Renewables' edge over fossil fuels will be 'unprecedented' in 2022, IRENA says

The advantage of renewables over crude oil and natural gas will be "unprecedented" in 2022 as costs may be higher but far below gains seen in prices of fossil fuels, the International Renewable Energy Agency said in a July 13 report.

Renewables received a boost last year as the levelized cost of electricity from solar PV fell 13% from 2020, onshore wind fell 15% and offshore wind fell 13%, IRENA said in the report.

Almost two-thirds of newly installed renewable power last year was lower cost than the world's cheapest coal-fired options in the G20, "confirming the critical role of cost-competitive renewables in addressing today's energy crises," IRENA Director General Francesco La Camera said in the report.

"With the unprecedented surge in European fossil gas prices, new fossil gas generation in Europe will increasingly become uneconomic over its lifetime, bringing the high risk of stranded assets," he added.

That nations aren't accelerating renewables projects this year, and leaving that up to individuals and businesses, "appears likely to have cost society billions of dollars this year and the next in direct energy costs," IRENA said in the report.

Assuming average wholesale fossil natural gas prices in 2022 of 10.9 cents/kWh in Europe, the average generated fuel-only cost not counting carbon dioxide prices of existing fossil gas generators will be around 23 cents/kWh, or 540% higher than in 2020, it said. Including the European Union Emissions Trading Scheme emissions prices, fuel costs would be 27 cents/kWh in 2022, or 645% higher than in 2020, it said.

At 27 cents/kWh, that is four to six times more expensive than the new solar and onshore wind capacity added in Europe in 2021 and exceeds the average retail tariff (excluding taxes and levies) paid by households in 13 of the 27 EU countries in 2020 that covered transmission, distribution, wholesale electricity purchases, marketing and overheads, it said. Between January and May, the generation of solar and wind power may have lowered Europe fossil fuel imports by some $50 billion, predominantly gas, IRENA said.

The global weighted average levelized cost of electricity of new utility-scale solar PV projects commissioned in 2021 fell to 4.8 cents/kWh from 5.5 cents/kWh in 2020, while new onshore wind projects dropped to 3.3 cents/kWh from 3.9 cents/kWh in 2020, it said.

If materials prices such as for copper, polysilicon and aluminum remain elevated in 2022, price pressures for renewables may be more pronounced with total installed costs likely to rise this year in more markets, IRENA said. Solar PV costs may be up 2%-4% over 2021 and onshore wind may climb by at least 4%-9%, IRENA said.