Renewables continue to cost less, but may “cannibalise” their own market 

Around 90% of newly commissioned renewable energy is more cost-effective for electricity generation than most fossil fuels worldwide, according to a June 2025 report from the International Renewable Energy Agency (IRENA).¹ However, while the news is good for the energy transition and climate impacts, it highlights the need for significant energy market reform to help fund further renewables. 

IRENA’s latest report said that in the full year 2024, 582 gigawatts of new renewable energy capacity – hydropower, solar, wind and geothermal – was added globally, up 20% from 2023.² 

“Onshore wind retained its position as the most affordable source of new power generation globally, with a global weighted average levelized cost of electricity (LCOE) of USD 0.034/kWh, closely followed by solar PV at USD 0.043/kWh and hydropower at USD 0.057/kWh. After more than a decade of steep cost declines, solar and wind energy prices have begun to stabilise – a natural sign of market maturity,” Francesco La Camera, Director-General of IRENA, said in the report.³ 

Renewable “cannibalisation” 

The growth in new projects will help countries to meet the target set at the COP28 UN climate conference in 2023 to triple the amount of renewables in a bid to keep a 1.5 degree Celsius (2.7 Fahrenheit) warming limit this century within reach. Continued technological innovation, increasingly competitive supply chains and growing economies of scale have helped drive down the cost of producing renewable energies, but in the near-term, there are still challenges to overcome to continue the energy transition. 

The US decision to pull back from climate commitments and renewable projects may slow things down, while its trade tariffs and accompanying geopolitical tension could drive costs back up. 

But apart from these risks, the transition has reached a tipping point where funding further renewable energy projects has become difficult because falling futures prices are leading to declining profit values for investors. Renewables have for the most part, and particularly in Europe, been driven by power purchase agreements in which projects are funded based on the expectation of profits from future electricity prices. As the share of renewables grows, an increasing number of projects are feeding electricity onto the grid simultaneously, which can even lead to negative electricity prices. In a sense, the renewables market is “cannibalising” itself, eroding its own value by driving down prices. 

Batteries and grids 

Energy market reform will be part of the answer, but companies will also need to consider shorter power purchase agreement terms and strategic storage solutions. A key factor for renewable energy sustainability is to find ways to store the power generated from projects, both to smooth out price volatility and help feed grids that are used to steady, not fluctuating, power. 

Here too, IRENA has positive news, as battery energy storage systems, continue to see rapid cost reductions. In 2024, the cost of utility-scale battery storage fell to USD 192/kWh – a 93% decline since 2010 – driven by manufacturing scale-up, improved materials and production efficiencies.⁴ 

Hybrid projects that combine wind, solar and storage are increasing, offering the smoother energy production that the market is used to.  

“In China, solar-plus-storage systems have helped mitigate curtailment risks in provinces with high renewable penetration. In the United States, the integration of BESS with new solar capacity has accelerated, enabling dispatch during peak demand and deferring investments in peaking gas plants. Hybridisation is also being explored with geothermal and CSP, particularly for long-duration storage applications,” IRENA reported.⁵ 

But investment in existing grids to expand them, make them more flexible and modernise connections is sorely needed. Grid constraints are the limiting factor for a substantial volume of wind and solar projects worldwide and integration costs can vary significantly for developers depending on project location, grid distance and infrastructure availability.⁶ 

“In some regions, permitting delays and grid infrastructure constraints are already slowing deployment. Urgent action is needed to address these barriers, and to both speed up and scale up the energy transition,” said La Camera.⁷ 

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