The latest update for energy technology costs put together by global investment bank Lazard has been released and shows a growing advantage for wind and solar technologies over fossil fuels such as coal, gas and nuclear, writes Giles Parkinson of Reneweconomy.com. Original post.
Lazard’s latest levellised cost of energy (LCOE) analysis – the eleventh version – notes that wind and solar costs have both fallen by another 6 per cent in another year, with coal remaining around about flat and the cost of nuclear jumping sharply.
“The gap between the costs of certain alternative energy technologies (e.g., utility-scale solar and onshore wind) and conventional generation technologies continues to widen,” the report says.
“In some scenarios the full life-cycle costs of building and operating renewables-based projects have dropped below the operating costs alone of conventional generation technologies such as coal or nuclear.
“This is expected to lead to ongoing and significant deployment of alternative energy capacity.”
This graph above illustrates the growing gap between the cost of generation of what are still branded “alternative” technologies such as wind and solar, and “conventional” or “traditional” generation such coal, gas and nuclear.
The graph is a global average, and the actual cost will vary significantly from country to country depending on the cost of gas (cheap in the US, very expensive in Australia), the cost of capital, and the nature of the wind and solar resources.
Battery arrays are significantly smarter and quicker than gas generators, and can perform numerous other functions
The most striking aspect of the graph is the dramatic fall in the cost of large-scale solar, of course, which has fallen from an average $US178/MWh to an average $US50/MWh – half the cost of coal generation.
In some countries, the cost of solar is far cheaper, with contracts being written at around $US21/MWh in Chile and possibly even lower in Saudi Arabia, thanks to their excellent solar resources.
The cost of nuclear is moving in the other direction, with Lazard noting that costs had increased 35 per cent versus prior estimates, “reflecting increased capital costs at various nuclear facilities currently in development.”
Much is made about the cost of providing “firming” power to wind and solar, although most commentary ignores the cost of back-up and “peaking” power required for coal-dominated grids, which do not have the flexibility to meet changes in demand.
This is where gas comes into the equation – and various forms of storage in the future. What is interesting here is the comparison between solar and gas peaking plant across the world, and why some areas are looking for large-scale solar to reduce the amount of gas peaking plant needed.
According to Lazard, Australia has the cheapest cost for large-scale solar (which may be better than some would think at the lower end) – but it is the difference between average solar costs and gas costs that really stands out. (And that is including Lazard’s low-ish assumed cost of gas in Australia).
Interestingly, Lazard has also released its latest estimate of storage costs, LCOS 3.0, where it puts the cost of lithium-ion storage at around the same point as gas peaking plants.
This explains why some areas, such as California, are installing battery arrays rather than gas peaking plants. Batteries are winning on costs, let alone on issues such as safety (explosions and massive leaks recently experienced in Los Angeles) and emissions.
And, of course, battery arrays are significantly smarter and quicker than gas generators, and can perform numerous other functions – such as network benefits and avoiding spending on new poles and wires, creating micro-grids, and time shifting the output of cheaper wind and solar.
“Industry participants expect costs to decrease significantly over the next five years, driven by scale and related cost savings, improved standardization and technological improvements, supported in turn by increased demand as a result of regulatory/pricing innovation, increased renewables penetration and the needs of an aging and changing power grid,” the report says.
“Energy industry participants remain confident in the future of renewables, with new alternative energy projects generating electricity at costs that are now at or below the marginal costs of some conventional generation”
Lazard says lithium-ion continues to provide the most economical solution across use cases analysed in the Levellised Cost of Storage study, although competing flow battery technologies claim to offer lower costs for certain applications.
“Energy industry participants remain confident in the future of renewables, with new alternative energy projects generating electricity at costs that are now at or below the marginal costs of some conventional generation,” said Jonathan Mir, the head of Lazard’s North American Power Group.
“The next frontier is energy storage, where continued innovation and declining costs are expected to drive increased deployment of renewables, which in turn will create more demand for storage.”
Editor’s Note
This article was first published on Reneweconomy.com and is republished here with permission from the author.
