Lazard Levelized Cost Of Energy Analysis #12 Highlights Lower Cost Of Renewables

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A levelized cost of energy analysis takes all the factors that go into determining what it actually costs to generate electricity and deliver it to the nearest wall outlet. It involves a bewildering array of factors including the cost of fuel, the cost of building a power plant, the cost of building and maintaining the electrical grid, state and federal tax policies, and the incentives available to the various actors involved in getting the electricity to consumers.

renewable energy LCOE Lazard 12

Making sense of all that information is what accounting and consulting firms like Lazard do. My colleague George Harvey did a report recently about Lazard’s LCOE analysis #11 released in November, 2017. In it, he speculated that Lazard was being too conservative when it projected an annual decrease in the cost of renewable energy of around 6% a year. The latest Lazard LCOE analysis, #12 in the series, is now available and it shows George was correct. The levelized cost of solar fell 13% over the past 12 months and onshore wind fell 7%.

Making sense of the numbers Lazard came up with is why charts were invented. Talking about this stuff in ordinary prose would send the most dedicated reader into a deep slumber within minutes. Forcing one to read the entire report could be a more effective interrogation technique than waterboarding. So bear with us if what follows seems to be more graphics than grammar.

In the preface to Analysis #12, Lazard points out that in arriving at its conclusions, it takes into account “the LCOE analysis for various generation technologies on a $/MWh basis, including sensitivities, as relevant, for U.S. federal tax subsidies, fuel prices, and costs of capital.” It includes “a decomposition of the LCOE for various generation technologies by capital cost, fixed operations and maintenance expense, variable operations and maintenance expense and fuel cost, as relevant.”

Enough with the preamble. Show us the charts!

In the summary to its latest report, Lazard says, “Levelized Cost of Energy Analysis #12 shows a continued decline in the cost of generating electricity from alternative energy technologies, especially utility-scale solar and wind. In some scenarios, alternative energy costs have decreased to the point that they are now at or below the marginal cost of conventional generation.”

[Note: Offshore wind is not included in this report. By some accounts, offshore wind generation is even less expensive than onshore wind. Why offshore wind was not included in this year’s analysis is unknown. Perhaps there is too little of it installed yet to provide reliable data, but that is just a guess.]

“The low end levelized cost of onshore wind-generated energy is $29/MWh, compared to an average illustrative marginal cost of $36/MWh for coal. The levelized cost of utility-scale solar is nearly identical to the illustrative marginal cost of coal, at $36/MWh,” the report says. “This comparison is accentuated when subsidizing onshore wind and solar, which results in levelized costs of energy of $14/MWh and $32/MWh, respectively.”

The next chart shows the decline in cost of wind and solar energy from an historical perspective. “The mean levelized cost of energy of utility-scale PV technologies is down approximately 13% from last year and the mean levelized cost of energy of onshore wind has declined almost 7%.”

Storage Costs Are Also Declining

When the conversation turns from generating electricity to storing it in batteries, lithium ion is the least expensive option, although Lazard does note that cobalt and lithium carbonate are both commodities that are subject to price fluctuations. “Project economics for a variety of illustrative energy storage applications have modestly improved year-over-year, reflecting improved costs rather than rising revenues, which remain dependent on local market dynamics or utility tariffs. Ancillary service products (e.g., frequency regulation), demand response and demand charge mitigation represent potentially attractive revenue opportunities.”

[Note: The latest report does not include an analysis of the cost of other storage technologies, such as pumped hydro.]

Finally, Lazard’s LCOE analysis #12 has this to say about the synergies available between renewable energy generation and battery storage. “Combining energy storage with solar PV can create value by sharing infrastructure (e.g., inverters, interconnection), reducing curtailed production, capturing ‘clipped’ solar production and/or through charging cost savings. Currently, the economics for solar PV + storage systems are most attractive for commercial use cases, but remain modest for residential and utility-scale projects.”

The Takeaway

The range of data shown in these charts indicate that the cost of renewables varies considerable from region to region and from one project to another. A new record low price for solar in Saudi Arabia does not necessarily mean the cost in Steamboat Springs will be as low. Nevertheless, renewables now cost the same or less than conventional generation from coal. That’s critical to decarbonizing the energy sector.

Flowery speeches and heartfelt protestations from politicians won’t be enough to stop the torrent of carbon dioxide emissions spewing into the Earth’s atmosphere, but economic considerations will. The biggest gains are to be had in the area of energy storage, which is still fledgling technology compared to solar and wind generation. Displacing coal, natural gas, and nuclear depends on the combined price of making and storing renewable energy. Solar and wind may be getting near the bottom of the cost curve but there are still big gains that await on the storage side of the equation.

The one factor that makes conventional generation riskier than renewables is the cost of fuel. When it comes to long term planning, the cost of sunshine and wind is fixed. No need to worry about embargoes, shortages, or one nation cornering the market and driving up prices. The era of renewables is upon us, and not a moment too soon.

See also: Whoo-Hoo! Lazard’s Levelized Cost Of Energy Version 12.0 Is Here!

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Steve Hanley

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be "woke" and doesn't really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: "The secret to change is to focus all of your energy not on fighting the old but on building the new."

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