How competitive are renewables with conventional power?

A new meta-study published by German renewables organization AEE reviews around a dozen recent studies on power generation costs from both renewable and conventional energy sources. The trend is clear, and one of the studies is a clear outlier. Craig Morris explains.

PV & Coal

Renewables are becoming increasingly competitive with conventional sources of power. (Photo by EnergieAgentur.NRW, CC BY 2.0)

Our regular readers are probably familiar with the chart below, showing trend lines for various types of wind and solar power relative to the generation cost of the German nuclear + fossil power mix.


Those figures were from Fraunhofer ISE’s study on power generation costs from 2012. The new study by the AEE (website in German) uses the updated study from 2013 as one of the studies reviewed, and it presents its overviews by energy source. Here’s the one for offshore wind.

Offshore Wind Production Cost Study Comparison

The names of the studies are at the bottom. The blue bars represent prices in cents per kilowatt-hour, with light blue areas containing arrows representing a price range. At the top, the different dates indicate historic prices for past dates and prices that the studies expect in the future. I’d like to analyze two of these charts in two ways: first, what do they tell us about the studies; and second, what do they tell us about price expectations of the energy source in question.

Note in the chart above that Eurelectric, an umbrella organization representing Member State utility organizations (such as Germany’s BDEW), has the lowest price estimate for offshore wind in its study from 2010 for the year 2010. In return, its 2010 estimate for the cost of offshore wind by 2050 is the highest – it moves completely across the spectrum.

Now, let’s take a look at photovoltaics:

PV Production Cost Study Comparison

Here, we find Eurelectric with the highest estimate in every year. The high estimate for 2020 is especially striking; apparently, in 2010 the utility experts believed that a kilowatt-hour of PV would still cost 50 cents or more at the end of this decade. The price today is around 13 cents for residential arrays, and it falls below 10 cents for utility-scale solar power plants – and that’s in Germany. The cost of new solar power in the Sahara and California’s Mojave Desert is far lower.

Aside from Eurelectric and the corporate consultants at Prognos and McKinsey, I would classify all of the other organizations listed in the two charts as being friendly to renewables. The DLR has historically produced the Energiewende’s roadmap (Leitstudie); the BMU is Germany’s Environmental Ministry; and Wuppertal, FfE, Agora, etc. are all institutes whose primary goal is to help make the energy transition work.

Eurelectric’s position as an outlier in both of these charts is therefore striking. This group alone arguably has more lobbying influence on Brussels that all of the others combined, and it is the farthest from reality – not just for PV, either. The estimate of 11 cents per kilowatt hour-hour for offshore wind in 2010 was stretching it a bit; in return, recent progress belies the expectation that the cost will hardly go down by 2050. Offshore wind is a grand success in the UK and Belgium, where power production has exceeded expectations. The story is similar in Germany, aside from the recent nasty failure of a converter station – but the wind turbines are running well. German economic research institute DIW recently complained about the wildly overstated price estimates for photovoltaics in a paper from Brussels. If utility experts are providing top EU officials with inaccurate offshore wind cost as well, then the people making decisions at the top might not be very well-informed.

Now to the second question: price expectations by energy source. In both of the charts above, we clearly see the cost of renewable energy dropping. Offshore wind is expected to cost between 5-10 cents by mid-century, with PV generally being close to 10 cents by that time as well. In contrast, the cost of conventional power is set to rise. Below, we see the example of lignite.

Lignite Production Cost Study Comparison

At present, the costs range from around 4-8 cents, and that price range (again, inflation-adjusted) rises slightly to 4-9 cents by 2050, with CCS (the bars on the right) bringing the cost up to 6-10 cents. It’s a modest increase, but one also in line with the general trend for hard coal (JPEG) and natural gas (JPEG). Clearly, renewables are becoming more competitive by the decade.

One could justifiably point out that these prices do not include system impacts, such as backup power or storage, but that knife cuts both ways. For instance, Germany has some 110 GW of conventional generation capacity to serve a peak demand of only 80 GW. Furthermore, all of the pumped storage the country now has was built for the conventional power fleet, not for renewables.

Still, mere generation cost by energy source does not tell the whole story. But this part of the story is clear – renewables are getting cheaper. The findings are in line with recent publications from IRENA and Lazard (PDF). Here’s hoping our decision-makers are listening.

Craig Morris (@PPchef) is the lead author of German Energy Transition. He directs Petite Planète and writes every workday for Renewables International.


Craig Morris (@PPchef) is co-author of Energy Democracy, the first history of Germany’s Energiewende.

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