Brief

Renewables challenge natural gas plants on price in latest Lazard analysis

Dive Brief:

  • The latest version of Lazard’s Levelized Cost of Energy Analysis (LCOE) shows a continued decline in the cost of generating electricity from solar technology and other renewables, bringing them into close competition with natural gas combined cycle plants.

  • Lazard’s LCOE analysis tracked cost declines of about 11% for utility scale PV technologies and about 26% for rooftop residential PV compared with last year, along with lesser declines for other renewable technologies. But authors noted those variable resources require support from generators or energy storage.

  • Lazard also released its latest Levelized Cost of Storage Analysis (LCOS), which shows cost declines in most battery storage technologies, but with wide variations depending on the type of application and battery technology.

​Dive Insight:

Lazard’s annual LCOE study, released last week, is widely read in the power sector. The latest edition shows continued cost declines for alternative energy technologies, indicating their enhanced competitiveness without subsidies. 

On an unsubsidized basis, Lazard estimated the LCOE of land-based wind to be between $32/MWh and $62/MWh, lower than that of a combined cycle natural gas plant, which came in at between $48/MWh and $78/MWh. 

Utility-scale solar costs had a smaller range, coming in between $46/MWh and $56/MWh for thin film installations. Rooftop and community solar costs were higher, due largely to scale. 

Lazard's unsubsidized levelized cost of energy comparison
 

Achieving a LCOE near that of natural gas is important for wind and solar energy because gas generators typically set the prices in wholesale energy markets. But the authors also note that despite great promise in energy storage technologies, these renewables will not be capable of fulfilling the baseload generation needs of a developed economy for the “foreseeable future.”

Other technologies, such as onshore wind, geothermal, and biomass, declined at the margins from last year, according to Lazard. Those smaller declines reflect the maturing of technology and a relatively low level of investment. The median cost of generation from offshore wind generation, for example, declined about 22%, but remains “substantially more expensive than onshore wind facilities, especially in the U.S.,” Lazard says.

It was the second year for Lazard’s storage cost study, LCOS, which was conducted with support from Enovation Partners and was prepared using a “refined methodology” from last year’s report.

Because of the change in methodology, Lazard cautioned against making broad comparison with the previous year’s study, but said that direct comparisons show that storage costs are generally dropping.

The median cost of using lithium-ion technologies, for example, decreased compared with last year by about 12%, 24% and 11% for peaker replacement, transmission investment deferral and residential use cases, respectively. Lazard attributed the declines to declining capital costs, among other factors.

Lazard also sees great promise in behind-the-meter storage systems at factories, universities and hospitals, but noted that economic viability depends on local market structure and incentives.

Unsubsidized levelized cost of storage comparison

 

Lazard’s analysis does not treat "value stacking," the combining of revenue streams to move a storage project closer to economic viability, but the study could be used to compare the costs of different technologies in different applications.

Lazard expects that, if industry projections materialize over the next five years, cost-effective energy storage technologies will have increasingly broad applications across the power grid and could provide an alternative to conventional gas-fired peaking plants in certain areas, as well as extending the usefulness of renewable generation such as wind and solar farms.

“Our studies continue to demonstrate that there are no one-size-fits-all solutions in energy generation or storage,” George Bilicic, vice chairman and global head of Lazard’s power, energy and infrastructure group, said in a statement. “The demands of a developed economy will continue to require both traditional and alternative energy sources as the technologies driving renewable energy evolve.”

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Filed Under: Generation Transmission & Distribution Solar & Renewables Energy Storage Distributed Energy Efficiency & Demand Response Regulation & Policy Technology
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