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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The levelized cost of electricity (LCOE) produced by renewable technologies such as onshore wind and utility-scale solar photovoltaic (PV) continues to be lower than for electricity produced by coal, natural gas or nuclear power plants, according to the 15th annual assessment from the financial firm Lazard Limited (NYSE:LAZ) (New York, New York). However, the study, released October 28, found that cost declines for renewables have flattened markedly in recent years. That suggests further big declines may be unlikely.
The study looked at LCOEs for various types of generation under several scenarios, including with and without federal subsidies for renewable energy, with a carbon tax, with different fuel price assumptions, at various costs of capital and at different scales such as rooftop solar, community solar, rooftop solar for commercial & industrial (C&I) customers, and utility-scale PV (more than 100 megawatts) and solar thermal generation.
Without subsidies, onshore wind generation can produce electricity for between $26 and $50 per megawatt-hour (MWh), the Lazard report said. That compares favorably to electricity generated from gas peaking plants ($151 to $196 per MWh), nuclear ($131 to $204 per MWh) and coal ($65 to $152 per MWh). Natural gas combined-cycle plants (NCGGs) penciled out to between $45 and $74 per MWh.
Unsubsidized utility-scale solar PV has a LCOE of between $28 and $41 per MWh, depending on the different technologies, the report said. Solar thermal has a much higher LCOE.
Click on the image at right to view top-line LCOE estimates for various generating technologies in the new Lazard report.
When renewable energy subsidies are factored in, utility-scale LCOEs decline, though in some cases the decline was not substantial. For example, subsidies sightly reduce the LCOE of utility-scale solar PV, to a range of $24 to $37 per MWh from the unsubsidized range of $28 to $41 per MWh.
But utility-scale onshore wind does experience a significant decline when subsidies are included: subsidized wind generation's LCOE falls to a range of $9 to $24 per MWh from the unsubsidized level of $26 to $50 per MWh.
Click on the image at right to see the subsidized vs. unsubsidized range of LCOEs for renewable energy technologies.
One of the report's key takeaways is that the cost of renewable energy is not falling as fast as it had in the past. For example, onshore wind LCOEs have fallen 72% between 2009 and 2021, or about 10% per year compounded annually. But over the last five years, the rate of cost declines has fallen to about 4% per year on a compounded basis.
A similar story is playing out with unsubsidized LCOEs for solar PV electricity, though the cost declines there have not yet flattened out as much as wind. The Lazard study estimated that solar LCOEs have declined 90% since 2009, or about 18% per year on a compounded basis. But over the last five years, the rate of cost declines has fallen to a still-meaningful 8% compounded annually.
The report commented, "In light of material declines in the pricing of system components and improvements in efficiency, among other factors, wind and utility-scale solar PV have exhibited dramatic LCOE declines. However, as these industries have matured, the rates of decline have diminished."
Click on the image at right to see the unsubsidized LCOEs for utility-scale wind and solar have flattened dramatically.
Enactment of a carbon tax, an option favored by many economists but adamantly opposed by politicians, makes the economics of renewable energy even stronger, as it pushes up the cost of electricity produced by conventional generation. A carbon tax of between $20 and $40 per ton would push up the LCOE from coal plants to between $86 and $165 per MWh, according to the Lazard study. A carbon tax would push up the LCOE range for NGCCs to between $53 and $93 per MWh. The LCOE of a gas-peaking plant would shoot up to a range of $164 to $218 per MWh under a carbon tax.
Click on the image at right to see how a carbon tax could affect the LCOE range of hydrocarbon-fired generators.
Although the Lazard study did not opine on the likelihood of a carbon tax, the Biden administration's goal of decarbonizing the Power sector may make a politically questionable scenario somewhat less unlikely. For more on the Biden administration's goal of decarbonizing the Power sector as a first step to decarbonizing the U.S. economy, see October 25, 2021, article - Biden Scrambles to Find Carbon Cuts as Clean Electricity Plan Blocked and April 27, 2021, article - Trade Groups Support, with Caveats, Biden's Plan to Halve Carbon Emissions.
Lazard looked at another angle to the cost of electricity -- the capital cost to build different types of generation -- and again found renewables' capital costs to be competitive with some conventional sources of electric generation. Capital costs to construct utility-scale solar PV or onshore wind generation ranged from $800 to $1,350 per installed kilowatt (kW) of capacity. Gas peakers can be built at a lower capital cost of between $700 and $925 per kW of capacity while NGCCs can be constructed for between $700 and $1,300 per kW. Coal and nuclear have much higher capital costs.
Click on the image at right to see Lazard's estimate of capital costs to construct various types of generation technologies.
