The cheapest source of fossil fuel generation is twice as expensive as utility-scale solar energy – pv warehouse USA

June 11, 2024 Ryan Kennedy

Lazard has published its annual report analyzing the levelized cost of electricity (LCOE), a key measure of the cost effectiveness of generation sources depending on the type of technology. The report shows that onshore wind and utility-scale photovoltaics have by far the lowest LCOE.

LCOE measures life cycle costs divided by energy production and calculates the present value of the total cost of building and operating the plant over its assumed life.

“Despite declines in the upper bound of the LCOE for select renewable energy technologies, the lower bound of our LCOE has increased for the first time in history, driven by some continued cost pressures (e.g. high interest rates, etc.),” Lazard said. “These two phenomena are resulting in narrower LCOE ranges (offsetting the significant range expansion seen last year) and relatively stable year-over-year average LCOEs.”

Onshore wind is the lowest source of electricity generation in new buildings, ranging from $27 to $73 per MWh. Utility-scale solar power came in second, with prices ranging from $29 to $92 per MWh.

Utility-scale solar has the most aggressive cost reduction curve of any technology, declining approximately 83% since 2009, when new solar generation had an LCOE of more than $350 per MWh.

Utility-scale solar power is significantly cheaper than the LCOE of coal, the cheapest source of fossil fuel generation. Coal’s LCOE ranges from $69 to $169 per MWh, which is almost twice the average LCOE of utility-scale solar plants.

Meanwhile, natural gas peaker plants are highly inefficient in terms of LCOE, ranging from $110 to $228 per MWh. Nuclear power had the highest utility-scale LCOE, averaging $182 per MWh.

LCOE is a powerful metric for comparing the cost effectiveness of technology, but it doesn’t tell the whole story. For example, research by Lawrence Berkeley National Laboratory found that wind and solar power generation provided $249 billion in climate and air quality health benefits from 2019 to 2022, or more than $62 billion annually.

While utility-scale solar had the lowest LCOE, costs for smaller-scale distributed solar projects also dropped. Costs for community, commercial and industrial scale projects ranged from $54 to $191 per MWh. The cost of residential solar power ranged from $122 to $284 per MWh, making it a more expensive generation source.

However, the LCOE does not take into account cost benefits, such as the reduced need to build long-distance transmission systems, that result from the distributed construction of rooftop photovoltaic installations. Environment America has released a report assessing the additional benefits of rooftop solar installation that can be found Here.

Lazard also analyzed the cost impact of the Inflation Reduction Act, which includes both generation-based production tax credits and project-based investment tax credits for renewable energy assets. The chart below shows the cost impact of these technologies, as shown below.

Energy storage has also seen cost improvements with IRAs. The levelized cost of storage (LCOS) for a 4-hour, 100 MW utility-scale storage system ranged from $170 to $296 per MWh prior to the introduction of the IRA. After entering the IRA market, the lower end of the LCOS range reached $124 per MWh.

Find Lazard’s full ninth annual report Here.