Clean Power LCOE for US energy with tax subsidies

Published on September 11th, 2013 | by Silvio Marcacci


Analysis: 50% Reduction In Cost Of Renewable Energy Since 2008

September 11th, 2013 by  

Renewable energy becoming more cost-competitive with fossil fuels isn’t news – as technology improves and more clean power generation comes online, electricity without emissions gets cheaper. But one new analysis reveals just how shockingly cheap it’s gotten.

The levelized cost of electricity (LCOE) from wind and solar sources in America has fallen by more than 50% over the past four years, according to Lazard’s Levelized Cost of Energy Analysis 7.0recently released by global financial advisor and asset manager firm Lazard Freres & Co.

Lazard’s analysis compared the LCOE for various renewable energy technologies to fossil fuels on a cost per megawatt hour (MWh) basis, including factors like US federal tax subsidies, fuel costs, geography, and capital costs.

Utility-Scale Solar, Wind Lead LCOE Charge

The LCOE analysis shows that even during one of the most turbulent times in recent memory for renewables, the environmental and economic benefits of clean energy continue to spur technological innovations and utility-scale deployments across the globe. 

According to the analysis, utility-scale solar photovoltaics (PV) and leading types of wind energy are leading the surge – the LCOE of both power sources has fallen by more than 50% since 2008. Lazard estimates that utility-scale solar PV is now a competitive source of peak energy compared to fossil fuel power in many parts of the world without subsidies.

In fact, Lazard finds certain forms of renewable energy generation are now cost-competitive with many fossil fuel generation sources at an unsubsidized LCOE, even before factoring in externalities like pollution or transmission costs.

Specifically, solar PV and wind energy both fall within the range of $68-$104 per MWh, making them extremely competitive with baseload power from coal ($65-$145 per MWh), nuclear ($86-$122 per MWh), and integrated gasification combined cycle ($95-$154 per MWh).

Financial Incentives, Energy Storage Could Boost Fortunes

The LCOE of electricity from those renewable energy sources falls even further when US federal tax subsidies are included in the equation. Lazard realistically admits incentives are key to pushing renewables toward grid parity without subsidies, but finds wind ($23-$85 per MWh) and thin-film utility scale solar PV ($51-$78 per MWh) especially competitive.

While wind is progressing quite well – generally speaking – against fossil fuel generation in Lazard’s analysis, it could get much cheaper much faster in the near future when combined with energy storage. The report cites numerous examples of existing battery storage combining with off-peak wind production to demonstrate value in load shifting and peak power applications.

And while utility-scale solar PV leads the LCOE charge, rooftop solar PV remains expensive by comparison – a trend evident in recent summaries of the US market. Ironically, Lazard says this may be attributable to the generous combination of multiple levels of tax incentives, which distort resource planning by excluding externalities in long-term outlooks.

Interestingly enough, solar is becoming an economically viable peaking generation source in many geographic regions of the US. This trend is especially apparent in transmission-constrained metropolitan areas like New York City, Los Angeles, Washington DC, Chicago, and Philadelphia. Lazard estimates solar could become even more competitive as prices continues to fall, but the observation is somewhat muddled by factors like system reliability, stranded costs of distributed generation for existing systems, and social costs/externalities of rate increases.

“Increasingly Prevalent” Renewable Energy Use

But the most promising potential for the future of renewable energy sources may be their value as distributed small-scale generation. Lazard estimates that the expensive capital construction costs of fossil fuel generation boost their LCOE when utilities consider future resource planning across an integrated system, and make them less cost-competitive – without even considering externalities.

Lazard concedes that the future of renewable energy is far from set though, and still faces significant challenges like establishing long-term financing structures in the face of falling subsidy levels, excess manufacturing capacity, and the globalization of markets.

However, renewable energy’s role in America’s energy mix is likely to continue growing despite these challenges, concludes the analysis. “We find that alternative energy technologies are complementary to conventional generation technologies, and believe that their use will be increasingly prevalent for a variety of reasons.”

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About the Author

Silvio is Principal at Marcacci Communications, a full-service clean energy and climate policy public relations company based in Oakland, CA.

  • Diego Matter

    Unfortunately, as always, Energy Efficiency as the by far cheapest option of all ($0 to $50 in the first graphic), went unnoticed.

    If you save 80% of demand (like in a passive house, one does not have to produce it in the first place.

    But the average US energy consumption is still ten times that. The Energy Efficiency potential is unbelievably high. And don’t forget the intangible benefits like living in a healthy and comfortable house.

    The following links are a good start to become energy efficient at home (its easy): – American Council for an Energy-Efficient Economy

  • Peak Solar

    I think Solar Energy has set its roots in US as many people are turning towards it, Solar kits are been installed all over the US and even the white house !!

  • Brendan

    Why fireman not risking there life when solar panels are on the rooftop. It’s the government fault to allowed high voltage DC solar panel power on rooftop endangering tradesman on roofs.

    Tradesman is now refusing to carry out work on solar power rooftop as reports of tradesman death.

    There are worldwide reports of solar panel modern day high voltage DC system going up in fire up 7000 degree’s in temp. Reports are coming from Germany, Australia, UK, Portugal, France, Canada, Spain, Japan, and India and so on.

    All the reported fires had only less then minute to evacuate there premises as the fire took place so quickly.

  • Frank Gallagher

    It’s unfortunate that this report omitted Waste-To-Energy in its analysis of the Renewable Energy sector. WTE is a safe, reliable and cost-effective source of domestic energy with enormous potential.

    • Matt

      If not talking sewage, then WTE is still mostly “burn it”. Which has the same toxic/externals issues as coal. The difference being that the make up of the flume gas has a bigger mix of chemicals. IMHO, but other will I’m sure disagree.

  • Jouni Valkonen

    note that with small storage or electric vehicle, roof-top solar can substitute significant amounts of grid electricity. Retail price for grid electricity is more expensive than what is the generation cost.

    Also the actual lifespan of solar panels is unknown. I would guess that this study assumed 20 year estimated lifespan for solar panels, but it may actually be 30–40 years or even 50 years. No one actually knows what is the real world performance of solar panel longevity.

    • Bob_Wallace

      We’ve got 40 year old panels in service. A study panels over 30 years found that they lost 0.5% of output per year, so a 40 year old panel should be outputting about 80% of what it did when new.

      It’s likely that panel life is longer than with earlier models. Panel failure (~2% over 30 years) was largely due to connector corrosion/failure and delamination.

      • Shiggity

        +1, panels are guarenteed by most manufacturers for 25 years. String inverters typically last 7-10 years depending on weather conditions. Micro-inverters, on the other hand, are typically warrantied for 25 years.

        Just think how much a financing project could change if you used 20 years instead of 25. A project could be unviable @ 20 but viable @ 25.

        After 25 years you’re getting free electricity. Amoritized solar is going to look like you’re getting electricity for like 1/10 of a cent per kwh.

        • JamesWimberley

          ¨Just think how much a financing project could change if you used 20 years instead of 25¨ Or you can actually work it out using the NPV function in a spreadsheet. With a discount rate of 5% – and most businesses use higher ones – the difference is not great. You can of course argue like Lord Stern that we should be using lower social rates of discount, of the order of 2%-3% (the trend growth rate in productivity). But privately we don´t.

          • Jouni Valkonen

            Discount rate may be 5 % or higher, but also it is good to note that it is possible to pay back solar panels in 10 years and then you have 20–30 years free electricity that can be supplemented with adequate batteries.

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