Supply chain constraints, cost inflation in the construction and equipment industries, and high rates of interest are factors that make renewable energy more expensive when it comes to the Asia Pacific region.
It is well to be noted that the levelized cost of electricity for onshore wind as well as utility solar across the Asia Pacific rose 12% and 16% respectively since 2020 as the interest rates and the construction costs grew in the region. That said, the trend may reverse this year, but the volatility risks, which include trade policies, geopolitical reasons, and financing, still remain as per the analysis done by Wood Mackenzie.
Apparently, the average cost of utility-scale solar power has surged from $78 per megawatt hour in 2020 to around $91 per megawatt hour in 2022. The average cost of wind energy has risen from $93 per MWh in 2020 to $104 per MWh in 2022. South Korea has witnessed the highest inflation cost between 2020-2022 and on the other hand, China avoided these increases in the cost.
According to the research director at Wood Mackenzie, offshore wind in China happens to be competitive as compared to gas as well as coal power across the coastal regions, and a further dip of almost a quarter by 2025 will help undercut coal power across the country.
Solar as well as onshore wind costs remain low in China, but offshore wind has gained ground, with costs falling to 22% in 2022.
China has taken the spot away from India in terms of offering the lowest-cost renewable power within the region. It is well to be noted that China’s average utility-scale solar LCOE dipped 4%, while India’s average utility scale solar LCOE saw a surge of over one-third. China, Australia, and India are the only three markets in Asia Pacific where the cost of renewables is competitive with novel coal power projects.
Interest rates for power projects across Asia Pacific have jumped by 30% from a meagre 7.5% in 2022 on average for coal and gas, onshore wind, and solar projects.
Highest renewables cost put light on the fact that the average solar LCOE in Asia Pacific happens to be at 7% premium to that of coal power in 2022.
Coal will continue to remain in the league of the cheapest new build power generation option in Asia Pacific up until 2024 as per the Mackenzie findings.
There are new low-carbon tech options that are available, but those still happen to be expensive. Solar or wind energy plus storage are expected to become competitive with gas as the cost falls to almost $107-$111 by 2023.
The report also puts forth the fact that the green hydrogen and ammonia blended power costs are more than double to those that can be observed today and are still going to have a premium of 60% by 2050.