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Lazard Report Finds Continued Declines In Renewable Generation Costs

Continued declines in the costs of renewable energy have made some renewable generation technologies cost competitive with conventional generation, according to the most recent edition of Lazard’s energy cost analysis.

The 16th version of Lazard’s Levelized Cost of Energy+ report analyzed the levelized costs of energy from various generation technologies, as well as energy storage technologies and hydrogen production methods, and found that selected renewable energy generation technologies are cost-competitive with conventional generation technologies under certain circumstances.

Specifically, at the low end of Lazard’s unsubsidized levelized cost of energy analysis, utility scale solar photovoltaic and onshore wind came in at $24 per megawatt hour compared with $39 per megawatt hour for the most competitive conventional generation source, combined-cycle gas-fired generation.

The low-end unsubsidized levelized cost of energy for coal and nuclear generation was $68 and $141 per megawatt hour, respectively.

The low-end unsubsidized levelized cost of energy for solar photovoltaic and onshore wind generation paired with energy storage, at $46 and $42 per megawatt hour, respectively, was approaching competitive levels with conventional generation, Lazard found.

Lazard’s analysis also found that the low-end unsubsidized levelized cost of energy for solar photovoltaic and onshore wind generation -- $24 per megawatt hour – is competitive with the marginal cost of existing conventional generation. The low-end of the marginal cost of nuclear and coal generation is $29 per megawatt hour and for combined-cycle gas generation is $51 per megawatt hour, according to the report.

Lazard’s unsubsidized levelized cost of energy analysis also showed “significant historical cost declines for utility-scale renewable energy generation technologies driven by, among other factors, decreasing capital costs, improving technologies and increased competition.”

“Even in the face of inflation and supply chain challenges, the LCOE of best-in-class onshore wind and utility-scale solar has declined at the low-end of our cost range, the reasons for which could catalyze ongoing consolidation across the sector,” the report’s authors noted, though they added, “the average LCOE has increased for the first time in the history of our studies.”

The authors said their findings reinforced their observation that across the energy industry “companies of scale that can take advantage of supply chain and other economies of scale will continue to lead the buildout of new renewable assets given the observed LCOE declines for best-in-class renewable generation relative to smaller or more regionally focused companies that have seen moderate to significant LCOE increases.” That trend, they said, “will lead to ongoing consolidation across the sector as well as development of evolved business models and strategies to address supply chain and scale considerations.”

In the eighth edition of its levelized cost of storage analysis, Lazard said that the use-cases and applications for energy storage are becoming more valuable, well understood and, therefore, more widespread as grid operators adopt methodologies to value energy storage systems.

Lazard’s analysis found a 100-megawatt wind plant paired with a 50-megawatt, four-hour energy storage system to be the most cost effective with an unsubsidized cost of energy ranging from $69 to $79 per megawatt hour and from $33 to $44 per megawatt hour for subsidized projects. Stand alone, utility scale energy storage systems ranged from a low of $154 per megawatt hour to a high of $323 per megawatt hour, depending on the size of the energy storage system and the inclusion of subsidies.

In addition, despite being subjected to the same cost pressures as other energy technologies, the levelized cost of energy values for energy storage systems have remained relatively neutral compared with Lazard’s last analysis, version seven for 2021, because of the energy storage investment tax credit granted as part of the Inflation Reduction Act.

In the third edition of its levelized cost of hydrogen production analysis, Lazard found given its versatility as an energy carrier, “hydrogen has the potential to be used across industrial processes, power generation and transportation, creating a path for decarbonizing energy-intensive industries” where other technologies are not yet viable.

Additionally, clean hydrogen, produced from renewable sources, is “well positioned to reduce CO2 emissions in typically ‘hard-to-decarbonize’ sectors,” such as cement production, centralized energy systems, steel production, transportation and mobility (forklifts, maritime vessels) applications, the report’s authors found.

The report also noted that natural gas utilities are likely to be early adopters of green hydrogen as methanation, that is, combining hydrogen with carbon dioxide to produce methane, becomes commercially viable and pipeline infrastructure is upgraded to support hydrogen blends. In addition, the Inflation Reduction Act “provides a distinct policy push to grow hydrogen production” through the hydrogen production tax credit and investment tax credit., Lazard said.