Over the past six months, new-build offshore wind and storage project costs have experienced 2% and 12% reductions, respectively, according to BloombergNEF (BNEF). Additionally, the global benchmark costs for onshore wind have decreased by 6% over the past year, remaining stable since the second half of 2022.

Another notable finding from BNEF’s analysis is the levelized cost of electricity (LCOE) for offshore wind that has reached parity with coal, marking the lowest level since data collection began in 2009.

A thriving market in China has primarily driven this achievement, according to the report. The country has set a massive target of 160 GW of solar and wind energy capacity additions in 2023, up 13.5% from the actual installations in 2022.

Moreover, onshore wind and solar projects continue to be the most cost-effective technologies for electricity generation in countries that account for 82% of global electricity production, even with a 5% reduction in the cost of fossil fuel-fired projects in the last six months.

While solar project costs have slightly increased, with fixed-axis solar projects estimated to be 2% more expensive and solar projects with trackers experiencing a 12% increase, logistics costs have declined from their record highs. The relief in shipping rates from Asia has benefited project developers and manufacturers who have faced challenges due to high prices over the past two years.

Source: BNEF

In terms of equipment costs, fixed-axis solar projects have seen a 2% decrease due to lower polysilicon prices, while battery storage equipment costs have reduced by 1% due to the lower lithium carbonate prices.

However, equipment costs for onshore and offshore wind farms for the last year have slightly increased by 3% and 1% on average, respectively. This is mainly attributed to American and European wind turbine manufacturers grappling with the effects of commodity shortages.

Although equipment costs declining over the last few years have been favorable, financing costs have risen, offsetting some of the savings.

The weighted average cost of capital for new wind projects currently stands at 6.4%, nearly 50 basis points higher than the previous year, bringing financing costs back to 2017 levels. However, project sponsors have exercised restraint in increasing return rates, preventing a corresponding rise in equity costs.

These global cost benchmarks are based on country-level estimates considering market maturity, resource availability, project characteristics, local financing conditions, and labor costs.

Notably, China stands out as the leader in offering the most affordable renewable power projects, with highly competitive LCOEs of $23/MWh for onshore wind farms, $50/MWh for offshore wind, and $31/MWh for fixed-axis solar farms in the first half of 2023.

Despite recent challenges, the long-term trend in the renewable energy sector indicates consistent declines in project costs. Over the past decade, LCOEs for utility-scale solar, onshore wind, and offshore wind have decreased by 58-74%. BNEF anticipates these cost reductions to continue due to technological advancements, economies of scale, and reduced financing expenses.

A study by BNEF found that wind and solar projects collectively supplied over 10% of the world’s electricity demand for the first time in 2021.