energies, according to a new report. The International Renewable Energy Agency (IRENA) estimates that by 2025, average electricity costs could decrease 59 percent for solar photovoltaics (PV), 35 percent for offshore wind and 26 percent for onshore wind compared to 2015.
In other words, in less than a decade, the global average cost of electricity from solar PV and offshore wind will be as little as five to six cents per kilowatt hour – a compelling price for both investors and consumers.
“We have already seen dramatic cost decreases in solar and wind in recent years and this report shows that prices will continue to drop, thanks to different technology and market drivers,” said IRENA Director-General Adnan Z. Amin in a statement.
The further cost reduction is expected to strengthen the case to switch from fossil fuels to renewables, he added. As a whole, renewable energy experts seem to agree.
“[The reductions] are very significant. And also very realistic,” said Gregory Nemet, associate professor of environmental studies at the University of Wisconsin at Madison, in an interview with Humanosphere. “Solar PV is already competitive in the most favorable locations. These projected cost reductions will make it affordable for many more – probably most – people in the U.S.”
In many parts of the world, solar, wind and other renewable energies are already cost competitive with fossil fuel alternatives, or at least seeing cost reductions. Earlier this week, even, a detailed Bloomberg New Energy Finance analysis forecast a sharp decline in the cost of renewables over the next 10 years, with peak fossil fuel power now predicted for 2025.
But IRENA’s new report goes further by predicting that the cost of solar and wind electricity will continue to drop well beyond 2025.
The report emphasizes that the price reductions are only possible if the right policies are in place to minimize transaction costs and to streamline administrative procedures and approval processes. Site-specific factors – such as the quality and availability of local infrastructure, or the distance of the project from existing transmission lines – can have an important impact on overall project development costs, according to the report.
A policy-focused approach is also critical if we are to see any decrease in fossil fuel-reliance in the U.S. on a national level, according to Mark Jacobson, civil and environmental engineering professor at Stanford University and co-founder of The Solutions Project.
“The cost coming down makes it easier, but we really need more aggressive policies to do this on a large scale,” Jacobson said in an interview with Humanosphere. “We need policy to speed up the elimination of existing fossil fuel plants and to get to a place with more reliance on renewable energy.”
Overall, the transition to a completely different energy system into the broader society will take time – and, as Nemet explains, increasing attention.
“This will involve new electric utility business models, ways to incorporate electrified transportation,” said Nemet, “and all along the way, public policy that enables the transition to a sustainable energy system – and makes the process a smooth one so it receives persistent public support over a long period.”