DBRS Publishes Commentary on the Costs of Wind and Solar Power

DBRS Limited (DBRS) published the commentary “The North Wind and the Sun: Cost Competitiveness No Longer a Fable for Solar and Wind Power.”

The cost of utility-scale solar and wind power projects has declined rapidly over the last few years. Historically, these intermittent renewable energy projects have required subsidies to be financially viable. Today, however, some solar and wind projects are coming on line subsidy-free, selling into the grid either at market prices or at fixed-but-market-competitive prices under short-term contracts. This recent development has been spurred by the continued decline in the cost of solar modules, wind turbines and system components as well as improved efficiencies and manufacturing processes, bringing the cost of solar and wind power to levels that are competitive with conventional power projects.

A useful metric for comparing the cost of electricity generated from various sources is the levellized cost of electricity (LCOE). The LCOE can be defined as the unsubsidized long-term offtake price needed to cover costs over the lifetime of a project at a required equity hurdle rate of return. Thus the LCOE can be used as a proxy for the average price that the generating asset or project must receive for the energy it produces in order to break even over its lifetime.

This commentary compares the cost of intermittent renewable energy technologies (solar crystalline silicon photovoltaic with and without tracking and onshore and offshore wind) with more conventional energy technologies (hydro, natural gas combined cycle gas turbine (CCGT) and combined heat and power). Key inputs used in the calculation of the LCOE include capital costs; fixed and variable operating and maintenance costs, including fuel costs; taxes; and financing costs over the lifetime of a project.

Globally, solar and wind power are expected to become more cost competitive on a levellized basis than conventional energy sources, such as coal and CCGT, in the not-so-distant future — likely by 2020. In some countries, this is already the case.

The development of subsidy-free solar and wind projects is gaining traction globally. With the cost of intermittent energy becoming increasingly cost competitive with conventional energy sources, DBRS expects unsubsidized projects to become the norm for developers and investors over the next three to five years.

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A full copy of this commentary is available by contacting us at info@dbrs.com.

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