Renewable energy now 13% cheaper than cost of coal expected to reach 32% by 2030.
07 March 2024 by Nuwan Goonewardena
3 mins read
A recent analysis conducted by Wood Mackenzie reveals that the levelized cost of electricity (LCOE) in the Asia-Pacific region witnessed a remarkable decline, plummeting to its lowest point ever in 2023. This significant drop in costs has positioned renewable energy, particularly utility-scale PV, as the most economical power source in the region, surpassing coal. The decreasing costs of solar projects, driven by plummeting module prices and surplus supply from China, are anticipated to continue.
Alex Whitworth, Vice President and Head of Asia-Pacific Power Research at Wood Mackenzie, emphasized that utility PV solar emerged as the region's cheapest power source in 2023, with onshore wind expected to follow suit after 2025. Renewable energy paired with battery storage is becoming increasingly competitive with gas-powered electricity, although it may struggle to match coal before 2030.
In 2023, utility-scale PV became the most cost-effective power source in 11 out of 15 countries in the Asia-Pacific region. Wood Mackenzie reported a significant 23% decline in PV power costs in 2023, marking the end of two years of supply chain disruptions and inflation.
Image credit: Wood Mackenzie
Looking ahead, Wood Mackenzie forecasts a further 20% reduction in the costs of new solar projects by 2030, attributed to declining module prices and increasing oversupply from China. Distributed solar costs also saw a notable decrease of 26% in 2023, making the technology 12% cheaper on average than residential power prices. This trend has made distributed solar increasingly appealing for end-users across various markets in the Asia-Pacific region.
Sooraj Narayan, a senior research analyst specializing in APAC power and renewables at Wood Mackenzie, noted, "The increasing affordability of distributed solar is attracting end-users across numerous markets in the Asia Pacific region. Costs are already 30% lower than the escalating residential tariffs in China and Australia. However, in markets like India, where residential power tariffs are subsidized, competitive distributed solar prices may not be achieved until 2030 or later."
China stands out as the leader in driving down renewable energy costs, with utility-scale PV, onshore wind, and offshore wind projects proving to be 40% to 70% cheaper compared to other markets in the Asia-Pacific region.
Despite the declining costs that support renewable energy investment, concerns linger among investors regarding profitability, grid integration, backup solutions, and energy storage.
Whitworth emphasized the crucial role of government policies in the future, stating, "Government policies will be pivotal in upgrading grid reliability, enhancing transmission capacity, and incentivizing battery storage to effectively manage the intermittent nature of renewable energy sources."
In a report released in December, Ernst & Young stated that the global weighted average LCOE for PV is now 29% lower than the cheapest fossil fuel alternative. Wood Mackenzie previously predicted steady yet consistent global PV growth through 2032, estimating an annual installation of around 350 GW of global solar for the next eight years.
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