Rising CO2 Prices Validate Renewable Energy Projects

• Fraunhofer ISE says currently solar PV power generation's LCOE in Germany stands between €3.12 cent per kWh to €11.01 cent per kWh
• As CO2 certificate prices rise, wind and solar power plants will further gain on coal and gas-fired capacity in terms of LCOE
• Up to 2030, conventional projects can have a CO2 price of more than €100 per ton, making investors turn more to renewables
• By 2030, the cost of electricity generation from a PV-battery system will be cheaper than a combined cycle power plant in Germany

As technology advances, and regulatory and investment conditions further improve, renewable power plants continue to gain on their conventional power plant projects in terms of levelized cost of electricity (LCOE). In the future, with rising prices of CO2 certificates, Fraunhofer ISE believes cost competitiveness of existing coal and gas-fired assets will further decline.

Current LCOE

In the 5^th edition of its study Levelized Cost of Electricity, Fraunhofer ISE points out that depending on the type of solar power plant and solar irradiation, the current LCOE of PV plants in Germany range between €3.12 cent per kWh to €11.01 cent per kWh. Specific plant costs range between €530 per kW to €1,600 per kW for various plant types.

This edition includes PV systems with battery energy storage as their share continues to grow in the German energy system. For such systems, the LCOE currently falls between €5.24 cent per kWh to €19.72 cent per kWh. It attributes this large price gap to price difference between various battery systems.

In comparison, onshore wind turbines currently have an LCOE of €3.94 cent per kWh to €8.29 cent per kWh, as the 2^nd cheapest technology electricity generation. For offshore wind, the LCOE of €7.23 cent per kWh to €12.13 cent per kWh is more expensive because of high cost of installation, operation and financing for such projects.

LCOE till 2040

In 2021, renewables' LCOEs are at the same level with the operating costs of conventional power plants, if not lower, and up to 2030, as operating costs of conventional projects go up, there could be a CO2 price of more than €100 per ton. "This cost increase means a highly dynamic market for new renewable power plants, as companies will rather invest in new renewable power plants than bear these high operating costs. However, it is necessary to ensure that sufficient area and power plant capacity for wind and PV plants is available," said Project Head of Energy Systems and Energy Economics at Fraunhofer ISE, Dr. Christoph Kost.

According to Fraunhofer ISE analysts, in 2024, the LCOE is expected to come under €10 cent per kWh for all PV systems, excluding battery storage.

In 2040, in Germany, the LCOE is likely to be between €3.58 cent per kWh to €6.77 cent per kWh for small rooftop systems. For ground mounted PV systems, the LCOE will fall within the range of €1.92 cent per kWh to €3.51 cent per kWh. As for system costs, by 2040 these are expected to go below €350 per kW for ground mounted PV and for small-scale PV, it will range from €615 per kW to €985 per kW.

By 2030, the cost of electricity generation from a PV-battery system will be cheaper than a combined cycle power plant in Germany, and further on in 2040 small PV-battery systems are expected to report an LCOE between €5.00 cent per kWh to €12.00 cent per kWh, as per the research organization.

The study from Fraunhofer ISE is available for free download on its website (in German language).