Onshore wind and utility-scale solar PV in the U.S. have the lowest LCOE

A report by Lazard, an asset management and financial advisory firm, found that the levelized cost of energy (LCOE) floors for renewable energy technologies in the U.S. have increased for the first time as a result of persistent cost pressures such as high interest rates.

Despite declines in top-tier LCOE for select renewable energy technologies, overall LCOE ranges have narrowed, resulting in relatively stable year-over-year average LCOEs. This trend highlights the advantage of well-capitalized companies in the construction of new renewable energy assets.

The report found that the LCOE for newly built utility-scale solar plants ranged from $29/MWh to $92/MWh, just behind onshore wind, which had the lowest LCOE ranging from $27/MWh to $73/MWh. MWh. Utility-scale solar also had a much lower LCOE than coal ($69-68/MWh).

Energy storage

The report observed a gradual decline in lowest levelized costs of storage (LCOS) year-on-year. The decline was partly due to falling cell prices due to increased production capacity in China and depressed mineral prices. The lower LCOS was offset by higher engineering, procurement and construction costs resulting from rising demand, increased schedule control and skilled labor shortages.

Due to the tax credit under the Inflation Reduction Act and lower cell prices, there is a trend towards increasing battery capacity to compensate for future degradation and service life considerations. However, a lack of clarity on what qualifies as local content is leading to delays. Recently proposed Section 301 import tariffs on lithium-ion batteries could also lead to increased domestic battery supply, but with uncertain cost outcomes.

The LCOE for a 100 MW stand-alone storage operating on a 4-hour basis ranged from $170/MWh to $296/MWh, while subsidized storage systems ranged from $124/MWh to $226/MWh .

Lithium-ion batteries remain the most cost-competitive option for short-term energy storage. However, the industry is looking for technological solutions other than lithium, especially for long-term use.

Hydrogen costs

The levelized cost of green hydrogen in PEM technology for electrolyzers with a capacity of 20 to 100 MW ranges from $4.45 to $6.05 per kg and from $4.33 to $5.49 for green hydrogen in alkaline technology.

Thanks to subsidies, green hydrogen can achieve much lower levelized costs. For example, subsidized green hydrogen can cost less than $2 per kg, making it competitive with conventional gray hydrogen produced from natural gas.

The authors of the report stated that meeting the demand for basic energy will require a combination of various generation technologies. While renewable energy remains cost-competitive, growing energy demand, driven by factors such as artificial intelligence development, data center deployment and electrification, necessitates the need to complement renewable energy sources with robust resources such as energy storage or gas-based power generation.

The report highlights the need for a balanced energy mix to address the timing imbalance between peak demand and renewable production.

It said continuous technological innovation, capital formation and policy are essential for the energy transition. This includes the development of advanced technologies for generation, carbon capture and long-term energy storage. The cost competitiveness of renewable energy sources will continue to drive the displacement of conventional generation. However, the exact timing and composition will depend on network investment, reform enablement and economic policy.

Last April, a Lazard report highlighted that in some locations, onshore wind and utility-scale solar power are competitive with conventional generation technologies, even without subsidies.

A report from the International Renewable Energy Agency shows that renewable energy projects remained profitable despite the 2021 fuel crisis.