Insights Levelized Cost of Energy and Levelized Cost of Storage 2018

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Lazard’s latest annual Levelized Cost of Energy Analysis (LCOE 12.0) shows a continued decline in the cost of generating electricity from alternative energy technologies, especially utility-scale solar and wind. In some scenarios, alternative energy costs have decreased to the point that they are now at or below the marginal cost of conventional generation.

Additional highlights from LCOE 12.0:

The low end levelized cost of onshore wind-generated energy is $29/MWh, compared to an average illustrative marginal cost of $36/MWh for coal. The levelized cost of utility-scale solar is nearly identical to the illustrative marginal cost of coal, at $36/MWh. This comparison is accentuated when subsidizing onshore wind and solar, which results in levelized costs of energy of $14/MWh and $32/MWh, respectively.

The cost of generating energy from utility-scale solar photovoltaic (PV) and onshore wind technologies continue to decline. The mean levelized cost of energy of utility-scale PV technologies is down approximately 13% from last year and the mean levelized cost of energy of onshore wind has declined almost 7%.

Lazard’s latest annual Levelized Cost of Storage Analysis (LCOS 4.0) shows significant cost declines across most use cases and technologies, especially for shorter duration applications.

Additional highlights from LCOS 4.0:

Lithium-ion remains the least expensive of the storage technologies and continues to decrease in cost due to improved efficiencies and a maturing supply chain. However, some of those gains may be mitigated by rising cost pressures from higher commodity pricing (e.g., cobalt and lithium carbonate) and tightening supply.

Project economics for a variety of illustrative energy storage applications have modestly improved year-over-year, reflecting improved costs rather than rising revenues, which remain dependent on local market dynamics or utility tariffs. Ancillary service products (e.g., frequency regulation), demand response and demand charge mitigation represent potentially attractive revenue opportunities.

Combining energy storage with solar PV can create value by sharing infrastructure (e.g., inverters, interconnection), reducing curtailed production, capturing “clipped” solar production and/or through charging cost savings. Currently, the economics for solar PV + storage systems are most attractive for commercial use cases, but remain modest for residential and utility-scale projects.