Will national renewable costs continue declining?

J. Doyne Farmer and Lennart Baumgärtner ()

INET Oxford Working Papers from Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

Abstract: Since the 1980s, the global average of solar photovoltaic (PV) cost has decreased by about two orders of magnitude while the global average onshore wind cost has decreased by about one order of magnitude. But global averages are only part of the story: For both solar and wind, costs vary between countries by about an order of magnitude. We curate a comprehensive database of national costs and build predictive models for future costs by decomposing the levelized cost of electricity (LCOE) into its components and modeling them separately. For solar PV we find that since 1990 the module cost and the balance of system cost (BOS) have both declined roughly exponentially at rates of 12% per year. In contrast, wind turbine cost has declined roughly exponentially by 4% per year, while BOS cost has not declined at all. This suggests that total global wind cost will slowly approach a floor cost of about 35 USD/MWh, reaching about 43 USD/MWh in 2050, whereas global solar cost will continue to decline exponentially, reaching about 3-15 USD/MWh in 2050 and continuing to drop thereafter. For solar, around half of the cross-sectional variations in national LCOE costs is due to variations in capacity factors, though capital costs also play an important role. For wind, the cross-sectional variations are split approximately equally between capacity factor, capital costs, and investment costs. National BOS costs revert to global costs with a timescale of about 5-7 years, while variations in other factors are more persistent. We develop a simple model for predicting the deviations from global costs and show that it makes reasonable predictions with predictable errors. Finally, we compare our predictions to recent projections of integrated assessment models.

Pages: 21 pages
Date: 2025-12
New Economics Papers: this item is included in nep-ene and nep-reg
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