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Bob Wallace says
Power Engineering made an interesting observation…
“The cost of solar generation fell from $55 per MWh in 2016 to $50 this year. In 2009, the levelized cost of solar production was $178 per MWh, making it by far the most expensive form of utility-scale electricity generation.
Similarly, the price of wind generation fell from $47 per MW/h to $45 now. Those years also show a significant drop from 2009, when the price was $85 per MW/h.
The price of nuclear generation spiked significantly from $117 per MW/h in 2016 to $148 this year, making it the most expensive form of generation at this time. Other than a drop from $123 per MW/h in 2009 to $96 in 2010, the price of nuclear generation has trended upward in recent years.”
The reactors and coal plants now coming online were planned and construction started during the times of high wind and solar prices. Any decisions made today would be looking at a complete reversal in economics.
From 2015 to 2016 announced, pre-permitted and permitted coal plants dropped by 48%. The number of coal plants that started construction dropped 62%. The number of planned plants “put on hold” increased by 164%.
Put on hold is often code for “We aren’t going to build this plant but we’re not hitting you with the complete news all at once”.
In less than a decade the energy field has undergone a massive change.
Nigel West says
Lazard’s study is only relevant to the US southern states with plenty of year round sun and onshore wind potential. Also, investment decisions are not made on LCOE alone, particularly when grids are short of firm capacity.
Bob Wallace says
Actually the best prices for wind and solar are less than the “Lazard” prices. Those are averages.
Of course decisions are not made on LCOE alone but you need quit living on that river in Egypt. The world of energy has greatly changed in the last few years.
Nigel West says
If you haven’t read it yet, I suggest reading Dieter Helm’s report he undertook for UK Government.
https://www.gov.uk/government/news/independent-review-on-cost-of-energy-published
He recommends intermittents be required to bid in auctions on an EFP (equivalent firm power basis). That would level the field such that renewables plus back-up would be competing for capacity contracts with conventional generators. The plethora of support mechanisms would be swept away and replaced with a firm power auction.
Renewables would not be able to continue to free ride the system as Helm’s proposal would reveal the true cost of firm renewables with back-up/storage capacity, compared to firm conventional generation.
There isn’t a commercial case to overbuild renewables, at least not in a market free of subsidies. Overbuilding renewables would drive wholesale prices towards zero choking off development. Investors will not build pumped storage either without long term capacity contracts.
Falls in the cost of new renewables will not usher in a world where conventional capacity no longer needs to be built. Storage on the scale needed is not economic, and is unlikely ever to be, to deal with intermittency in the northern hemisphere for a hypothetical 100% WWS scenario. UK Government analysis points to needing a CCGT fleet >40GW capacity in the 2030s.
Bob Wallace says
As long as there are fossil fuels inputs that can be curtailed there’s no need for wind and solar to bid in as firm power. And after that we’ll need to finish rounding up all the dispatchable loads we can find and let them soak up cheap renewable energy.
Wind and solar are being bought as ways to save money. And because their price keeps dropping we’ll accelerate our rate of installing them.
I’m not sure I’ve ever seen as much creativity surrounding any issue as what we see from nuclear advocates who struggle and struggle and struggle to find some justification for wasting more money on their obsession.
Nigel West says
Bob, doing what you suggest is not sensible as only a small percentage of load currently is dispatchable – I think you know that. Without firm capacity grids could collapse. Once conventional capacity’s market share has been eroded by must run renewables to the point continuing operating is uneconomic firm capacity will be closed. Leaving TSOs with a big problem at times of peak demand without adequate dispatchable capacity.
Being a nuclear advocate is irrelevant. This issue here is the essential provision of firm capacity. Picking winners based on technology preferences needs to stop. Helm’s auction proposal would reveal the most economic choice in terms of providing new firm generating capacity.
FF generation would also be subject to a carbon tax so renewables developers might choose to bid storage over gas fired back-up.
Mike Parr says
“Storage on the scale needed is not economic, and is unlikely ever to be, to deal with intermittency”
In the case of the “duck-curve” & calif:
https://www.ice-energy.com/technology/
this addresses your point. You were saying?
