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15 Jul 2022

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Renewable power remains cost-competitive for data centers amid fossil fuel crisis

A new IRENA report shows that almost two-thirds of renewable energy added in 2021 cost less than the cheapest coal-fired options. This will give data center operators a big boost in retaining renewable energy.

Despite supply chain challenges and rising commodity prices, renewable energy costs continued to fall in 2021. The cost of electricity from onshore wind fell by 15%, offshore wind by 13%, and solar PV by 13% compared to 2020.

Globally, almost two-thirds of newly installed renewable power in 2021 had lower costs than the world's cheapest coal-fired option according to the International Renewable Energy Agency's "Renewable Power Generation Costs in 2021". Based on current fossil fuel prices, IRENA estimates that renewable energy added in 2021 will save around USD 55 billion from global energy generation costs in 2022.

According to the report, cost-competitive renewables are critical for addressing today's energy and climate emergencies by accelerating the transition in line with the 1.5°C warming limit and Paris Agreement. Considering their relatively short lead times, solar and wind energy are vital to countries' efforts to phase out fossil fuels and limit macroeconomic damage.

“While a temporary crisis response might be necessary in the current situation, excuses to soften climate goals will not hold mid-to-long-term. Today’s situation is a devastating reminder that renewables and energy saving are the future. With the COP27 in Egypt and COP28 in the UAE ahead, renewables provide governments with affordable energy to align with net zero and turn their climate promises into concrete action with real benefits for people on the ground,” says Francesco La Camera, Director-General of IRENA.

According to IRENA's cost data, investments in renewables continue to pay off in 2022. For the next 25-30 years, the 109 GW of renewable energy additions in non-OECD countries will reduce costs by at least USD 5.7 billion annually compared with the cheapest fossil fuel option.

Furthermore, high coal and fossil gas prices in 2021 and 2022 will severely erode fossil fuels' competitiveness, making solar and wind even more attractive. A surge in European fossil gas prices, for example, will make new fossil gas generation in Europe increasingly uneconomic over its lifetime, increasing the chance of stranded assets.

Based on the European example, fuel and CO2 costs for existing gas plants may be four to six times higher in 2022 than the lifetime costs of new solar PV and onshore wind plants launched in 2021. As a result of solar and wind power generation between January and May 2022, no less than USD 50 billion in fossil fuel imports, primarily gas, may have been saved.

IRENA's data suggests that not all increases in materials costs have been reflected in equipment prices and project costs. In 2022, price pressures will be more pronounced if material costs remain high. The overall benefits of cost-competitive renewables over higher fossil fuel prices may dwarf these increases.

Photo credit: Jesse De Meulenaere

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