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While
continued cost reductions are expected as technologies mature and
supply chains strengthen, short-term challenges remain. Geopolitical
shifts including trade tariffs, raw material bottlenecks, and
evolving manufacturing dynamics, particularly in China, pose risks
that could temporarily raise costs.
Higher costs are likely to persist in Europe and North America,
driven by structural challenges such as permitting delays, limited
grid capacity, and higher balance-of-system expenses. In contrast,
regions like Asia, Africa, and South America, with stronger learning
rates and high renewable potential, could see pronounced cost
declines.
United
Nations Secretary-General António Guterres said:
“Clean energy is smart economics – and the world is following the
money. Renewables are rising, the fossil fuel age is crumbling, but
leaders must unblock barriers, build confidence, and unleash finance
and investment. Renewables are lighting the way to a world of
affordable, abundant, and secure power for all.”
IRENA
Director-General Francesco La Camera added: “The
cost-competitiveness of renewables is today’s reality. Looking at all
renewables currently in operation, the avoided fossil fuel costs in
2024 reached up to USD 467 billion. New renewable power outcompetes
fossil fuels on cost, offering a clear path to affordable, secure,
and sustainable energy. This achievement is the result of years of
innovation, policy direction, and growing markets. However, this
progress is not guaranteed. Rising geopolitical tensions, trade
tariffs, and material supply constraints threaten to slow the
momentum and drive-up costs. To safeguard the gains of the energy
transition, we must reinforce international cooperation, secure open
and resilient supply chains, and create stable policy and investment
frameworks—especially in the Global South. The transition to
renewables is irreversible, but its pace and fairness depend on the
choices we make today.”
IRENA’s 2024 report also explores the structural cost drivers and
market conditions shaping renewable investment. It concludes that
stable and predictable revenue frameworks are essential to reduce
investment risk and attract capital.
Mitigating financing risk is central to scaling renewables in both
mature and emerging markets. Instruments such as power purchase
agreements (PPAs) play a pivotal role in accessing affordable
finance, while inconsistent policy environments and opaque procurement
processes undermine investor confidence.
Particularly, integration costs are emerging as a new constraint on
deployment of renewables. Increasingly, wind and solar projects are
delayed due to grid connection bottlenecks, slow permitting and
costly local supply chains. This is acute in G20 and emerging
markets, where grid investment must keep pace with rising electricity
demand and the expansion of renewables.
Furthermore, financing costs remain a decisive factor in determining
project viability. In many developing countries of the Global South,
high capital costs, influenced by macroeconomic conditions and
perceived investment risks, significantly inflate the levelized cost
of electricity (LCOE) of renewables.
For example, IRENA found that while onshore wind generation costs
were similar in Europe and Africa with around USD 0.052/kWh in 2024,
the cost structures varied significantly. European projects were
capital-expenditure driven, while African projects bore a much higher
share of financing costs. IRENA’s assumed cost of capital ranged from
3.8% in Europe to 12% in Africa, reflecting differing perceived risk
profiles.
Finally, technological advances beyond generation are also improving
the economics of renewables. The cost of battery energy storage
systems (BESS) has declined by 93% since 2010, reaching USD 192/kWh
for utility-scale systems in 2024. This reduction is attributed to
manufacturing scale-up, improved materials and optimised production
techniques.
Battery storage, hybrid systems, combining solar, wind and BESS as
well as digital technologies are increasingly vital for integrating
variable renewable energy. Artificial intelligence(AI)-enabled
digital tools are enhancing asset performance and grid
responsiveness. However, digital infrastructure, flexibility, and
grid expansion and modernisation remain pressing challenges,
including in emerging markets, where the full potential of renewables
cannot be realised without further investment.
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