Even though the focus on renewable energy gets stronger in Asia Pacific, coal will remain the cheapest new-build power generation option in the region until 2024 according to Wood Mackenzie. New low-carbon technology options remain expensive with solar or wind plus storage likely to become competitive with gas by only 2032.
According to Wood Mackenzie's Battle for the future 2022: Asia Pacific power and renewables competitiveness overview report, the levelized cost of electricity (LCOE) for utility scale solar in Asia Pacific was up 16%, and that for onshore wind increased by 12% in 2022 since 2020. Factors that contributed to this increase were high equipment, construction and interest costs here.
Things could reverse in 2023, but volatility risks including geopolitical tensions, trade policy and financing concerns remain, says Wood Mackenzie.
Barring China that was insulated from inflationary prices with its massive scale, well established local supply chain and technological domination, the rest of Asia Pacific saw the LCOE going up, with the highest reported in South Korea, reads the report.
The average cost of utility scale solar increased from $78/MWh in 2020 to $91/MWh in 2022, whereas for onshore wind prices went up from $93/MWh to $104/MWh during the same time frame.
In China, the average utility scale solar LCOE dropped 4% to $44/MWh in 2022, and that for India stood at $56/MWh as the report writers note, "These two markets along with Australia are the only ones in Asia Pacific where renewables costs are competitive with new coal power projects."
According to the analysts, the overall increase in LCOE was thanks to higher capex and interest rates. Capex for solar grew to 12% during the period and for onshore wind to 6%, while for fossil fuels, capex went up by 5% to 8%. A double whammy came from average interest rates across solar, onshore wind, coal and gas growing 30% from 5.8% in 2021 to 7.5% in 2022.
"Higher renewables costs mean that Asia Pacific's average solar LCOE is at a 7% premium to coal power in 2022. This is despite higher fuel costs driving up the LCOE for new coal projects by 16% and gas by 11% in the last 2 years," said Research Director at Wood Mackenzie, Alex Whitworth.
Looking at the high costs for renewables in the region, Wood Mackenzie analysts see coal continuing to be the cheapest new-build power generation option in Asia Pacific until 2024 despite the high fuel price environment.
As for solar and wind with storage, such projects are likely to become competitive with gas by 2032 when their costs decline to around $107/MWh to $111/MWh. In 2022, hybrid renewables and battery storage power are 41% to 72% more expensive than gas LCOEs.
Even other low-carbon technology options as green hydrogen and ammonia blended power aren't cheap either – these are likely to carry a premium of 60% by 2050. Wood Mackenzie forecasts that green ammonia and hydrogen costs will fall by 49% and 53%, respectively, by 2050, but they remain at least double the fuel cost of coal or gas.
The complete report can be purchased at Wood Mackenzie's website for a price of $1,050.
In a December 2022 commentary, Fitch Solutions analysts too stated no respite to high material prices for solar and wind power projects in 2023, but said it can partially be offset by falling operational costs and rising technology efficiency (see Capital Costs For Solar & Wind Projects To Remain High In 2023).