Insights

Levelized Cost of Energy v8 Abstract

Sep 18 2014

Utility-scale solar and wind power are increasingly cost-competitive with traditional energy sources such as coal and nuclear, even without subsidies, according to the latest Levelized Cost of Energy Analysis – Lazard's annual study comparing the cost of generating energy from conventional and alternative technologies.

“The economics of alternative energy have changed dramatically in the last decade,” says George
Bilicic, Vice Chairman and Global Head of Lazard’s Power, Energy & Infrastructure Group.
“Utilities still require conventional technologies to meet the energy needs of a developed
economy, but they are using alternative technologies to create diversified portfolios of power
generation resources.” 

Highlights from the study include:

The costs of generating electricity from all forms of utility-scale solar photovoltaic (PV)
technology continue to decline dramatically. The study estimates that the levelized cost of
energy (LCOE) of leading PV technologies has fallen by nearly 20% in the past year, and
nearly 80% in the last five years.

In many parts of the world, utility-scale solar PV continues to increase its cost advantage
over conventional generation as a source of peak energy, without any subsidies
(appreciating the important qualitative differences related to dispatch characteristics and
other factors).

Without subsidies, residential-scale solar PV (rooftop solar panels) remains considerably
more expensive than utility-scale solar PV, raising the question of whether subsidies are
distorting the long-term energy planning process.

Land-based wind-generation costs also continue to decline dramatically. The study
estimates that the LCOE of leading technologies has fallen by more than 15% in the past
year, and nearly 60% in the last five years. However, offshore wind generation is currently
at least twice as expensive as land-based, and therefore not cost-competitive without
subsidies.

Battery storage technologies, a potential complement to intermittent energy resources such
as wind or solar, continue to be very expensive and not cost-competitive without subsidies.
However, the LCOE of “next generation” battery storage technologies could decline by as
much as 40% by 2017, given expected reductions in capital costs, operation and
maintenance costs, and improvements in efficiency.

Large-scale conventional generation projects (such as IGCC or nuclear) continue to face a
number of challenges, including: high absolute costs; significant cost contingencies;
competition from natural gas in many parts of the world; and policy uncertainty.
Notwithstanding these issues, alternative energy sources will not be capable of meeting the
baseload generation needs of an advanced economy for the foreseeable future.