Technology Cost Review: Grid Parity for Renewables?

Research from the University of Melbourne’s Energy Research Institute predicts that the price of wind and solar energy will continue to fall. The Institute’s Renewable Energy Technology Cost Review covers the current and future costs of three forms of renewable energy technology – photovoltaic (PV), wind and concentrating solar thermal (CST) – by comparing data from a range of international and Australia-specific studies.

“It’s expected, especially in the case of solar technologies, that they’ll become very close to competitive with fossil fuels over the next five to 10 years. What this means is that we should be planning for a future with much larger penetrations of renewable energy and focusing on how we get that built and how we can integrate into the system as fast as possible,” said Patrick Hearps, one of the lead researchers.

Each of the studies reviewed performed assessments of cost reductions for major plant components, taking into account expected growth and experience. The major opportunities include mass manufacture of mirror components; implementation of higher temperature steam cycles and storage; scale-up of plant sizes; and convoy/experience effects on engineering and indirect overheads. Power tower (central receiver) solar thermal systems are expected to be cheaper than parabolic troughs.

Photovoltaics and wind power have historically shown that a large proportion of cost reductions have come from experience and economies of scale associated with large-scale global deployment – not just improvements in technical efficiency. This is made particularly apparent when displaying a technology learning curve as a function of cumulative installed capacity, rather than time. Therefore any projection of a cost curve over time has an inherent assumption, explicit or not, of the expected growth in deployment of the technology.

At initial stages of technology conception, costs tend to be underestimated. As the technologies reach the point of commercialisation and deployment, costs tend to increase with comprehensive engineering assessments and real-world implementation. After the point of commercialisation costs tend to again reduce, and in the long term cost rates reduce further as technologies mature.

When considering scenarios for new energy technology development and deployment, initial higher costs of renewable energy should not be considered an impassable barrier to deployment, the study finds. Rather the focus should be on whether learning curves can give confidence that the technology is able to achieve desirable cost reductions within an acceptable timeframe, and how much the rate of deployment is expected to change the rate of cost reduction.

The policy implications for this are well summarised by Cédric Philibert of the International Energy Agency (IEA): “…current investments in Renewable energy technologies are essential to quickly reducing their cost and to make a wide portfolio of RE technologies affordable and competitive on a large scale beyond their current niche markets. IEA scenarios show that renewable energy technologies will have to play a pivotal role in this century if climate change is to be mitigated. If the overall costs of mitigation during the next decades are considered, the economic assessment might differ substantially. Immediate CO2 reductions driven by the early deployment of renewables may cost more than other options today, but will reduce the costs of mitigating climate change in the future.”


The installed capacity of photovoltaic modules has grown at a rate of 40 percent per year over the last decade. As the industry has grown, PV module prices declined along a well-established learning curve, which has seen cost reductions of 22 percent for each doubling of cumulative capacity over the last few decades. An excursion from this historical rate occurred due to supply bottlenecks and market dynamics from 2003 to the end of 2008. The learning curve has since returned towards the historic trend and the global installation capacity increased to 10 GWp/year in 2010.

Both the IEA and the European Photovoltaic Industry Association (EPIA) expect further cost reduction with increased production capacities, improved supply chains and economies of scale. China has experienced a 20-fold increase in production capacity in four years, increased expansion of global production capacities for key components (including modules and inverters) and is continuing to exert downwards pressure on prices. A surge in silicon production capacity, a key commodity, has continued to increase, alleviating supply constraints. Technological cost reduction opportunities include improvements in efficiency for the different cell types. Based on these drivers, the IEA and EPIA have made cost projections using learning rates of 18 percent, slightly lower than the historical average of 22 percent.


Wind energy generation has expanded rapidly in the previous decade (2000-2010), with installed capacity growing at 28 percent, doubling every three years. Wind capital costs have tracked along a learning curve as this capacity has grown, and the expectation of all of the studies reviewed in the technology cost study is for the trend to continue as the expansion of the wind industry continues. Key commodity constraints and supply chain bottlenecks have hampered cost reductions in the past few years. With larger-scale (and largely automated) manufacturing, these bottlenecks have now been alleviated. More recent developments have seen wind technology costs continue along historic learning rates. Incremental technological improvements represent a significant potential for cost reductions, with anticipated improvements resulting in larger, more efficient turbines.

The IEA and the Global Wind Energy Council (GWEC) expect that modest cost reductions will continue, due to economies of scale, as a result of continuing industry expansion (especially Chinese manufacturing), alongside stronger supply chains and technological improvements. The major technical cost reduction opportunities include increasing turbine size, hub height, and the elimination of gearbox losses via the use of direct drive turbines.


For concentrating solar thermal technology (CST, or CSP – concentrating solar power), which is less mature than wind and solar PV, a range of sources indicate that there is significant cost reduction potential from known technical improvements, economies of scale and industry learning from continued deployment, similar to the observed learning rates of wind and PV. Importantly, the US DoE expects that around 50 percent of the potential cost reductions will come as a result of industry scale and experience, which will require the initial higher cost deployment to allow these reductions to occur.


Construction period and economic lifetime can have a considerable affect on the levelised cost of energy generation (LCOE). This is particularly important for protracted construction periods and their consequently long lead times. The IEA reports wind construction periods of one year.

In the case of renewable energy generators, the assumed capacity factor of a facility has a significant impact on the LCOE. The capacity factor is generally dependent on the quality of the renewable resource.


The remaining parameters are specific to technology type. These include capital cost and operation and maintenance costs.

The calculated LCOEs for the renewable energy technologies in this study should be put in context with the cost of new entrant fossil generation. The LCOEs for two fossil fuel technologies, pulverised coal (PC) and combined cycle gas turbine (CCGT) were calculated to provide a reference frame, using the same financial parameters.

As summarised by the EPIA, increased capacity has been associated with cost reductions. These reductions are a result of both technological improvements and the economies of scale. Both the module and balance of system components have experienced, or have the potential to experience reductions as a result of both of these factors. According to the EPIA, the general industry trend to fewer and larger vertically integrated multinationals has increased competition and price pressure, and led to synergies between parts of the supply chain.


Whilst a detailed analysis of fossil-based power sources was not in the scope of the technology cost review, a few comments are made on the differences between new – versus existing – fossil-based electricity and the renewable technologies. The higher relative cost from new-build power stations is likely to be due to several factors. The fact that a large proportion of the existing fleet is old enough to have paid off much of its capital investment means that their electricity is closer to the short-run cost of production, primarily a function of fuel and labour costs only. In addition, higher labour and materials prices have increased the cost of new infrastructure.

Whilst PV and wind technologies differ significantly from traditional thermal generation, solar thermal uses the same steam turbine technology. Given this similarity, one might ask the question of the lower end of the projections: is it possible for CST to be competitive with newly built fossil power plants? A coal plant consists of coal-pulverising equipment, large multi-storey boilers and pollution control systems along with the steam turbine and power block, and fuel costs. The major components of a CST plant are the mirror fields, heat-transfer fluid receiver and storage systems, shell & tube heat exchangers, and a similar steam turbine and power block to a coal plant.

Only time will tell if CST can be directly competitive with new-build fossil power, but it is not inconceivable for this to occur if experience and scale can reduce the component capital costs. It must also be kept in mind that the cost analysis does not place any economic value on the ability of renewable technologies to produce power without any associated greenhouse gas emissions.

For further information on this study please see:

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