Wind, solar costs continue fall, and fossil fuels can’t stop them

The latest update for energy technology costs put together by global investment bank Lazard have been released and show a growing advantage for wind and solar technologies over fossil fuels such as coal, gas and nuclear.

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.

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.

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.”  

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