The cost of renewable energy sources like wind and solar continue to fall drastically, and it was only a matter of time before they were cheaper than fossil fuels. The International Renewable Energy Agency (IRENA) believes that’ll happen by 2020 based on their new report. Prices could be as low as three cents per kilowatt-hour for onshore wind and solar photovoltaic projects over the next two years.

Across the board, average costs of producing renewable energy projects have been very competitive. Hydropower was the cheapest at five cents per kilowatt-hour, onshore wind at six cents, and bioenergy and geothermal sources at seven cents. Solar projects are still high in comparison at 10 cents per kWh, but that figure has dropped 73 percent since 2010. That’s led to residential systems being 67 percent cheaper.

Onshore wind has fallen by 23 percent in the same timeframe. Based on projects that have been auctioned and will be in development over the coming years, renewable energy will end up being competitive or even cheaper than fossil fuels by 2020. Auction prices for solar photovoltaic and onshore wind projects have reached a record-low three cents per kWh in places like Dubai, Mexico, Chile, Brazil, Canada, and Germany.

“Electricity from renewables will soon be consistently cheaper than from most fossil fuels,” the agency noted in their executive summary. “By 2020, all the renewable power generation technologies that are now in commercial use are expected to fall within the fossil fuel-fired cost range, with most at the lower end or undercutting fossil fuels.”

Image: IRENA Renewable Cost Database

IRENA believes there are three main reasons why this will happen: improvements in technology, a competitive market, and more experienced developers in the industry. Technological advancement will make these renewable sources more efficient. As we’ve seen, scientists continue to push the boundaries for solar generation and making panels convert more sunlight into energy.

Bigger turbines will create more wind power, and the intermittency of both sources can be optimized with large-scale battery backup facilities. Competitive procurement through auctions has continued to lower the bar and set records throughout last year. While we’ll still see rates reach three cents per kWh, the average by 2020 is expected to be around five cents for onshore wind and six cents for solar photovoltaic auctions.

Even though much of the focus was on solar and wind, hydropower, bioenergy, and geothermal sources were all part of the ongoing process to make renewable energy a more viable option. According to the study, over $1 trillion has been invested into this industry worldwide and it has created around 10 million job opportunities.

The more renewable energy capacity increases, the further it will lower electrical costs. As it doubles, investment drops by nine percent and electricity generation costs drop by 15 percent. Not only is renewable power benefiting the environment, but in a few years it will become a better economic option for many businesses and residents.

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Decline in renewable energy prices since 2010 to cheaper than fossil fuels by 2020