Levelized Cost Of Energy, Levelized Cost Of Storage, and Levelized Cost Of Hydrogen 2020

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

October 19, 2020

Lazard’s latest annual Levelized Cost of Energy Analysis (LCOE 14.0) shows that as the cost of renewable energy continues to decline, certain technologies (e.g., onshore wind and utility-scale solar), which became cost-competitive with conventional generation several years ago on a new-build basis, continue to maintain competitiveness with the marginal cost of selected existing conventional generation technologies.

This year’s LCOE, for the first time, includes a study of hydrogen as a supplemental fuel component for combined cycle gas generation.

Additional highlights for LCOE 14.0:

When U.S. government subsidies are included, the cost of onshore wind and utility-scale solar is competitive with the marginal cost of coal, nuclear and combined cycle gas generation. The former values average $31/MWh for utility-scale solar and $26/MWh for utility-scale wind, while the latter values average $41/MWh for coal, $29/MWh for nuclear, and $28/MWh for combined cycle gas generation.

While the reductions in costs continue, their rate of decline has slowed, especially for onshore wind.  Costs for utility-scale solar have been falling more rapidly (about 11% per year) compared to onshore wind (about 5% per year) over the past five years.

Selected regional differences (i.e., resource availability and fuel costs) can drive meaningful variance in the LCOE values of certain technologies, though some of this variance is mitigated by adjustments to a project’s capital structure to reflect market conditions that drive the availability, and cost, of debt and equity capital.

Lazard’s latest annual Levelized Cost of Storage Analysis (LCOS 6.0) shows that storage costs have declined across most use cases and technologies, particularly for shorter-duration applications, in part driven by evolving preferences in the industry regarding battery chemistry.

Additional highlights from LCOS 6.0:

Sustained cost declines were observed across the use cases analyzed in our LCOS for lithium-ion technologies (on both a $/MWh and $/kW-year basis). The cost declines were more pronounced for storage modules than for balance of system components or ongoing operations and maintenance expenses.

Project returns analyzed in our “Value Snapshots” continue to evolve as hardware costs decline, and the value of available revenue streams fluctuate with market fundamentals.

Project economics analyzed for standalone behind-the-meter applications remain relatively expensive without subsidies, while utility-scale solar PV + storage systems are becoming increasingly attractive.

Long-duration storage is gaining traction as a commercially viable solution to challenges created by intermittent energy resources such as solar or wind.

Levelized Cost of Hydrogen 

Lazard has undertaken its inaugural Levelized Cost of Hydrogen (“LCOH”) analysis in an effort to provide greater clarity to Industry participants on the potentially disruptive role of hydrogen across a variety of economic sectors. Our LCOH builds upon, and relates to, our annual LCOE and LCOS studies. The LCOH analysis provides an overview of the various methods for producing hydrogen and how it can be utilized across economic sectors, addresses FAQs pertaining to hydrogen and presents a levelized cost analysis for producing green hydrogen through electrolysis using Alkaline and PEM electrolyzers.

Download the review to read the findings in full.

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