Published on November 12th, 2018 | by George Harvey0
Whoo-Hoo! Lazard’s Levelized Cost Of Energy Version 12.0 Is Here!
November 12th, 2018 by George Harvey
We have a reason to cheer! Lazard’s Levelized Cost of Energy Analysis – Version 12.0 has been released. There are times that I love numbers. And these are great numbers.
The Levelized Cost of Energy (LCOE) takes into account not only the price of energy as it goes to market, but also the values of any subsidies it gets. The financial advisers at Lazard issue their analysis annually to help us maintain a picture of what the real costs of energy are.
By using the data in Lazard’s analysis, we can see how various forms of energy used to generate electric power stack up against each other. In the past, we have seen LCOE figures that show the cost of electricity from solar and wind falling to meet the costs of what is generated by coal, nuclear, and natural gas. Now, we can see that trend has continued pretty much as it had, but in doing so, it is hitting new milestones. The costs of renewable energy are getting into territory where fossil fuels are no longer competitive.
We might consider learning curves here. Wright’s Law says the specific curves for new technologies are rather predictable, once the rate of cost decline has been determined empirically. Solar photovoltaics (PV), windpower, and batteries are all still relatively new technologies that are noticeably following their learning curves. The thermal power generating technologies of coal, nuclear, and natural gas are not new, and what learning curves they might have are no longer relevant in the face of such other factors as fuel costs.
What this means is that we can follow changes in cost with some degree of confidence that they will continue. Costs of power from solar and wind have shown specific rates of decline, that appear to be predictable. Costs of power from coal, nuclear, and gas have been more or less steady.
With the new LCOE analysis, we see that trends identified in the past for the learning curves of solar and windpower have continued to unfold pretty much as expected. The cost of electricity from crystalline solar PVs has fallen 88% over the past nine years, providing a really beautiful picture of an exponential decline. We might note that this suggests a fairly steady rate of decline at 21% per year. In the same time, windpower has fallen 69%, implying an annual rate of decline of about 12%.
At the same time, the cost of nuclear power has increased 23%, and the cost of power from coal has decreased 9% over nine years. The cost of power from combined cycle natural gas (CCNG) has declined about 30%, but this is largely due to increased use of fracking, which cannot be counted on to continue to drive the cost down.
Looking at the figures, we can see even more clearly that the least expensive electricity now comes from renewable technologies. On the basis of cost per megawatt-hour for solar PVs, it ranges from $36 to $44, and for onshore windpower, it ranges from $29 to $56. By contrast, for CCNG, it ranges from $41 to $74, for coal, the range is from $60 to $143, and for nuclear, it is from $112 to $189. Windpower and solar PVs might compete with each other nearly head-on, but both will often beat CCNG, and both are always likely to beat both coal and nuclear.
Another thing to consider here is a comparison of the declining in the costs of renewable technologies with the marginal costs of fossil fuels and nuclear power. We should pay special attention to the the chart, “Levelized Cost of Energy Comparison – Alternative Energy versus Marginal Cost of Selected Existing Conventional Generation.” The marginal cost for coal is given as $27 to $45, and that for nuclear is given at $24 to $31. Thus the unsubsidized costs of power from PVs and wind, at $36 to $44 and $29 to $56 respectively, are both often below the marginal cost for power from coal, and the cost for windpower has fallen into the range of the marginal cost of nuclear.
What this means is that the costs of PVs and windpower are getting so low that it is now often cheaper to get power from new renewables than it is to produce it from an old coal-burning or nuclear power plant, even if that plant is fully paid down. It is often less expensive to close the old coal plant, or even sometimes a nuclear plant, than it is to finance, build, and operate the new renewable plant that will replace it.
The implication is that the values of plants powered by fossil fuels and nuclear are themselves being eroded. When the marginal cost of power from a plant is above the cost of its new competition, there is no economic reason to keep the plant going, and the plant loses all its value. The declining value of thermal plants should be understood, and this is something that every utility, every bank, every investor, and every insurance underwriter should consider.
We hit a point several years back that no new coal-burning plants were being constructed in the United States. We only have two nuclear reactors under construction, and we might have the sense that those two are being built to salvage the money already spent on them, throwing good money after bad.
The situation for natural gas is only marginally better. In an earlier CleanTechnica article, I quoted Javier Cavada, the president of energy solutions at Wärtsilä, who said, “Combined cycles have gone to half in ‘16, half in ‘17, and this year we will see if there is any crazy person going for combined cycle.” Smart investors have already seen the CCNG industry downfall looming.
Now, it is becoming clear that generating plants powered by nuclear and fossil fuels are themselves fast becoming stranded assets. This is well ahead of the huge write-downs fossil fuel extraction companies would have to make if they leave 80% of their future products in the ground to stop climate change. Those untapped resources will have to be written down because they are losing market value and there will be no reason to pull them out of the ground, regardless of what fools run what governments.
Please pay attention: Way ahead of the time fossil fuels have been proposed to become stranded assets due to climate change, the plants that are using them are rapidly becoming stranded assets themselves because of competition from solar and windpower. The fuels will have no market.
So I hope no one minds if I repeat my “Whoo-Hoo!”
We should note that along with the LCOE of Energy, Lazard released its Levelized Cost of Storage Analysis, Version 4.0. Figures for storing energy also showed generally declining costs. Here, however, the decline is obscured to some degree by the fact that the technologies used are dependent on the prices of such commodities as lithium and cobalt. For this reason, it is more difficult to compare costs with those of earlier years. Nevertheless, though the figures may be harder to pin down, we can clearly say that battery costs are also declining.