Lazard Releases Annual Levelized Cost of Energy, Storage and Hydrogen Analyses
October 28 2021 - 8:00AM
Business Wire
Lazard Ltd (NYSE: LAZ) has released its annual in-depth studies
comparing the costs of energy from various generation technologies,
energy storage technologies for different applications and hydrogen
production.
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.
While projects reaching commercial operation in 2021 (and thus
included in the scope of this study) continue to reflect declining
costs (given that capital costs for such projects are generally
negotiated 12 – 18 months in advance of project completion),
commodity cost inflation, supply chain disruption and accelerating
downstream demand for renewable energy generation capacity is
putting upward pressure on project capital costs. While not
reflected in this year’s study due to the retrospective nature of
capital costs from projects reaching commercial operation this
year, rising capital costs will likely lead to higher LCOE costs in
future iterations of this report (albeit not necessarily higher
relative costs).
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.
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 that 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.
“Our three studies together document the continued acceleration
of the energy transition,” said George Bilicic, Vice Chairman and
Global Head of Lazard’s Power, Energy & Infrastructure Group.
“We’re also seeing that the transition will not be dominated by any
one solution — rather a new ‘all of the above’ approach, which
includes renewable energy, storage, hydrogen and other solutions,
will be key to effecting the permanent shift to increased energy
efficiency and sustainability.”
LCOE 15.0
- While rates of decline in the LCOE for onshore wind and
utility-scale solar have slowed in recent years, the pace of
decline for utility-scale solar continues to be greater than that
for onshore wind (i.e., five-year compound annual declines of 8% in
the average LCOE of utility-scale solar, compared to 4% for onshore
wind).
- 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 $25/MWh for onshore wind and
$27/MWh for utility-scale solar, while the latter values average
$42/MWh for coal, $29/MWh for nuclear and $24/MWh for combined
cycle gas generation.
- 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.
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.
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
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.
LCOE 15.0, LCOS 7.0 and LCOH 2.0 reflect Lazard’s approach to
long-term thought leadership, commitment to the sectors in which we
participate and focus on intellectual differentiation. The three
studies are posted at www.lazard.com/perspective.
Lazard’s Global Power, Energy & Infrastructure Group serves
private and public sector clients with advisory services regarding
M&A, financing and other strategic matters. The group is active
in all areas of the traditional and alternative energy industries,
including regulated utilities, independent power producers,
alternative energy and infrastructure.
About Lazard Lazard, one of the world's preeminent
financial advisory and asset management firms, operates from 41
cities across 26 countries in North America, Europe, Asia,
Australia, Central and South America. With origins dating to 1848,
the firm provides advice on mergers and acquisitions, strategic
matters, restructuring and capital structure, capital raising and
corporate finance, as well as asset management services to
corporations, partnerships, institutions, governments and
individuals. For more information on Lazard, please visit
www.lazard.com. Follow Lazard at @Lazard.
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