Asia’s renewable energy sector has reached a pivotal moment, according to a revealing study which indicates that clean energy is not only becoming more affordable but is also outpacing coal’s cost-effectiveness. The year-to-year cost comparison highlights that in the past year, renewable energies were 13% more budget-friendly compared to coal, with this margin forecasted to expand to 32% by the year 2030.
The Current Landscape: Asia’s Renewable Energy Costs Drop
Wood Mackenzie‘s insightful analysis on the levelized cost of electricity across the Asia Pacific region shows that the cost of harnessing power from renewable sources has plummeted to unprecedented lows in 2023. This trend is reshaping the energy market, as renewables begin to challenge coal’s longstanding dominance in the area. A pronounced decrease in the investment required to initiate renewable projects is the key catalyst for this shift.
In Asia, China is at the forefront of this transformative change, achieving a cost decline of between 40-70% for solar and wind power arrays, vastly surpassing its regional counterparts. This economical lead is not fleeting; projections establish that China will uphold at least a 50% advantage in cost-efficiency for renewables well into 2050.
The Dawn of Affordable Solar Power
A stunning 23% cost reduction in solar power in the year 2023 heralds the end of production and economic challenges that recently plagued this sector. Consequently, solar power has become the most economical energy source in the vast majority of Asia Pacific nations. Forecasters predict a further 20% drop in cost for new solar projects by 2030, driven predominantly by lower module costs and an abundance of Chinese production capacity.
Among the renewable energy options, distributed solar systems like residential rooftop panels achieved a 26% decline in costs in 2023. This positions them as not only a viable alternative but one that is on average 12% less expensive than conventional residential electricity rates. In nations facing climbing residential energy costs, like China and Australia, the allure of distributed solar is intensifying. However, in regions with subsidized energy prices such as India, competitive pricing for residential solar may not manifest until 2030 or later.
Onshore and Offshore Wind Power Close on the Heels
Though the spotlight has been on solar, wind power is also making significant strides in cost reduction. Despite onshore wind power being 38% more costly than solar at present, an anticipated drop of 30% by 2030, particularly due to Chinese turbine affordability, places countries like Australia and Southeast Asia in a position to benefit immensely. In stark contrast, markets such as Japan and South Korea might not experience similar advantages due to their focus on regional manufacturing chains.
The offshore wind energy market, increasingly competitive with conventional fossil fuels in the Asia Pacific, is also decreasing in cost. As offshore wind projects become more cost-efficient along China’s coastline, they are predicted to outcompete gas power in both Japan and Taiwan within the next five to six years. Meanwhile, new markets for offshore wind in India, Southeast Asia, and Australia look set to thrive over the coming decade courtesy of technological advancements and dropping capital investments.
Differing from the positive trend in renewables, fossil fuels like coal and gas are facing a 12% cost hike since 2020 and the growth of expenses is expected to continue, largely driven by the institution of carbon pricing mechanisms. Despite higher carbon price projections in wealthier Asian markets, Southeast Asia and India could face more modest carbon pricing impacts.
Concluding remarks from Alex Whitworth, Wood Mackenzie’s Vice President and Head of Asia Pacific Power Research, emphasize the historic low for solar power costs in the region. Nonetheless, he highlights the emerging worries among investors surrounding profitability, grid adaptation, backup solutions, and energy storage. He asserts that government policies are essential in fostering the enhancements necessary for grid reliability, transmission capacity, and the promotion of battery storage to balance renewable energy’s variable nature.
