Pay-back time: Increasing electricity prices and decreasing costs make renewable energy competitive

Abstract

The global energy transition needs a large-scale rollout of electricity generation from renewable energy sources (RES). Leading nations such as Spain, Japan, and Germany have invested early and substantially in RES. This leadership has been associated with high expenditures, but the trend is reversing as RES become more competitive. First, levelized costs of electricity for RES have decreased significantly and second, wholesale prices for electricity have increased, due to more ambitious climate protection and rising fuel prices.

Despite favorable developments indicating a decline in the financial support needed for renewable deployment—and the fact that many countries still need to significantly increase their renewable capacities to meet climate objectives—renewable support has once again come under criticism. This paper demonstrates that cost-related criticism and concern is often unwarranted. By quantifying the aggregated subsidies of all RES units in Germany, which arguably are among the highest in the world, our findings reveal that: i) the net support costs of RES have been high in the past, ii) most net subsidies have already been paid and iii) newer installations of wind offshore, wind onshore and ground mounted PV are economically profitable. In addition, we show that wind onshore has been the most cost-efficient technology over time and explore the remarkable evolution of solar technologies, transitioning from one of the costliest to one of the most cost-effective options.