The Decline in Renewable Energy Costs: Shaping the Path to Net-Zero

Zahrah Oyeleke

The falling cost of renewable energy is transforming the global energy market, changing how we power homes and businesses. But what is driving this transformation, and what does it mean for the UK’s journey toward a net-zero future?

How have costs fallen?

Costs of renewable energy, particularly wind and solar, have fallen significantly in the last decade. A 2023 report by the International Renewable Energy Agency, IRENA, showed that the cost per kWh of solar photovoltaic (PV) panels fell by 16%, while onshore and offshore wind costs per kWh fell by 13% and 9%, respectively. [1] This fall in costs positions solar and wind energy as an affordable alternative to mainstream energy sources.

Levelized Cost of Energy per kWh from 2010 to 2023

What has driven the fall in costs?

A key driver behind the fall in solar PV costs has been the rapid advancements in PV technology during this period. Improvements in PV cell technology have increased efficiency, allowing more energy to be generated from the same surface area. This reduces production costs and, ultimately, prices. Similarly, wind turbine technology has evolved, with longer, lighter rotor blades and taller towers, leading to increased efficiency and lower costs.

Government policies also have helped drive down costs. The growing push for sustainability has led governments to implement policies supporting the use of renewable energy. For example, the UK government introduced a temporary 0% VAT relief on solar panel installations, making it more affordable for households to invest in solar technology. These government incentives have been estimated to account for around 60% of the cost reductions in solar PV systems.[1] In July 2024, the Labour government also removed the de facto ban on new onshore wind. This policy will reduce barriers to the development of these projects and support the commitment to doubling onshore wind energy by 2030.

Another factor in reducing costs is economies of scale. Significant expansions in production brought about by rising demand for solar energy allowed both companies and the industry to benefit from economies of scale. Bulk production has enabled solar energy companies to produce panels more efficiently and at lower costs, while a more extensive global supply chain has made it easier to access affordable raw materials.

Together, these factors have significantly lowered the cost of renewable energy and helped pave the way for a cleaner energy future.

What are thebenefits of falling renewable energy costs?

Falling costs make renewable energy more accessible to businesses and consumers, reducing energy bills and supporting energy independence. More households can now afford alternative energy sources and see faster returns on their investment in renewable energy. This allows a wider adoption of clean energy, reduces energy poverty, and decreases electricity costs, particularly in regions with historically high energy prices.

Affordable renewable energy is also accelerating the transition away from fossil fuels, which are the largest contributors to greenhouse gas emissions. Lower costs make it economically feasible to replace coal and gas plants with cleaner sources, supporting global climate goals and reducing pollution. According to the International Renewable Energy Agency, replacing the most expensive coal plants with cheaper renewables could cut up to 3 gigatons of CO₂ emissions annually.[2]

In the UK, renewable energy now generates 40% of the country’s electricity, up from just 7% in 2010. This shift has led to a 50% reduction in emissions, making the UK the fastest G7 country to cut emissions.[3] This progress is a big step toward the goal of net zero carbon emissions by 2050.

So, what’s next?

The decline in renewable energy costs, particularly for wind and solar technologies, presents significant opportunities for decarbonisation of the electricity sector, this is not only making clean energy more accessible to households and businesses but also offering a practical way to reduce carbon emissions and tackle climate change.

For the UK, the benefits are clear. Lower costs have accelerated the adoption of renewables, cut emissions and helped the country meet climate targets. This progress also points to likely growth in renewable energy projects across the country.

However, challenges remain that could limit the pace of this development. Energy storage is a concern, as wind and solar energy depend on effective storage systems, like batteries, to manage supply. Grid integration also poses a challenge, as renewable energy projects often need extensive upgrades to connect to existing infrastructure. Despite this, the steady progress made so far demonstrates a strong potential for renewable energy in reshaping the energy markets.

[1]Renewable power generation costs in 2023 (2024) IRENA. Available at: https://www.irena.org/Publications/2024/Sep/Renewable-Power-Generation-Costs-in-2023 (Accessed: 13 November 2024). 

[1] Ukpanah, I. (2024) The Declining Cost of Solar Panels: A Game-Changer for Renewable Energy, GreenMatch.co.uk. Available at: https://www.greenmatch.co.uk/blog/decrease-in-solar-costs (Accessed: 05 November 2024). 

[2]Infographic: Renewable power generation costs continue to fall despite inflation (2024) Infographic: Renewable Power Generation Costs Continue to Fall Despite Inflation. Available at: https://www.irena.org/News/articles/2024/Sep/Infographic-Renewable-Power-Generation-Costs-in-2023 (Accessed: 13 November 2024). 

[3]UK first major economy to halve emissions (2024) GOV.UK. Available at: https://www.gov.uk/government/news/uk-first-major-economy-to-halve-emissions#:~:text=With%20renewables%20now%20accounting%20for,using%20coal%20to%20using%20renewables. (Accessed: 15 November 2024).