You need to broaden your tech horizons [..] – because frankly you tend to sound a bit like a broken record at times […] it’s always not economic, etc etc.
Rok Pernus says
Oh my, here we go again…apples and oranges…
First of all, gas peakers (LCOE) and battery storage (LCOS) are not really comparable. First PRODUCES electricty, cost of which is final, while second (hence levelized cost of STORAGE) only STORES energy. Therefore for the end consumer cost of peaker’s production gets averaged out in the final cost, while storage cost gets ADDED (levelized to the proportion used) on top of electricity production cost. So gas peakers (according to Lazard 168-219$/MWh in 2015) are still significantly cheaper, comparing low ends, almost by half (270+50 vs. 168), end even that, if we don’t account for transmission costs in case of battery storage.
Second, gas peakers as they’re used today are really not a good comparison to what is needed in grid with predominantly intermittent renewables, which is highly volatile. Consequently, costs are much higher, much closer to what Lazard predicts for residential and commercial in case of PV. Wind is another matter. On top of that the question is still open, what is with long-term seasonal storage (for what li-ion batteries are technologically and economically fundamentally unsuitable for, even in case of flow batteries). It is very important to know, where storage will be located on the grid, since it effects grid load and thus upgrade requirement. Which can get expensive. There’s still a question of lithium supply, if we’ll use for everything, from portable electronics (demand for which will only grow) to electromobility and grid storage. At what point will scarcity and rising commodity prices (lithium, cobalt, etc) offset economy of scale.
Bottom line is, LCOE oh PV+battery storage will even in (rather unlikely) best case scenario fall bellow 200€/MWh, with end consumer prices 30-40ct/kWh. At the moment, they can be even double of that. And we haven’t even started talking about enormous embodied energy of batteries, which can significantly delay, and thus paradoxically, even sabotage the whole decarbonisation of electricity production…
Bob Wallace says
It will be extremely hard to make an argument for powering a grid without making the very lowest cost sources the basis. Wind and solar are becoming so inexpensive that we can massively overbuild them in order to deal with seasonal differences.
I don’t think most people know how much we overbuild fossil fuel generation now in order to deal with seasonal and daily demand variation. In the US we’ve overbuilt coal and CCNG by about 2x and gas peakers by about 20X.
Nigel West says
You’ve missed one salient point, wind/solar are not dispatchable so overbuilding them would not address intemittency. Attempts to demonstrate storage plus renewables would work run in to cost and feasibility issues with storage, and with grid reinforcement schemes needed to wheel many 10GWs of power over 1000s km. Also not having conventional back-up risks demand not being met at times as geographic dispersion does not fully solve the intermittency issue.
The pragmatic approach is distribute a mix of renewables and gas generation around the load centres and accept that a 100% wind/solar utopia is not realistic.
Martin van Uden says
[..]. if you overbuild alternatives, it does not really help, because you pass the optimum. When there is no wind, there is no wind and thus no power whatever capacity you have installed. When there is a lot of wind you have high power oversupply and need to store, so with too much capacity you need too much storage. This too much capacity and too much storage will have a very low occupancy factor and will weigh negatively on the price per kWh. Efficient gas need to stay with us as long as it is available, while in the meantime we gradually implement the energy transition. It takes time.
Bob Wallace says
No. If the grid needed 10 GW and we installed 10 GW of wind there would be times when all 10 GW could come from the installed wind.
But there would be times when there was only enough wind to provide 9 GW (90%) and times when there was only enough wind to provide 6 GW (60%) and all the other levels between 0% and 99%.
If wind drops to $0.02/kWh as it is likely to do in some locations, then installing 20 GW of turbines would mean that we could cover a lot of hours with only wind and the electricity would cost only $0.04/kWh.
We can’t store or generate with NG for $0.04/kWh.
Do remember, we overbuild fossil fuel generation a lot. US coal and CCNG is overbuilt almost 2x. Gas peakers are overbuilt about 20x.
Martin van Uden says
Incorrect, a matter of logistics and average occupancy. By the way, where does the fairy tale come from that cogen units are overbuilt 20x? Never ever seen and heard.
