Renewables won't replace baseload for 'foreseeable future': Lazard
The cost of renewable energy is continuing to fall, but it will not be able to fully replace conventional generation in the foreseeable future, according to Lazard's annual reports on the levelised cost of energy and energy storage. The analysis shows utility-scale solar costs today can be as low as $43/MWh, and wind generation as low as $30/MWh, whilst gas plant generation starts at $42 per MWh. The cost of utility-scale solar and onshore wind fell about 6% from last year, while capital costs for lithium-ion batteries will fall as much as 36% over the next five years.
Dive Brief:

Lazard has analyzed of the financials of energy from various generation sources, and storage for different applications, finding clean energy resources are broadly declining in cost.

of the financials of energy from various generation sources, and storage for different applications, finding clean energy resources are broadly declining in cost. But while renewables are "increasingly cost-competitive" and storage technology "holds great promise," the firm said alternative energy systems alone "will not be capable of meeting the baseload generation needs of a developed economy for the foreseeable future."

are "increasingly cost-competitive" and storage technology "holds great promise," the firm said alternative energy systems alone "will not be capable of meeting the generation needs of a developed economy for the foreseeable future." Factors contributing to the declining costs include lower financing costs, declining capital expenditures per project, and increased Industry competition. The levelized cost of energy for utility-scale solar and onshore wind declined approximately 6% from last year, according to the reports. Lithium-ion capital costs are expected to decline as much as 36% over the next five years.

Dive Insight:

Lazard's analysis of power generation and storage costs solidifies the conventional wisdom that these clean resources are declining in cost, but it also highlights the wide variability depending on use case.

The report on energy storage concludes the technology is sparking much discussion right now but "it is not currently cost competitive in most applications." There are some applications where energy storage pencils out, relating primarily to strengthening the grid, reducing bills and participating in demand response.

Most of the expected future decline in storage costs will result from manufacturing and engineering improvements in batteries, and will vary widely among technologies. Lithium-ion capital costs are expected to decline by more than a third over the next five years.

Source: Lazard Ltd.

The cost of lithium-ion batteries for peaker replacement currently runs $282/MWh to $347/MWh, and is expected to decline again next year. In distribution use cases the costs and expectations are similar, but in microgrids the costs are slightly higher, running from $363/MWh to $386/MWh.

Behind-the-meter storage costs are substantially higher. In commercial applications, the costs currently run from about $900/MWh to $1,000/MWh. Residential prices can be as high as $1,274/MWh.

Like storage, the use case of renewable generation also dictates wide swings in cost.

Source: Lazard Ltd.

Rooftop solar can run anywhere from $187/MWh to $319/Mwh. Community solar can get down to around $76/MWh, with utility-scale installations even cheaper. Wind generation ranges from $30/MWh to $60/MWh, while utility-scale solar runs about $43/MWh to $53/MWh. Cobmined-cycle natural gas plants are costing between $42/MWh and $78/MWh.

Lazard's analysis shows cost declines are slowing "modestly" for utility-scale alternative energy generation, but the cost-gap with conventional resources is widening because fuel-based cost profiles have remained flat or increased. The firm said the estimated levelized cost of energy for nuclear generation increased approximately 35% versus prior estimates, reflecting increased capital costs at various nuclear facilities currently in development.

But while non-emitting resources can be cheaper than fossil fuels, that doesn't mean the end of baseload generation.

"Although alternative energy is increasingly cost-competitive and storage technology holds great promise, alternative energy systems alone will not be capable of meeting the baseload generation needs of a developed economy for the foreseeable future," the report concludes. "Therefore, the optimal solution for many regions of the world is to use complementary conventional and alternative energy resources in a diversified generation fleet."