Prospects for green energy: should we expect price increases?

2023 is no exception for green energy, which has rapidly gained popularity around the world over the past decade. Solar panels, wind turbines, biofuel - all this has become commonplace in Ukraine. But will this trend continue next year and how much will the price of renewable energy change?

Experts expect further growth in renewable energy volumes

According to the latest report from the International Energy Agency, global renewable energy capacity is expected to increase by 440 GW by the end of this year, the largest absolute increase ever, driven by increased solar power capacity.

Rising political tensions, rising fossil fuel prices and energy security concerns are driving the uptake of solar and wind power, says the IEA's Renewable Energy Market Update report.

Growth is expected to continue in 2024, when total global renewable electricity capacity rises to 4,500 GW, equal to the total capacity of China and the United States combined.

“Solar and wind energy are leading the world's rapid energy growth. The global energy crisis has shown that renewable energy is critical to making energy supplies not only cleaner, but also more secure and affordable, and governments are responding by pushing for faster deployment,” said the IEA’s executive director. Fatih Birol.

To accommodate this growth in renewable energy, Birol advised adapting policies to changing market conditions and developing grid modernization and expansion plans to ensure maximum benefit from the enormous potential of solar and wind energy.

In 2023, solar power accounted for 65% of total capacity additions as higher electricity prices fueled rapid growth of solar power plants.

Wind power capacity is expected to increase by about 70% year-on-year by the end of the year after several difficult years of slow growth.

The report noted that the faster growth was mainly due to the completion of projects delayed due to COVID-19 restrictions in China, as well as supply chain issues in Europe and the US.

The forecast for renewable energy capacity growth in Europe has been revised upward by 40% compared to what it was before Russia began its war in Ukraine. New solar and wind capacity is estimated to have already saved electricity consumers in the European Union €100 billion between 2021 and 2023, displacing more expensive fossil fuel generation.

In several European countries, including Spain, Germany and Ireland, the combined share of wind and solar power in total annual electricity production is expected to exceed 40% in 2024.

However, further growth in global wind capacity in 2024 will depend on whether governments can provide greater policy support to resolve permitting and auction challenges, while solar power is expected to continue its growth in 2024

“The new economic policies will also support significant green energy growth in the US and India over the next two years. China, meanwhile, is consolidating its leadership position and will account for almost 55% of global renewable energy capacity additions in both 2023 and 2024,” the IEA said.

Green energy will become cheaper in the coming years

The main reason for the rapid growth in the number of solar power plants is the falling prices for installing solar panels. The cost of renewable energy production will fall every year, while Carbon Tracker predicts that by 2040, 72% of the world's coal-fired power plants will be unprofitable.

The IEA report notes that solar energy will account for 60% of projected growth in renewable energy, primarily due to its affordability. Solar expansion has more than doubled since the previous 6-year period. The cost of solar energy is expected to fall by another 35% over the next 5 years, fueling further growth in the second half of the decade.

The cost of generating electricity from new onshore wind and solar farms is forecast to fall in 2024, but not so quickly as to fall below Covid-19 levels in most markets outside China. Although raw material and freight prices have fallen from last year's peaks, they still remain high. At the same time, developers' costs for financing projects increased due to an increase in key rates.

As a result, the global average cost of energy (LCOE) for onshore wind and solar PV in 2024 is expected to remain 10-15% above 2020 levels.

Prospects for green energy in Ukraine

As is known, in Ukraine the cost of electricity for the population is subsidized through the so-called PSO mechanism (imposition of special obligations). Although politicians periodically promise to raise the price of kWh for residential consumers to market levels, ordinary citizens are already paying more for goods and services that include the price of electricity for a significantly higher industry, GreenPowerTalk argues.

Businesses have long understood the benefits of solar energy to offset their own consumption and, looking at the war, renewable energy projects continue to be implemented. Given the falling cost of solar panels, this trend will continue. Another incentive is European requirements for the use of a share of clean energy, and additional duties on goods produced from, so to speak, dirty energy.

In the short term, this will lead to another effect: already now the cost of “green” electricity during the day reaches minimum values, and as more and more solar power plants are built in Ukraine, the cost will fall further.

However, for industrial consumers, not everything is so bad: the average hourly cost of RDN (“day ahead” is a segment of the electrical energy market in which the purchase and sale of electrical energy is carried out on the day following the trading day at free competitive prices) for the time when a solar power plant is operating, now it is more than 2 hryvnia.

The next factor that, as solar power plants develop to replace their own consumption, will also affect household consumers is the fee for transporting electricity. Taking into account the experience of European consumers, as well as a similar tariff for the transportation of natural gas already operating in Ukraine, the household consumer will also have to pay for the delivery of electricity. Businesses already pay almost 2 hryvnia for each kWh purchased, up to the RDN price. Therefore, even in the simplest case, a solar power plant for its own consumption already compensates industrial consumers for about 4 hryvnia.

Renewable energy will continue to grow over the next decade, displacing fossil fuels and reducing greenhouse gas emissions. Now we should expect a gradual equalization of the cost of kW from traditional Ukrainian energy sources, such as thermal power plants, nuclear power plants and hydroelectric power plants, and “green” electricity produced from renewable sources.