Renewables widen cost advantage over fossil fuels despite supply chain and grid hurdles: IRENA

Abu Dhabi:

The global cost advantage of renewables over fossil fuels continued to grow in 2024, with solar and wind projects significantly undercutting conventional energy sources, according to the International Renewable Energy Agency (IRENA). However, the agency warned that geopolitical tensions and infrastructure bottlenecks risk slowing the pace of the energy transition.

In its latest Renewable Power Generation Costs report, IRENA found that onshore wind and solar photovoltaic (PV) remained the most cost-effective sources of new electricity generation. On average, onshore wind projects commissioned in 2024 were 53% cheaper than the lowest-cost fossil fuel options, delivering electricity at $0.034 per kilowatt-hour. Solar PV followed at $0.043/kWh, making it 41% cheaper than its fossil fuel counterparts.

The addition of 582 gigawatts of renewable capacity last year avoided an estimated $57 billion in fossil fuel expenditure, with 91% of new renewable projects costing less than any new fossil fuel alternative. “The cost-competitiveness of renewables is today’s reality,” said IRENA Director-General Francesco La Camera, who estimated the total avoided fossil fuel costs from all operational renewables in 2024 at $467 billion.

Beyond economic appeal, renewables are increasingly seen as a hedge against volatile global fuel markets. UN Secretary-General António Guterres said the world was “following the money,” calling on governments to remove policy and financing barriers to clean energy deployment. “Renewables are lighting the way to a world of affordable, abundant and secure power for all,” he said.

Yet the report highlighted emerging headwinds that could undermine recent cost gains. Trade restrictions, rising input prices, and concentration of manufacturing—particularly in China—have begun to push up equipment costs. In advanced markets such as Europe and North America, structural challenges including permitting delays, limited grid capacity, and higher balance-of-system costs are expected to keep prices elevated.

In contrast, regions with strong renewable potential and faster learning curves—such as parts of Asia, Africa and South America—are likely to benefit from continued cost reductions, provided that enabling conditions are met.

Financing remains a key constraint, particularly in the Global South. High capital costs—driven by macroeconomic instability and perceived investment risks—have inflated the levelised cost of electricity (LCOE) in many developing economies. While the LCOE for onshore wind projects was roughly comparable in Europe and Africa at around $0.052/kWh in 2024, IRENA noted that African projects faced financing costs more than triple those in Europe, reflecting a wider disparity in risk perceptions.

The report called for stable revenue frameworks to de-risk investments, emphasising the importance of instruments such as power purchase agreements (PPAs) and transparent procurement processes. Without these, investor confidence remains fragile.

Grid integration is emerging as another critical challenge. In both G20 and emerging markets, wind and solar projects are increasingly delayed by permitting backlogs, grid congestion and local content requirements. The report warns that without parallel investment in transmission infrastructure and digital grid management, deployment targets could fall short.

Meanwhile, energy storage is helping to mitigate intermittency concerns. The cost of utility-scale battery energy storage systems (BESS) fell 93% since 2010, reaching $192/kWh in 2024. Technological gains—along with digital optimisation tools and artificial intelligence—are enhancing the efficiency of hybrid systems that combine solar, wind and storage.

Still, IRENA cautioned that digital and grid infrastructure in many emerging markets is underdeveloped. “The transition to renewables is irreversible,” said La Camera, “but its pace and fairness depend on the choices we make today.”