Fossil fuels' cost advantage over solar narrowing, says IEA

Renewable sources of power are increasingly narrowing the cost gap with fossil fuels, with solar PV particularly pioneering in engineering significant price drops, finds a recent report produced jointly by the International Energy Agency (IEA) and the Nuclear Energy Agency (NEA).

The report, titled Projected Costs of Generating Electricity: 2015 Edition, finds that the cost of producing electricity from sources such as solar PV and wind power has fallen significantly over the past five years, with the gap narrowed when compared to power produced by fossil fuel and nuclear plants.

According to the report, the median cost of producing baseload power stands at $200/MWh for solar, compared to around $100/MWh for natural gas, coal and atomic plants. However, in 2010, solar’s figure stood at $500/MWh, while the cost for gas and coal resources rose over that five year period, and remained stable for nuclear energy.

Costs are calculated based on investment, fuel type, and maintenance and dismantling of the required installations over their lifecycle, and figures differ from country to country.

For example Spain, the report cites, is a particularly fruitful region for inexpensive solar PV given its high levels of irradiation – commercial solar installations there generate power for $166.70/MWh, below the average $200/MWh mark. In contrast, a similar installation in Belgium would generate solar electricity at $311.77/MWh, the report finds.

"The costs of renewable technologies – in particular solar PV – have declined significantly over the past years," said the IEA-NEA report, adding that such technologies are no longer "cost outliers".

The report also adds that the gap will narrow even further over the next few years as coal-fired power plants become up to 70% more expensive to run (as carbon capture technologies are added) while new technologies in the solar and wind sectors help bring down costs further.

By 2025, the report suggests, large-scale solar installations will be able to produce power for below $100/MWh in the world’s sunnier regions, with smaller installations – such as residential rooftops – reaching that cost level five years later.

The IEA report also adds, however, that no single technology is the undisputed "cheapest" form of energy, with variables such as climate, available resources, local labor costs and red tape all adding to the overall cost mix.