Levelized Cost Of Energy, Levelized Cost Of Storage, and Levelized Cost Of Hydrogen 2021

Reports and studies — Financial Advisory, Levelized Cost of Energy, Levelized Cost of Hydrogen, Levelized Cost of Storage, LCOE

October 28, 2021

Levelized Cost of Energy

Lazard’s latest annual Levelized Cost of Energy Analysis (LCOE 15.0) shows the continued cost-competitiveness of certain renewable energy technologies on a subsidized basis and the marginal cost of coal, nuclear and combined cycle gas generation. The costs of renewable energy technologies continue to decline globally, albeit at a slowing pace, reflecting reductions in capital costs, increased competition as the sector continues to mature and continued improvements in scale and technology.

Additional highlights for LCOE 15.0:

When U.S. government subsidies are included, the cost of onshore wind and utility-scale solar continues to be competitive with the marginal cost of coal, nuclear and combined cycle gas generation. The former values average $27/MWh for utility-scale solar and $25/MWh for utility-scale wind, while the latter values average $42/MWh for coal, $29/MWh for nuclear and $24/MWh for combined cycle gas generation.

While rates of decline in the LCOE for utility-scale solar and onshore wind have slowed in recent years, the pace of decline for utility-scale solar continues to be higher than that for onshore wind (i.e., observed five-year compound annual declines of 8% in the average LCOE of utility-scale solar, compared to 4% for onshore wind).

Regional differences in resource availability and fuel costs can drive meaningful variance in the cost of certain technologies, although some of this variance can be mitigated by adjustments to a project’s capital structure, reflecting the availability and cost of debt and equity.

Levelized Cost of Storage

Lazard’s latest annual Levelized Cost of Storage Analysis (LCOS 7.0) shows that year-over-year changes in the cost of storage are mixed across use cases and technologies, driven in part by the confluence of emerging supply chain constraints and shifting preferences in battery chemistry.

Additional highlights from LCOS 7.0:

Industry preference is increasingly shifting towards Lithium-Iron-Phosphate (“LFP”) technology, which is less expensive than competing lithium-ion technologies (especially in shorter-duration applications) and has more favorable thermal characteristics, despite its relatively lower volumetric energy density.

Upstream cost inflation (due to, among other factors, supply constraints in commodity markets and manufacturing activities) is putting pressure on energy storage capital costs.

Hybrid applications are becoming more valuable and widespread as grid operators begin adopting Estimated Load Carry Capability (“ELCC”) methodologies to value resources. The adoption of ELCC methodologies is driving increasing deployment of hybrid resources (e.g., storage paired with solar) to mitigate resource intermittency.

Levelized Cost of Hydrogen

Lazard’s Levelized Cost of Hydrogen Analysis (LCOH 2.0) shows that the cost of hydrogen is still largely dependent on the cost and availability of the energy resources required to produce it. Hydrogen applications which require minimal additional steps (e.g., conversion, storage, transportation, etc.) to reach the end user will most likely achieve cost competitiveness sooner than those that require greater site or application-specific investments.

Additional highlights from the LCOH 2.0:

Hydrogen is a versatile energy carrier with the potential to decarbonize a broad array of sectors, although hydrogen is currently more expensive than the fuels it would substitute.

Applications most readily suited to hydrogen conversion are those that need minimal transport, conversion or storage—these use cases will likely transition towards hydrogen most quickly.

Key drivers of hydrogen’s levelized cost are the cost of electricity, capital expenditures for production equipment and utilization of the electrolyzer.

Download the review to read the findings in full.

A Conversation on the Levelized Cost of Energy

The co-authors of Lazard’s annual review of Levelized Cost of Energy (LCOE) share some key highlights from this year's report.

Hear the most interesting findings from Sam and Michael, VP and Associate in our Power, Energy & Infrastructure Group.