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Renewable Energy Project Costs Rise, Demand Stays Strong

Renewable Energy Prices
(Credit: Pixabay)

The cost to build new solar and wind energy projects has risen over the past year, but demand remains high and prices are significantly lower than they were more than a decade ago and compared to developing fossil fuel power, according to a report by BloombergNEF.

The cost of fixed-axis solar has risen 14% and onshore wind is up 7% from last year. Estimates for utility-scale solar and onshore wind rose to $45 and $46 per megawatt-hour, respectively, during the first half of 2022, according to the BloomberNEF analysis. That is down 86% and 46% from 2010.

The report says the increased costs are due to higher prices of materials, freight, fuel, and labor. Another issue in the market is that while demand for low-carbon technologies in the energy sector has bounced back since the second half of 2021, supply has struggled to keep up. Prices, investments, transportation, and supply chain volatility have all played a role in decreased supply.

Such demand has also impacted other ways to develop renewable energy, such as power purchase agreements seeing an increase of nearly 29% from the first quarter of 2021, according to LevelTen Energy. Still, the Energy Information Administration expects renewable sources to provide nearly a quarter of the United States’ energy by next year.

Battery storage is seeing a significant price increase as well and sits at $153 per megawatt-hour, which is up 8.4% from the first half of 2021. Prices for a key component of battery systems, lithium carbonate, are up 379% over the past year.

Still, BloombergNEF says while battery system prices should be 22% higher in 2022, many projects commissioned over the past six months likely hedged their supply during 2021 before the steep rise in the price of materials.

Despite the increase in costs for new renewable energy projects, the cost of fossil fuel-powered energy projects is 40% higher than wind or solar. BloombergNEF estimates new coal power to be $74 per megawatt-hour, and gas-fired power to cost $81 per megawatt-hour.

Renewables remain the cheapest source of new bulk power for countries making up two-thirds of the world’s population and 90% of the electricity generation, BloombergNEF says. A report earlier this year from Polaris Market Research found that the renewable energy market would grow at 8.5% annually through 2029 and be valued at $1.68 trillion.

The least expensive renewable energy projects over the first half of the year, BloombergNEF says, were $19 per megawatt-hour onshore wind farms in Brazil and $21 per megawatt-hour solar farms in Chile.

Overall, BloombergNEF doesn’t see the price increases as a long-term trend.

“These cost hikes mark a rough patch for renewables, but not an inflection point,” says Amar Vasdev, a co-author of the BloombergNEF report. “We see a return to long-term technology cost decline trajectories as demand continues to be strong, supply chain pressures ease and production capacity, particularly in China, comes back online.”

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