91% of new renewables projects beat fossil fuel alternatives

From the newsletter

Renewables are be the most cost-competitive choice for new electricity generation going forward. A report released this week by IRENA, titled Renewable Power Generation Costs in 2024, states that 91% of all global newly commissioned utility-scale renewable capacity now delivers power at a lower cost than the cheapest new fossil fuel.

• Falling costs combined with Africa's vast wind, solar and water resources position the continent to undertake big-scale projects and accelerate renewable energy adoption.

• The report by IRENA, the International Renewable Energy Agency, says new utility-scale onshore wind projects are the cheapest, with a global average Levelised Cost of Electricity (LCOE) of $0.034/kWh. New solar PV is at $0.043/kWh and new hydropower at $0.057/kWh.

More details

• The past decade has witnessed a spectacular reduction in the cost of renewable energy. Solar PV technology has witnessed the most change, declining by about 90% between 2010 and 2024, followed by onshore wind with a 70% drop in LCOE over the same period. Despite onshore wind costs declining less than solar PV, it now stands as the cheapest source of electricity at just $0.034/kWh. Hydropower costs increased globally, but in Africa, Brazil, Central America and the Caribbean, Europe, and India, the weighted average LCOE decreased.

• Despite Africa being an importer of all these technologies, with a very small fraction of local manufacturing, the continent is scaling up its renewable energy capacity, with current cumulative capacity standing at 70 GW. The LCOE price for renewable projects in Africa is almost similar to developed regions like Europe, which have local manufacturing. For instance, in 2024, the LCOE for onshore wind in Africa was $0.051/kWh. This is remarkably similar to Europe's LCOE of $0.052/kWh for the same technology.

• This global cost reduction is largely attributed to continuous technological advancements, such as larger wind turbines and more efficient solar PV modules. Economies of scale from increased manufacturing and project sizes, coupled with fiercer competition among developers, have driven down per-unit costs. Furthermore, accumulated experience, known as "learning by doing," has led to process optimisation and more efficient deployment. IRENA estimates a global learning rate of 33.8% for solar PV and nearly 25% for onshore wind.

• Speaking at the launch of the report, United Nations Secretary-General António Guterres said, “Clean energy is smart economics – and the world is following the money. Renewables are rising, the fossil fuel age is crumbling, but leaders must unblock barriers, build confidence, and unleash finance and investment. Renewables are lighting the way to a world of affordable, abundant, and secure power for all.”

• But Africa continues to face unique financial hurdles that drive up project expenses. For instance, between 2015 and 2024, Africa and Eurasia had LCOE declining by 67% and 74% respectively, for solar PV, but when compared in cost of capital, Africa's is much higher. Data from IRENA for 2024 shows that the weighted average cost of capital (WACC) for Africa stood at 12%, about three times higher than in Europe, making it more expensive to finance renewable energy projects across the continent.

• Despite the positive trends, several risks could impede further growth and price reductions. Geopolitical tensions and trade barriers, such as ongoing tariff disputes, could lead to increased LCOEs for solar PV (up to 18%) and grid-scale storage (up to 20%), potentially threatening clean energy targets. The concentration of global supply chains, particularly in China, introduces vulnerabilities to disruptions and price volatility.

• Furthermore, permitting delays and inadequate grid infrastructure are already slowing deployment in some regions, contributing to rising integration costs. Some countries like Kenya have faced this problem before. The continent's economy remains volatile, with inflation and interest rate fluctuations, which can impact capital costs as well.

Our take

• Deploying renewables in Africa offers benefits beyond direct electricity costs. Countries can enjoy energy security through reduced reliance on volatile imported fossil fuels. It also brings crucial public health co-benefits by reducing air pollution.

• The question of whether to localise manufacturing or not is clear. Despite the high cost required in setting up such plants, Africa has the minerals that could pave the way for vertical integration across the supply chain. This would not only reduce import reliance but also create new industries, generate employment, and retain more economic value within national economies.

• African countries need to focus more on how to create a supportive business environment. The economics of renewables are clear, and the private sector will follow the money.