I’m all in favour of alternatives, but the problem is that you need storage (BATTERIES or other) and if you want to do without cogen backup, you will have to install huge storage. This storage then will have an extreme low occupancy which need to be earned back with the kWh price. What can I say more?????
Bob Wallace says
Martin – here’s what I wrote…
” US coal and CCNG is overbuilt almost 2x. Gas peakers are overbuilt about 20x.”
During 2013 through 2016 US coal plants had an average CF of 57.03%.
US CCNG (cogen) plants had an average CF of 52.10%.
Natural gas peakers – peakers, not cogen – had an average CF of 6.33%. In 2013 the CF was 4.9% and in 2014 the CF was 5.2%.
Yes, we will have to find an affordable solution for ‘deep storage’.
Pump-up hydro is a clear option because we can use the pumps and turbines on a daily basis for short term time shifting. That daily use can pay for the cost of pumps/turbines. And then we can store against periods of low wind/solar by making our reservoirs larger. Run the turbines not as peakers but as ‘always on’ supply during the shortage.
Running CCNG plants with biogas from sewage and garbage composting is another solution. Remember, it’s hours/a few days per year and not ‘always on’ generation.
Even running CCNG plants a few hours a year using NG is a possibility. We would simply need to find a way to offset the CO2 emissions. Increased vegetation growth, for example.
We’ve got ten to twenty years to come up with a best solution. Right now we have more than enough fossil fuel use to replace.
Nigel West says
I don’t know what you are trying to prove by claiming conventional plant has been overbuilt!? It wasn’t overbuilt. When new coal and CCGTs are new they run baseload, but old plants run lower load factors. Peakers run low load factors anyway, capital costs are low, but running costs are high.
What is relevant today is must run renewables are squeezing load factors and pushing gas plants in California towards bankruptcy. But when all the solar dies in the evening dispatchable gas plant is indispensable to CAISO.
BTW running CCNG gas plants at low load factors will require capacity payments to the operators to keep essentially idle plants available. That will be expensive.
How do you think all that pumped storage and transmission reinforcement will be financed too? Private investors will want long term capacity payments for PHS as it’s too risky otherwise.
Back-up in the form of low load factor gas-fired gen. and pumped storage to balance renewables will inflate power bills wiping out any savings with solar/wind.
Bob Wallace says
Not all coal, gas and nuclear plants run continuously all year long.
Many plants are used seasonally or only during high demand hours.
We build enough capacity to service the highest demand and then we turn down or turn off some of those plants at other times.
The reason France’s nuclear industry has a rather low CF is because some reactors are ‘parked’ during lower demand periods and brought back online during high demand periods.
We overbuild for some time blocks in order to have an ample supply for other time blocks.
The same will almost certainly be true for wind and solar. Overbuilding will be cheaper than storing for part of the demand range.
Wind and solar are moving below 5 cents per kWh in most places. Nuclear in the western hemisphere is 12 cents and higher.
I’ve done the math for you multiple times. I shouldn’t need to do it again. As long as more than 50% of our electricity comes directly from wind and solar we can store the rest and have cheaper electricity with 20 cent storage than using nuclear including its integration costs.
Nigel West says
“We overbuild (conventional) for some time blocks in order to have an ample supply for other time blocks. The same will almost certainly be true for wind and solar.”
That’s a nonsense comparison. Intermittent renewables could be overbuilt 100 times but will still provide close to zero firm capacity for the grid at peak times.
California has a rapidly approaching unmanageable situation of 13GW power swings caused by solar disapparearing at dusk. CA needs to cut the tax credits for solar, which will choke off development, and support firm capacity remaining open to keep the lights on during the evening demand ramp.
CA has a big over capacity problem. It doesn’t need more generating capacity – or overbuilding of renewables as you suggest. CA has power prices some 50% above the US norm too which you have kept quiet about. More unneeded tax payer subsidised renewables and storage capacity projects will drive power prices even further out of step with the rest of the US.
Helmut Frik says
Germany always had something around 130% of the maximum demand as conventioal capacity at least.
And it is unlikely that it will be different with renewables in the future since the mentality remains. Different will be that renewables will not stay idle, but produce low cost power for various purposes and export.
