16.3 Cost Trends For Solar And Wind

Long-Term Decline In Solar And Wind Costs

Over the past few decades, the costs of solar and wind power have fallen dramatically. This chapter explains how and why those costs have changed, how they are usually measured, and what these trends mean for the future energy mix. It focuses only on solar and wind, not on other technologies or broader economic concepts that are treated elsewhere.

How We Usually Measure Cost Trends

When people talk about the cost of solar and wind, they are often referring to the levelized cost of energy, or LCOE, which spreads the cost of building and operating a plant over the electricity it produces during its lifetime. The details of how to calculate LCOE are covered in another chapter, but it is important to know that most cost trend statistics for solar and wind are expressed in dollars per kilowatt hour or dollars per megawatt hour using LCOE.

Another common measure is the upfront cost of capacity, given in dollars per watt or dollars per kilowatt. This capital cost is especially important for solar and wind because they typically have no fuel cost. As a result, most of the cost is paid at the beginning when the system is installed, rather than over time as fuel expenses.

Learning Curves And Experience Curves

Solar and wind cost trends are often described using learning curves or experience curves. These curves relate the cost of a technology to the total amount of that technology that has been installed worldwide. As more capacity is built, companies learn how to manufacture and install it more efficiently, and costs fall.

A simple way to describe this relationship is with a formula where the cost $C$ depends on cumulative installed capacity $Q$:

$$ C = C_0 \left(\frac{Q}{Q_0}\right)^b $$

Here, $C_0$ is the cost when the cumulative capacity is $Q_0$, and $b$ is a negative number that captures how quickly costs drop as experience grows.

The learning rate is a related concept. It describes the percentage cost reduction that occurs each time cumulative capacity doubles. If the learning rate is 20 percent, then every time the total installed capacity doubles, the cost falls to 80 percent of its previous level.

This idea is central to understanding why continued deployment of solar and wind tends to bring further cost reductions.

Cost Trends For Solar Photovoltaics

Solar photovoltaic technologies have shown some of the most dramatic cost declines of any energy technology in history. In the 1970s, solar modules were extremely expensive and used mainly for satellites and niche applications. As manufacturing scaled up and global markets developed, prices began to fall rapidly.

A key pattern for solar PV is the strong learning rate. Historically, solar modules have had learning rates in the range of roughly 20 to 25 percent. This means that for every doubling of global installed PV capacity, module prices have fallen by about one fifth to one quarter.

There are two main cost elements to consider for solar PV. First, there is the cost of the module itself, which converts sunlight into electricity. Second, there are the so called balance of system costs. These include mounting structures, inverters, cables, labor, permitting, and other services needed to make a complete working system.

For utility scale solar plants, module costs used to dominate total project costs. As modules became cheaper, the balance of system costs began to make up a larger share. Continued cost reductions now depend heavily on improving installation methods, system design, and project development processes, alongside further advances in module manufacturing.

Residential and commercial rooftop systems have their own cost trends. Hardware improvements help, but soft costs have become especially important in these segments. Soft costs include design, permitting, sales, customer acquisition, and financing. These costs respond less to global manufacturing improvements and more to local regulations, market structure, and installer experience.

Despite these differences, the overall pattern across all segments has been clear. Solar PV has moved from being one of the most expensive sources of electricity to one of the cheapest in many regions. In locations with good sunlight and supportive policies, new solar projects can often produce electricity at a lower cost than new fossil fuel plants, and in some cases even lower than existing fossil plants.

Drivers Of Solar Cost Reductions

Several main factors have driven the long term reduction in solar PV costs. First, large scale manufacturing has brought economies of scale in factories. When more units are produced, fixed costs are spread over more products, and specialized equipment can be justified, which tends to lower the average cost.

Second, improvements in technology have increased module efficiency, that is the share of sunlight that is converted into electricity. Higher efficiency means that the same amount of land or mounting area can produce more power, and that some system components can be smaller, which can lower total costs.

Third, supply chains have become more efficient. The processes of refining silicon, fabricating cells, assembling modules, and transporting products have been optimized over time. Competition among manufacturers has also put downward pressure on prices.

Fourth, learning by doing in installation and project development has reduced labor time and waste. Installers have become faster and more skilled, system designs have become more standardized, and financing structures have become more familiar to banks and investors, which can reduce the cost of capital.

Finally, supportive policies in various countries, such as feed in tariffs, auctions, and tax incentives, have created stable markets that encouraged investment in manufacturing and deployment. As more projects were built, global cumulative capacity increased, which in turn reinforced the learning effects.

Although the dramatic declines of earlier decades may eventually slow, many of these drivers are still active. This suggests that solar PV costs may continue to fall, although probably not at the same rapid pace forever.

Cost Trends For Onshore Wind Power

Onshore wind power has also experienced significant cost reductions, though with a somewhat different pattern than solar PV. In the early stages of wind power development, turbines were relatively small and expensive per unit of capacity. As the industry matured, turbines grew larger and more efficient, and the cost per kilowatt fell.

Estimated learning rates for onshore wind have typically been lower than for solar, often in the range of about 10 to 15 percent. This means that each doubling of installed capacity led to a smaller, but still meaningful, reduction in costs.

For onshore wind, LCOE declines have resulted mainly from a mix of technological improvements and better project development. Turbines have become taller, with larger rotor diameters and more advanced blade designs. Taller towers reach stronger and more consistent winds, while larger rotors sweep a greater area, capturing more energy from the same site.

The cost of wind electricity is very sensitive to how much energy a turbine produces over its lifetime. Technological advances that increase annual electricity generation can reduce LCOE, even if the upfront capital cost per turbine does not fall dramatically.