As numerous observers have remarked, energy storage is the key to achieving wider deployment of renewable generation technologies. In a separate report on the levelized cost of storage (LCOS) released at the same time at its annual LCOE study, Lazard estimated the cost of storage in front of the meter ranges from $55 to $451 per kilowatt-year of capacity, depending on the size of a storage system, its duration and whether the storage is deployed in wholesale markets or in the transmission & distribution (T&D) system of an electric company.
Click on the image at right to see Lazard's estimated levelized cost of storage for different sized systems and deployments.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
The study looked at LCOEs for various types of generation under several scenarios, including with and without federal subsidies for renewable energy, with a carbon tax, with different fuel price assumptions, at various costs of capital and at different scales such as rooftop solar, community solar, rooftop solar for commercial & industrial (C&I) customers, and utility-scale PV (more than 100 megawatts) and solar thermal generation.
Without subsidies, onshore wind generation can produce electricity for between $26 and $50 per megawatt-hour (MWh), the Lazard report said. That compares favorably to electricity generated from gas peaking plants ($151 to $196 per MWh), nuclear ($131 to $204 per MWh) and coal ($65 to $152 per MWh). Natural gas combined-cycle plants (NCGGs) penciled out to between $45 and $74 per MWh.
Unsubsidized utility-scale solar PV has a LCOE of between $28 and $41 per MWh, depending on the different technologies, the report said. Solar thermal has a much higher LCOE.
When renewable energy subsidies are factored in, utility-scale LCOEs decline, though in some cases the decline was not substantial. For example, subsidies sightly reduce the LCOE of utility-scale solar PV, to a range of $24 to $37 per MWh from the unsubsidized range of $28 to $41 per MWh.
But utility-scale onshore wind does experience a significant decline when subsidies are included: subsidized wind generation's LCOE falls to a range of $9 to $24 per MWh from the unsubsidized level of $26 to $50 per MWh.
One of the report's key takeaways is that the cost of renewable energy is not falling as fast as it had in the past. For example, onshore wind LCOEs have fallen 72% between 2009 and 2021, or about 10% per year compounded annually. But over the last five years, the rate of cost declines has fallen to about 4% per year on a compounded basis.
A similar story is playing out with unsubsidized LCOEs for solar PV electricity, though the cost declines there have not yet flattened out as much as wind. The Lazard study estimated that solar LCOEs have declined 90% since 2009, or about 18% per year on a compounded basis. But over the last five years, the rate of cost declines has fallen to a still-meaningful 8% compounded annually.
The report commented, "In light of material declines in the pricing of system components and improvements in efficiency, among other factors, wind and utility-scale solar PV have exhibited dramatic LCOE declines. However, as these industries have matured, the rates of decline have diminished."
Enactment of a carbon tax, an option favored by many economists but adamantly opposed by politicians, makes the economics of renewable energy even stronger, as it pushes up the cost of electricity produced by conventional generation. A carbon tax of between $20 and $40 per ton would push up the LCOE from coal plants to between $86 and $165 per MWh, according to the Lazard study. A carbon tax would push up the LCOE range for NGCCs to between $53 and $93 per MWh. The LCOE of a gas-peaking plant would shoot up to a range of $164 to $218 per MWh under a carbon tax.
Although the Lazard study did not opine on the likelihood of a carbon tax, the Biden administration's goal of decarbonizing the Power sector may make a politically questionable scenario somewhat less unlikely. For more on the Biden administration's goal of decarbonizing the Power sector as a first step to decarbonizing the U.S. economy, see October 25, 2021, article - Biden Scrambles to Find Carbon Cuts as Clean Electricity Plan Blocked and April 27, 2021, article - Trade Groups Support, with Caveats, Biden's Plan to Halve Carbon Emissions.
Lazard looked at another angle to the cost of electricity -- the capital cost to build different types of generation -- and again found renewables' capital costs to be competitive with some conventional sources of electric generation. Capital costs to construct utility-scale solar PV or onshore wind generation ranged from $800 to $1,350 per installed kilowatt (kW) of capacity. Gas peakers can be built at a lower capital cost of between $700 and $925 per kW of capacity while NGCCs can be constructed for between $700 and $1,300 per kW. Coal and nuclear have much higher capital costs.
As numerous observers have remarked, energy storage is the key to achieving wider deployment of renewable generation technologies. In a separate report on the levelized cost of storage (LCOS) released at the same time at its annual LCOE study, Lazard estimated the cost of storage in front of the meter ranges from $55 to $451 per kilowatt-year of capacity, depending on the size of a storage system, its duration and whether the storage is deployed in wholesale markets or in the transmission & distribution (T&D) system of an electric company.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
