The cost of electricity generated from renewable sources, known as the levelised cost of electricity (LCOE), is declining significantly in the Asia Pacific (APAC) region, reaching an all-time low in 2023, according to Wood Mackenzie’s latest analysis.
This fall makes renewable energy increasingly competitive with conventional low-cost coal power, driven by a significant reduction in capital costs for renewable power, the analysis found.
Renewable energy costs in 2023 were 13% cheaper than conventional coal and are expected to be 32% cheaper by 2030, WoodMackenzie said.
Vice president, head of Asia Pacific power research, at Wood Mackenzie Alex Whitworth said: “Utility PV solar has emerged in 2023 as the cheapest power source in the region, while onshore wind is expected to become cheaper than coal after 2025.
“Renewables firmed with battery storage is becoming competitive with gas power today but will struggle to compete with coal before 2030.”
China is leading the way in lowering the cost of renewables, with utility PV, onshore wind, and offshore wind being 40%-70% cheaper compared to other Asia Pacific markets, according to the analysis.
China will maintain a 50% cost advantage for renewables out to 2050, allowing the country to maintain its lead in renewables deployments, it found.
Senior research analyst, APAC power & renewables, at Wood Mackenzie Sooraj Narayan said: “Solar photovoltaic (PV) power costs saw a significant decline of 23% in 2023, marking the end of two years of supply chain disruptions and inflation.
“Utility PV emerged as the cheapest power source in 11 out of 15 countries in the Asia Pacific.”
The new-build solar project costs will drop another 20% by 2030, driven by falling module prices and increasing oversupply from China, WoodMackenzie forecast.
The decline in solar technology costs in 2023-24 has put pressure on coal and gas, with LCOE for utility PV dropping by an average of 23% across Asia Pacific in 2023, driven by a 29% decline in capital costs, the analysts said.
Distributed solar has experienced an even greater decline in costs –a 26% decrease in 2023, and the technology is now 12% cheaper on average than residential power prices creating large potential for more rooftop solar applications, they added.
Narayan said: “This trend has made distributed solar increasingly attractive for end-users in many markets in Asia Pacific, with costs already 30% below rising residential tariffs in China and Australia.
“However, some markets like India with subsidised residential power tariffs will need to wait until 2030 or later to achieve competitive distributed solar prices.”
While onshore wind costs were higher than solar by 38% in 2023, Wood Mackenzie forecasts a 30% drop by 2030 as cheaper Chinese turbines gain market share.
Markets such as Australia and Southeast Asia will benefit from the low-cost import of wind power equipment from China, while Japan and South Korea with more limited Chinese turbine uptake and focus on local supply chain will observe onshore wind costs staying above US$80/MWh by 2030, it said.
The report also highlights the increasing competitiveness of offshore wind with fossil fuel power in Asia Pacific, with costs falling by 11% in 2023.
Offshore wind costs are now on par with coal power in coastal China and are expected to become cheaper than gas power in Japan and the Taiwan region by 2027 and 2028, respectively, according to the analysis.
Falling capital costs and technology improvements are opening up new markets for offshore wind in India, south-east Asia, and Australia over the next 5-10 years, Wood Mackenzie forecast.