Lazard Reports Show Continued Cost Declines For Renewables, Energy Storage

November 3, 2021

by Peter Maloney
APPA News
November 3, 2021

A trio of recently released reports shows that the cost of renewable energy continues to decline while energy storage costs were mixed and the use of hydrogen as a fuel remains dependent on availability and technology costs.

“Our three studies together document the continued acceleration of the energy transition,” George Bilicic, vice chairman and global head of the power, energy and infrastructure group at financial advisory firm Lazard, said in a statement. “We’re also seeing that the transition will not be dominated by any one solution — rather a new ‘all of the above’ approach, which includes renewable energy, storage, hydrogen and other solutions, will be key to effecting the permanent shift to increased energy efficiency and sustainability.”

Renewable Energy

Lazard’s latest annual Levelized Cost of Energy analysis (LCOE 15.0) shows the cost of onshore wind and utility-scale solar continues to be competitive with the marginal cost of coal, nuclear and combined cycle gas generation.

When government subsidies are included, the LCOE of onshore wind averaged $25 per megawatt hour (MWh), and utility-scale solar averaged $27/MWh, while the marginal cost of coal-fired generation averaged $42/MWh, nuclear’s average marginal cost was $29/MWh, and the average marginal cost of combined-cycle gas generation was $24/MWh, according to the Lazard report. The report put the midpoint of the unsubsidized LCOE of offshore wind at $83/MWh.

While the rate of decline in the LCOE for onshore wind and utility-scale solar have slowed in recent years, the pace of decline for utility scale solar continues to be greater than that for onshore wind, the report found, noting that the average compound annual decline in LCOE of utility-scale solar was 8 percent over the past five years, compared with 4 percent for onshore wind.

And even though projects entering operation in 2021 were included in the report, Lazard cautioned that commodity cost inflation, supply chain disruption and accelerating downstream demand for renewable energy could put upward pressure on project capital costs that could become evident in future iterations of the firm’s LCOE report, though those increases might not necessarily translate into higher relative costs.

Energy Storage

Lazard’s latest annual Levelized Cost of Storage analysis (LCOS 7.0) showed mixed year-over-year changes in the cost of storage across use cases and technologies, driven in part by the confluence of emerging supply chain constraints and shifting preferences in battery chemistry.

“Industry preference is increasingly shifting towards Lithium-Iron-Phosphate (LFP) technology, which is less expensive than competing lithium-ion technologies, especially in shorter-duration applications, and has more favorable thermal characteristics, despite its relatively lower volumetric energy density,” according to the Lazard report.

In addition, other factors – such as supply constraints in commodity markets and manufacturing activities – are adding to inflation and putting pressure on energy storage capital costs, Lazard said.

The report also noted that hybrid applications, such as combining energy storage with solar power installations to mitigate renewable resource intermittency, are “becoming more valuable and widespread as grid operators begin adopting Estimated Load Carry Capability (ELCC) methodologies to value resources,” the report said.

Hydrogen

Lazard’s Levelized Cost of Hydrogen (LCOH 2.0) report showed that the cost of hydrogen is still largely dependent on the cost and availability of the energy resources required to produce it.

Most hydrogen is currently produced from fossil fuels using steam-methane reforming and methane splitting processes, producing “gray” hydrogen as distinct from “green” hydrogen produced from water and electricity generated by renewable resources.

In its analysis, Lazard did not include a cost of carbon dioxide calculation or government support mechanisms, though the authors said such considerations could be “impactful.” The analysis also did not include potentially significant factors such as conversion, compression, transmission or storage costs.

The intent of the analysis was to benchmark the LCOH of green hydrogen on a dollars per kilogram I$/kg) basis so that stakeholders could compare the cost of green hydrogen to other forms of energy in particular use cases, Lazard said. 

And while green hydrogen is “currently more expensive than the conventional fuels or hydrogen it would displace,” it has the potential to reduce carbon dioxide emissions in traditionally “hard-to-decarbonize sectors such as transportation/mobility, heating, oil refining, ammonia and methanol production, and power generation,” the report found.

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