The relative economics of existing generation have improved as rising new-build costs across all technologies, together with execution challenges tied to supply chains, inflation, tariffs, permitting and macroeconomic uncertainty, have made replacement capacity more expensive and difficult to deliver, Lazard said in the 19th edition of its Levelized Cost of Energy+ (LCOE+) report.
“However, the marginal cost of operating conventional generation remains sensitive to fuel prices, particularly natural gas and coal, which increased year-over-year in this year’s analysis and can fluctuate based on weather, geopolitical events and broader commodity market conditions,” Lazard said.
This edition of the report “arrives at a pivotal moment for the energy sector, as unprecedented power demand growth, rising new-build costs across all technologies, and intensifying focus on reliability and affordability are reshaping how industry participants, policymakers and investors think about the generation mix,” Lazard said.
Other key findings from the report:
Renewables Remain Lowest Cost New-Build Generation
“Despite rising and inflationary cost pressures across all generation technologies, renewables remain the most cost-competitive form of new-build generation on an unsubsidized basis and will account for the majority of near-term capacity additions in the U.S.,” the report said.
Continuous upward revisions to demand projections have driven a sharp increase in announced new-build gas generation despite a 15-year high LCOE, which is expected to continue to rise, and historically long development and equipment delivery timelines, Lazard said.
Unprecedented Demand Reinforces Need for Diverse Generation
Rising power demand and intensifying reliability considerations, “as evidenced by the increasingly broad application of sophisticated capacity accreditation methodologies across the generation stack, including for fossil resources, are compounding the pressures already confronting the industry, from pipeline capacity constraints to rising and inflationary cost pressures,” the report said.
Meeting this demand requires substantial new infrastructure, “yet development timelines remain protracted, and these challenges are further exacerbated by permitting delays, all of which increase costs and reduce reliability.”
Facilitating investment in grid infrastructure, “while safeguarding the interests of affected stakeholders, is therefore critical.”
In this context, the LCOE+ “reinforces that an acceleration of permitting and approval processes is needed to meet growing demand and to enhance overall system reliability and security. The analysis also continues to reinforce the need for, and value of, a diverse generation fleet.”
Storage Costs Are Rising, Reversing Recent Declines
Lazard’s analysis shows an increase in costs for standalone storage configurations, reversing last year’s declines.
This year, the effect of tariffs on lithium-ion battery imports has materialized, curtailing access to the low-cost Chinese cell supply that previously drove costs lower, it said.
While the "One Big Beautiful Bill Act" preserved the storage ITC through 2033, new Foreign Entity of Concern restrictions have accelerated battery supply chain diversification away from China, including toward Southeast Asian manufacturing capacity and domestic suppliers, Lazard reported.
"Still, battery energy storage remains an important resource to address higher levels of intermittent generation."
