by Katie Fehrenbacher
October 06, 2015
When it comes to electricity, it’s all about the cost. A new report shows how clean energy electricity is becoming mainstream.
Electricity generated by large wind farms is now cheap enough in many places around the world to compete effectively with electricity generated by coal and natural gas.
At the same time, solar panel farms aren’t quite low cost enough to be as competitive with fossil fuels as wind energy is. Still, the cost of electricity generated by solar panels has also come down significantly this year.
These are the findings of a new report from Bloomberg’s New Energy Finance research unit, which looks at the costs of electricity from various sources of energy around the world for the second half of 2015. The report focuses on the overall cost of electricity—from generation, to upfront investment, to the cost of financing—called the “levelised cost electricity,” or LCOE.
The new statistics are important because they show how, thanks to dropping technology costs and lower financing costs, clean energy is becoming mainstream. Wind farms and solar panel farms are no longer niche technologies.
As more countries and states enact market systems that put a price on carbon emissions, clean energy technologies will actually become cheaper than fossil fuel technologies. In fact, they already are in places like the U.K. and Germany, which have aggressive carbon policies.
These technology and market shifts will lead to one of the largest transformations ever for the world’s energy infrastructure.
The Bloomberg report says that the average cost of electricity generated by wind farms (on land, not offshore) throughout the world dropped to $83 per megawatt hour in the second half of this year. At the same time, electricity generated by solar panel farms fell to $122 per megawatt hour.
In comparison, the cost of electricity from coal and natural gas actually rose in the second half of this year. Coal-based electricity cost $75 per megawatt hour (up from $66 per megawatt hour) in North and South America, while natural gas-based electricity cost $82 in North and South America (up from $76 per megawatt hour).
Electricity costs are heavily dependent on the region of the world where the electricity is produced. Different regions have different natural energy assets, and some countries are far more aggressive with carbon market policies than others are. While coal electricity cost $75 per megawatt hour in the Americas, it costs $105 per megawatt hour in Europe.
Carbon policies in the U.K. and Germany make the cost of electricity from wind significantly cheaper than electricity from fossil fuels. In the U.K., wind now costs $85 per megawatt hour, while both natural gas and coal electricity cost $115 per megawatt hour. In Germany wind electricity costs just $80 per megawatt hour, while natural gas costs $118 and coal costs $106.
Clean energy technology and financing costs will continue to drop, and more and more carbon policies will be put in place around the world. China just said that it will start a carbon market by 2017. Expect to see an acceleration of these numbers on Bloomberg’s report in 2016.
To learn more about solar energy watch this Fortune video: