Renewables Remain Profitable Amid Fossil Fuel Crisis

Renewable energy costs continued to decline in 2021 as supply chain challenges and rising commodity prices have yet to have their full impact on project costs. The cost of electricity produced by onshore wind has fallen by 15%, offshore wind by 13% and solar photovoltaic by 13% compared to 2020.

Renewable Power Generation Costs in 2021, released today by the International Renewable Energy Agency (IRENA), shows that nearly two-thirds, or 163 gigawatts (GW), of newly installed renewable energy in 2021 comes at a cost lower than that of the cheapest coal solution in the world within the G20. According to IRENA, given high fossil fuel prices, renewable energy installed in 2021 will save around $55 billion in global energy generation costs in 2022.

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 to meeting the 1,5°C warming limit and climate change targets. the Paris Agreement. Solar and wind power, with their relatively short lead times, are essential components in countries' efforts to rapidly reduce, and eventually phase out, fossil fuels and limit the macroeconomic damage they cause in the pursuit of the net zero emissions objective.

"Today, renewable energies are indisputably the cheapest form of energy", said Francesco La Camera, Director General of IRENA. “2022 perfectly illustrates how economically viable the production of renewable energies has become. Renewables free economies from price volatility and fossil fuel imports, reduce energy costs and build market resilience, all the more so if the current energy crisis continues. »

He adds: “While a temporary crisis response may be necessary in the current situation, excuses to moderate climate targets will not hold up in the medium to long term. The current situation is a stark reminder that renewables and energy savings are the future.Ahead of COP27 in Egypt and COP28 in the United Arab Emirates, renewable energy is providing governments with an affordable way to get closer to net zero emissions and convert their climate promises into concrete actions, with real benefits for people on the ground.”

Investments in renewable energy are still as profitable in 2022, as highlighted by IRENA's cost data. In non-OECD countries, the additional 109 GW of renewable energy in 2021, with a lower cost than the cheapest new fossil fuel solution, will reduce costs by at least USD 5,7 billion per year over the next 25 to 30 years.

High coal and fossil gas prices in 2021 and 2022 will also profoundly deteriorate the competitiveness of fossil fuels and make solar and wind even more attractive. With an unprecedented spike in fossil gas prices in Europe for example, new fossil gas production will become increasingly unprofitable over its lifetime, increasing the risk of stranded assets.

The European example shows that fuel and CO2 costs for existing gas-fired power plants could be on average four to six times higher in 2022 than the life cycle cost of new solar PV and onshore wind installations commissioned in 2021. Between January and May 2022, solar and wind power generation may have saved Europe from fossil fuel imports of around $50 billion, mostly fossil gas.

With regard to supply chains, IRENA data suggests that not all raw material cost increases have yet been passed on to equipment prices and project costs. If the costs of the latter remain high, price pressures in 2022 will be more pronounced. The increases, however, could be eclipsed by the overall gains from the profitability offered by renewables compared to rising fossil fuel prices.