Project developers have also become better at selecting sites, designing wind farm layouts, and negotiating supply and maintenance contracts. These improvements have reduced both capital expenditures and operating costs, contributing to a lower LCOE.

In many land based locations with a good wind resource, new onshore wind projects can now provide some of the cheapest electricity available. In such places, wind is often competitive with or cheaper than new coal or gas plants, even without direct subsidies.

Cost Trends For Offshore Wind Power

Offshore wind started later and has had a different cost trajectory from onshore wind. Initially, offshore wind was much more expensive to build and operate because it required foundations in the sea, specialized installation vessels, and more challenging maintenance access.

In early years, the LCOE of offshore wind was high, and it was often supported through strong policy incentives. However, as cumulative capacity increased and experience grew, costs began to fall significantly. Larger turbines specifically designed for offshore conditions have been central to this trend. Modern offshore turbines can be much larger than onshore ones, which allows each foundation and grid connection to serve a higher generating capacity.

Offshore wind has also benefited from improved foundation designs, better installation techniques, and more efficient operation and maintenance strategies that use advanced vessels and digital monitoring. Competitive auctions for offshore projects have helped reveal falling costs over time, with bid prices for new farms in some regions dropping sharply within a decade.

The learning rate for offshore wind is harder to estimate precisely because the industry is younger and project sizes have grown rapidly, but the downward trend in LCOE has been clear. As the sector continues to mature and floating offshore wind technologies develop for deeper waters, there is potential for further cost reductions.

Comparing Solar And Wind Cost Trends

Solar PV and wind share some patterns but also show distinct characteristics in their cost evolution. Both have followed learning curves, where costs decrease as cumulative installed capacity increases. Both have benefited from global deployment, competition, and technological innovation.

However, solar PV has generally shown a steeper learning rate and a more continuous cost decline. Module manufacturing is highly standardized and scalable, which tends to support predictable cost reductions with each doubling of capacity. As a result, graphs of module prices over time often show a relatively smooth, exponential like decline when plotted against cumulative installations.

Onshore wind costs have also fallen, but the trend has been somewhat more irregular. Wind projects are more site specific, and raw material costs, such as steel and concrete, play a larger role. Periods of commodity price increases or supply chain challenges can partly offset technological advances and learning. As a result, wind LCOE trends can show phases of rapid decline, stability, or even temporary increases.

Offshore wind has moved from a very high cost starting point towards greater competitiveness, but its cost trend is still evolving. The technology has a shorter history, and future learning may depend strongly on how quickly deployment expands and how fast floating concepts mature.

Overall, the combination of low cost solar and wind is reshaping electricity systems. The relative cost competitiveness of each technology in a given region depends on resource quality, land or sea availability, grid conditions, and local policies. In sunny regions with limited wind resources, solar may dominate new capacity additions. In windy regions with more modest solar potential, wind may have the advantage. In many places, a mix of both is attractive, because their generation patterns can complement each other over the day and across seasons.

Limitations And Future Uncertainties In Cost Trends

Although the long term trend for solar and wind costs has been downward, it is important to recognize that this trend is not guaranteed to continue at the same pace forever. Several factors can influence future cost trajectories.

First, material and commodity prices can fluctuate. If the prices of key inputs such as polysilicon, copper, aluminum, steel, or rare earth elements rise, they can temporarily slow or reverse cost declines, even if technology continues to improve.

Second, some components may approach physical or practical limits. For example, there are technical limits to module efficiency and constraints on how large and tall wind turbines can become while remaining economical and manageable. As technologies approach these limits, additional cost reductions may become harder or more expensive to achieve.

Third, non hardware costs such as permitting, grid connection, and land use can become more significant over time. In some regions, connecting new projects to the grid, acquiring suitable sites, or meeting regulatory requirements can add substantial costs that are not easily reduced by global learning.

Fourth, macroeconomic factors such as interest rates and currency exchange rates can influence the cost of financing new projects. Since solar and wind are capital intensive, the cost of borrowing money has a strong effect on LCOE. Periods of higher interest rates can increase the effective cost of renewable power, even if technology costs themselves are falling.

Despite these uncertainties, the basic economic story remains that solar and wind have already experienced large cost declines and are widely competitive with conventional generation in many markets. Future improvements are still expected, but the exact pace will depend on technology innovation, deployment volumes, policy stability, and broader economic conditions.

Implications Of Falling Solar And Wind Costs

The downward trend in solar and wind costs has major implications for energy planning, investment decisions, and climate strategies. When solar and wind become some of the cheapest sources of new electricity, they tend to attract substantial private investment, provided that regulatory frameworks and grid conditions are supportive.

Lower costs also affect policy design. In earlier periods, strong financial support mechanisms were often required to encourage renewable deployment. As costs have fallen, many countries have shifted from fixed subsidies to more market based approaches, such as competitive auctions, that rely on the inherent cost competitiveness of solar and wind.

For long term energy scenarios and strategies to reach net zero emissions, the expectation of continued relatively low costs for solar and wind plays a central role. These technologies are often assumed to supply a large share of future electricity, making it economically feasible to phase down high emitting power sources and to electrify more end uses.

However, low generation costs alone do not automatically create a fully reliable and sustainable energy system. Integration, storage, grid expansion, and demand side flexibility all become more important as the share of variable renewables grows. These topics are addressed in other chapters, but it is worth recognizing here that cost trends for solar and wind are one part of a broader system picture.

In summary, the cost history of solar and wind shows how rapid technological and industrial learning can transform once expensive niche options into mainstream, competitive sources of power. Understanding these trends helps explain the rapid global growth of renewable energy and informs expectations about future developments in the energy sector.