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Sarah Lozanova headshot

Solar and Wind Energy Costs Could Drop By 59 Percent By 2025

By Sarah Lozanova

The average cost of electricity from wind and solar energy could drop by 26 to 59 percent, according to a new report released by the International Renewable Energy Agency (IRENA). The report, entitled The Power to Change: Solar and Wind Cost Reduction Potential to 2025, finds policy framework and the regulatory environment to be key unknown factors in the future cost of electricity from wind and solar energy.

The report explores the global weighted average levelized cost of electricity (LCOE) of different forms of renewable energy today and in the near future. The LCOE of solar photovoltaic (PV) for example fell by 58 percent from 2010 to 2015, making it more competitive at the utility scale. The estimated  LCOE in 2025 is expected to be a mere 6 cents  per kilowatt-hour for solar PV and 5 cents for onshore wind energy.

Although concentrating solar power (CSP) and offshore wind energy are "in their deployment infancy," falling costs have already made them attractive in some markets with an LCOE of 15 cents and 18 cents per kWh respectively, IRENA found.

The report finds the global weighted average LCEO in 2025 could fall by up to:

  • 59 percent for solar PV

  • 43 percent for CSP

  • 26 percent for onshore wind

  • 35 percent for offshore wind

Solar and wind energy are reaching the critical levels necessary to bring down prices through mass production. Lower prices then increase the demand for the product, furthering greater manufacturing. Renewable energy accounted for 148 gigawatts of new power generation capacity in 2015.

Further decreases in costs will help to further demand, encouraging even lower costs moving forward. Installed onshore wind energy capacity has historically doubled each time there was a 7 percent reduction in the installed costs. Many key factors vary widely by location, including the regulatory environment, installation costs, equipment costs, taxes, transportation costs and renewable energy resources.

Economies of scale, supply chain improvements and technology advances will all help lower the cost of generating renewable energy in the future, IRENA predicts. Competition among renewable energy companies helps to cut costs while encouraging innovation. Solar PV panel costs, for example, are expected to decline by 42 percent by 2025, largely due to manufacturing efficiencies and technology improvements. Solar PV efficiency is on the rise and now requires less square footage to generate the same amount of power.

One important variable in the future cost of renewable energy is policy framework and regulatory environment, as this has a significant impact of the cost, IRENA determined.

The report's authors write: "While industry has often already adjusted its cost reduction strategy to focus on" equipment costs, "much more detailed cost data is required ... in order to identify the potential benefits of different policy options."

"Without these data," they continue, "analysis that can support policy makers in ensuring that policy and regulatory frameworks are streamlined and optimized will be difficult to undertake. This is particularly important, because future cost reductions in balance of system costs, O&M and cost of capital will depend on a more diverse range of stakeholders, not just equipment manufacturers. Careful analysis will be needed to remove a myriad of small barriers, while policy settings must be tailored to ensure all stakeholders are incentivized and able to bring down costs."

Image Credit: Oregon Department of Transportation, Flickrt

Sarah Lozanova headshot

Sarah Lozanova is an environmental journalist and copywriter and has worked as a consultant to help large corporations become more sustainable. She is the author of Humane Home: Easy Steps for Sustainable & Green Living, and her renewable energy experience includes residential and commercial solar energy installations. She teaches green business classes to graduate students at Unity College and holds an MBA in sustainable management from the Presidio Graduate School.

Read more stories by Sarah Lozanova