Economy & Politics

Why renewable energies are getting cheaper and cheaper

An important factor for the price of energy from solar is the price of the solar modules. imago images / photothek

In 2009 solar power was still the most expensive form of energy – it cost more than three times as much as coal power. Ten years later, electricity from solar energy is the cheapest form of energy. How did this extraordinary price development come about? Max Roser examined this for a study on the “Our world in data” platform. The result: Renewable energies follow a learning curve – unlike other forms of energy such as coal and nuclear power.

This learning curve has resulted in a downright drop in the price of solar power. An important factor in the price of solar energy is the price of the solar modules. In the beginning, the modules were only used in the high-tech sector and built into satellites, for example. No wonder: the modules with a price of over half a million US dollars were not yet suitable for the masses in 1956.

Price of technology is crucial

But the price for the modules steadily fell the more modules were produced. This started a cycle: the cheaper the modules became, the more demand rose. Because of the steadily increasing demand, more and more modules were produced, which in turn reduced prices. With each doubling of the installed capacity, the price of the solar modules fell by more than a fifth – which ultimately led to a price reduction of more than 99.6 percent since 1976. This is crucial because the determining factor in the price of renewable energy is the price of the technology.

Source: Max Roser

But it is not just the price of the solar modules that follows a learning curve, as the “Our world in data” study shows: The same applies to the price of solar energy itself. Each time the installed capacity is doubled, the price drops by a full 36 percent. And this learning curve applies not only to solar, but also to wind energy. Here the price per doubling of capacity drops by 23 percent for onshore wind power, and for offshore systems by ten percent. Between 2009 and 2019, the price of solar power fell by a full 89 percent – that of electricity from onshore wind power by 70 percent.

Nevertheless, fossil fuels still dominate the power supply. As “Our world in data” found with reference to the report BP Statistical Review of World Energy & Ember from 2020, coal-fired electricity made up the largest share of global electricity production in 2019 at around 37 percent. Gas comes to around 24 percent, nuclear power to ten percent. Renewable forms of energy are far behind: electricity from wind comes to a little more than five percent, solar energy just 2.7 percent – even though the price has fallen rapidly.

No learning curve with fossil fuels

A drop in prices that follows a learning curve can only be observed for renewable energies – not for fossil fuels. The reason the study gives for this is simple: Sun and wind are free – coal and gas are not. The determining factor for the price of fossil fuels, however, is the fuel itself – this factor does not apply to renewable energies. Although coal-fired electricity has always been comparatively cheap, the price hardly drops, just by two percent between 2009 and 2019. According to the study, this is also due to the fact that power plants have little scope to increase their efficiency to an extent like that at Solar panels is possible.

Source: Max Roser

The price for electricity from gas fell by 32 percent between 2009 and 2019 because the raw material gas itself became cheaper, but the price does not follow a learning curve. In the meantime, nuclear power has even become more expensive: Between 2009 and 2019, the price rose by a full 26 percent. The reason: Unlike plants that produce electricity from renewable energies, only a few new nuclear power plants are built. As a result, the construction is less standardized, which leads to higher costs. However, the study also states that if significantly more power plants were built, the price would fall again here too – but still not follow a learning curve.

Advantage for the energy transition

What does this advantage of renewable energies mean? According to the study, the price structure could be an argument in favor of extensive government investments in renewable energies. Because: the more capacity is built up, the more the price drops. According to the study, this is also an important factor with regard to the energy transition. For renewable energies to become more attractive and to be used across the board, they must be cheaper than energies from fossil fuels.

The study names further advantages of renewable energies: The greatest energy demand in the coming years will come from countries with low and middle incomes in Africa and Asia. The cheaper renewable energies are, the more attractive they are for these countries. And, according to the study, a further drop in price would bring further advantages: the less people have to pay for electricity, the more money they have at their disposal – which should contribute to economic growth.

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