For years, we’ve been told some version of renewable energy being clean and cute, but not practical or cheap. Well, according to a recent and very thorough report, the vast majority of renewable projects are way cheaper than their fossil fuel counterparts.

The report, published by the International Renewable Energy Agency (IRENA) showed that “91% of newly commissioned utility-scale renewable capacity delivered power at a lower cost than the cheapest new fossil fuel-based alternative.”

Despite Donald Trump’s support for oil and coal, and despite China’s new coal-fired power stations, it’s renewables that are coming out on top.

The global energy sector is undergoing a profound and accelerating transformation. Renewable energy has reached a critical tipping point. It is no longer a peripheral player but the default economic choice for new power generation in most of the world. And this progress was driven by a virtuous cycle of relentless technological innovation, massive economies of scale in manufacturing, and increasingly supportive policy frameworks,

UN secretary general, António Guterres broke this news in a speech in New York.

“We are on the cusp of a new era. Fossil fuels are running out of road. The sun is rising on a clean energy age,” he said. “We have passed the point of no return [to fossil fuels].”

Guterres stressed that this isn’t even about clean energy anymore. It’s about economic sense and national security. Fossil fuel prices and demand are volatile and unpredictable. Countries are vulnerable to geopolitical turmoil (just take Russia’s invasion of Ukraine and Israel’s attack on Iran, for instance). Renewable energy has none of that.

“The greatest threat to energy security today is fossil fuels. They leave economies and people at the mercy of price shocks, supply disruptions and geopolitical turmoil,” he said. “There are no price spikes for sunlight. No embargos on wind.”

“This transformation is fundamentally about energy security and people’s security.”

Bodies like IRENA or the International Energy Agency (IEA) use a metric called the Levelized Cost of Energy (LCOE). LCOE represents the average net present cost of electricity generation for a power plant over its entire operational lifetime. It is a summary metric calculated by dividing the total lifecycle costs of a project by its total expected energy output. Simply put, the LCOE is the minimum price at which electricity must be sold for a project to break even over its lifetime.

According to IRENA’s analysis, the global average LCOE for onshore wind was $0.034/kWh, making it the most affordable source of new electricity worldwide. Utility-scale solar photovoltaics (PV) followed closely behind at $0.043/kWh ($43/MWh), with new hydropower at $0.057/kWh. These figures represent a dramatic decline over the past decade. For comparison, A new gas combined cycle plant, often considered the cheapest fossil fuel option, has an unsubsidized LCOE range of $0.045 to $0.115/kWh.

The economic case is settled. For investors and policymakers, this body of evidence signals that the debate is no longer if new renewables are cheaper, but rather by how much.

In 2024, a record 582 gigawatts (GW) of new renewable capacity was added globally, a nearly 20% increase over the previous year and the highest annual expansion ever recorded. This increase contributes to a reduction of prices through enhanced manufacturing efficiencies, more competitive supply chains, and accumulated project development expertise. In essence, scale makes it cheaper and we’re also getting better at installing and using solar and wind power.

This new report may even be conservative. A 2023 analysis from the IEA found that 96% of newly installed solar PV and onshore wind capacity had lower generation costs than new coal and natural gas plants. Francesco La Camera, the director general of IRENA, says that while the facts are clear, we shouldn’t take progress for granted.

“The cost-competitiveness of renewables is today’s reality. New renewable power outcompetes fossil fuels on cost, offering a clear path to affordable, secure and sustainable energy.”

“Rising geopolitical tensions, trade tariffs, and material supply constraints threaten to slow the momentum and drive up costs.”

Bill Hare, chief executive of the Climate Analytics thinktank told The Guardian that he expects even more of a gap to open up between renewables and fossil fuels.

“Any investment in new fossil fuels now is a fool’s gamble, while joining the race to renewables can only bring benefits — not just jobs and cheaper energy at stable prices, but energy independence and access where it’s needed most. Developing regions like Africa have huge energy access needs, and even bigger renewable resources. What they need now is international finance to share in the renewables revolution.”

LCOE doesn’t tell the whole story. There are both positive and negative things it’s missing. For instance, LCOE does not account for the costs of managing the variability of intermittent resources like solar and wind. Renewable energy grids need batteries to truly take off. For years, the high cost of batteries was a major impediment to the widespread adoption of renewables. The IRENA report shows that the cost of utility-scale battery energy storage has also plummeted by an astonishing 93% since 2010. But we still need more storage than we have now. What was once a prohibitively expensive add-on is now an increasingly affordable and integral component of new energy projects, and at a cost-competitive price.

The other thing to be considered is location. Most resource-rich locations for solar (deserts) and wind (plains and coastlines) are often far from cities and industrial centers. The same is true for natural gas wells, but it’s easier to transport natural gas than electricity.

However, LCOE also doesn’t capture a main advantage of renewables: externalities. Externalities are side effects of an economic activity that impose societal costs. Fossil fuels are a primary example of a product rife with negative externalities, ranging from air and water pollution, which lead to adverse health outcomes such as respiratory illnesses and cardiovascular disease, to the extensive environmental degradation from extraction and transportation. That’s not even accounting for climate change. Air pollution alone kills over 7 million people, and much of that comes from burning fossil fuels.

Yet no matter how you look at it, the new economic reality is here. The overwhelming majority of new renewable power projects are now cheaper than their new fossil fuel counterparts. The most rapid growth and highest returns in the coming decade will likely be in the technologies that enable the renewable transition.

The report can be read in its entirety here.

Tags: CostenergyLCOErenewable