Nigel ignores as usal the smoothening effects of grids.
California needs more grid connections, and power thermal power and hydro power stations which are able to ramp down when their power is not needed. But blaming solar for the incapability of the rest of the electricity infrastructure in California seems to be more easy for some.
Mike parr says
Mr West […]
https://www.ice-energy.com/technology/
One has the feeling that the old saying: “if your only tool is a hammer – every problem is a nail” -is your favoured approach to elec demand – the only solution is dispatchable generation. […]
Martin van Uden says
Dear All, thanks for the discussion. I withdraw now as most opinions have been shared, but not after I have quoted Nigel West saying “Intermittent renewables could be overbuilt 100 times but will still provide close to zero firm capacity for the grid at peak times.”
If you then have to assure delivery during a cloudy period you need an enourmous amount of “battery” storage, which will weigh on the kWh price. I also agree with Bob Wallace saying we have 10-20 years to solve, which I interprete as for the moment we keep the conventional back-up units. Thanks again.
Bob Wallace says
“If you then have to assure delivery during a cloudy period you need an enourmous amount of “battery” storage, which will weigh on the kWh price.”
Of course.
We all know, that is, we all have had more than ample opportunity to learn and understand how a 100% renewable energy grid would work. Some amount of storage will almost be required. And that storage will not be free.
It will be, to some extent, cheaper to overbuild generation and to shift loads from high demand to lower demand times or at least to when extra generation is available.
Our traditional grids were not run only by coal and or nuclear plants running full speed. The grid needed the ability to respond quickly to demand changes and to long term daily/seasonal changes. The large thermal plants needed spinning backup for when one or more plants failed.
That ability to respond very quickly to demand changes and to longer term changes came at a cost. As did the need for plant failure backup.
The issue is simple.
We have to move to an almost fossil fuel free grid.
We have one question to answer.
What is the least expensive, both in direct and indirect costs, route?
Bob Meinetz says
Nuclear is a “fossil fuel”?
[…]
Rok Pernus says
“Wind and solar are becoming so inexpensive that we can massively overbuild them in order to deal with seasonal differences”
No, Bob, you can’t. Not without a massive ecological and economic cost. Renewables are already being curtailed. Wind cannot be further expanded, let alone overbuild due to massive NIMBY. At some point you are starting to run out of suitable places and beginning to ruin the landscape. Which is already happening. There are feedback effects on wind patterns, diminishing returns even more. At current low efficienties of PV, you’ll run out of suitable roofs very soon. And nobody wants to see more utility PV on greenfields. Perhaps somewhere in deserts’ but that can get also expensive. In US there might be a bit more space available, but in Europe that’s totally unacceptable.
You’ll also need a massive amount of energy to manufacture all those panels. In China, where most of them are coming from, electricity carbon intensity is double of European. At the moment, PV with pathetically low efficiency and batteries are more building carbon debt and thus contributing to CO2 emissions and delaying worldwide decarbonization of electricity production, than anything else…dynamics matter…There’s really no way to sustainable future with deficient technologies…
EROI of thermal power plants, or even gas peakers is also something completely different: energy payback is measured in days and weeks there rather than years, as in case of renewables…
Bob Wallace says
We can install tremendous amounts of wind and solar without ecological damage. That’s almost certainly where things are going.
If ecological damage concerns you take a good look at oil and coal.
ERoEI is an important consideration for a energy system based on fossil fuels. As it becomes more and more difficult to extract, refine and distribute the fuel we approach a point at which we expend more energy than we get back in return and everything crashes.
It’s not the same sort issue for renewables. We’ve already installed enough wind and solar so that annually we produce far more electricity with turbines and panels than we consume manufacturing and installing wind turbines and solar panels. We bootstrapped wind and solar with fossil fuels and now we are moving along with the job of replacing fossil fuels with renewables. And we won’t use up our energy supply for a few billion years.
As for the efficiency of solar panels, the important metric is cost of electricity produced. It doesn’t really matter if solar panels are only 20% efficient, the sunshine they “waste” comes to us for free.