In is latest LCOE updated, BloombergNEF said there will be a further drop in LCOE of wind and solar, however, in the short run it might be possible that fossil fuels are shielded by the COVID-19 pandemic. (Source: BloombergNEF)
- BloombergNEF analysis claims utility scale solar PV LCOE to have come down 4% from H2/2019 to $50 per MWh
- Better technology, read monocrystalline modules, and auctions forcing developers to scale up project size and portfolios to drive down costs, is fueling the trend
- There may be further drop in the solar LCOE by 2030 for some projects but a lot of factors will depend on coronavirus pandemic impact resulting in an economic shock
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Bloomberg New Energy Finance (BloombergNEF) in its latest analysis on levelized cost of electricity (LCOE) sees the global benchmark LCOE for utility scale solar PV to have come down 4% since H2/2019 to $50 per MWh while for onshore wind it has degreased by 9% to $44 per MWh. This makes both these renewable power technologies the ‘cheapest’ sources of new-build generation for at least two-thirds of the global population. The benchmark LCOE for battery storage has reached $150 per MWh.
Major contributors to the decrease in solar LCOEs are technological improvements and auctions bringing in fierce competition which successful developers manage by improving project economics. “There have been dramatic improvements in the cost-competitiveness of solar and wind. Part of it is due to photovoltaic and wind technology getting better at extracting renewable resources. But our analysis also suggests that since 2016, auctions are forcing developers to realize cost savings by scaling up project size and portfolios,” said Tifenn Brandily, Lead Author of the report at BloombergNEF. “Larger scale enables them to slash balance-of-plant, operations and maintenance expenses – and have a stronger negotiating position when ordering equipment.”
For solar PV, BloombergNEF estimates better performing monocrystalline modules to have taken the solar benchmark in China to $38 per MWh, down 9% from H2/2019. More significantly, newly build solar here is ‘almost on par’ with the running cost of coal-fired power plants at an average of $35 per MWh. This is important as China opens up competition in the power sector.
Globally, in geographies as Australia, China, Chile and the UAE, some of the cheapest PV projects financed in the last 6 months are expected to bring in LCOE of $23 to $29 per MWh, challenging the existing fleet of fossil fuel power plants. Cost-competitiveness will also assure competitive returns to their equity investors.
Come 2030 and BloombergNEF expects LCOE of best-in-class solar and wind projects to drop below $20 per MWh and innovative approaches may drive it further down in times to come. However, the latest Abu Dhabi bidding for a 2 GW project has just resulted in the world’s lowest cost bid, beating a number of other previous solar bids below $20 per MWh (see World’s Lowest Solar Tariff For 2 GW Abu Dhabi Tender).
BloombergNEF cautions that the data it analyses has been sourced from actual deals over recent months, and does not reflect what may happen to the LCOE’s of different generation technologies as a result of the economic shock created by the coronavirus pandemic which may well be in favor of fossil fuels.
“The coronavirus will have a range of impacts on the relative cost of fossil and renewable electricity. One important question is what happens to the costs of finance over the short and medium term. Another concerns commodity prices – coal and gas prices have weakened on world markets. If sustained, this could help shield fossil fuel generation for a while from the cost onslaught from renewables,” said BNEF Chief Economist Seb Henbest.