Old Rocks
Diamond Member
Very interesting figures here. Looks as if wind and solar have both acheived parity with conventional sources.
http://www.lazard.com/PDF/Levelized Cost of Energy - Version 8.0.pdf
Summary Considerations
Lazard has conducted this study comparing the levelized cost of energy for various conventional and Alternative Energy
generation technologies in order to understand which Alternative Energy generation technologies may be cost-competitive with
conventional generation technologies, either now or in the future, and under various operating assumptions, as well as to
understand which technologies are best suited for various applications based on locational requirements, dispatch
characteristics and other factors. We find that Alternative Energy technologies are complementary to conventional generation
technologies, and believe that their use will be increasingly prevalent for a variety of reasons, including RPS requirements,
carbon regulations, continually improving economics as underlying technologies improve and production volumes increase,
and government subsidies in certain regions.
In this study, Lazard’s approach was to determine the levelized cost of energy, on a $/MWh basis, that would provide an aftertax
IRR to equity holders equal to an assumed cost of equity capital. Certain assumptions (e.g., required debt and equity
returns, capital structure, and economic life) were identical for all technologies, in order to isolate the effects of key
differentiated inputs such as investment costs, capacity factors, operating costs, fuel costs (where relevant) and U.S. federal tax
incentives on the levelized cost of energy. These inputs were developed with a leading consulting and engineering firm to the
Power & Energy Industry, augmented with Lazard’s commercial knowledge where relevant. This study (as well as previous
versions) has benefitted from additional input from a wide variety of industry participants.
Lazard has not manipulated capital costs or capital structure for various technologies, as the goal of the study was to compare
the current state of various generation technologies, rather than the benefits of financial engineering. The results contained in
this study would be altered by different assumptions regarding capital structure (e.g., increased use of leverage) or capital costs
(e.g., a willingness to accept lower returns than those assumed herein).
Key sensitivities examined included fuel costs and tax subsidies. Other factors would also have a potentially significant effect
on the results contained herein, but have not been examined in the scope of this current analysis. These additional factors,
among others, could include: capacity value vs. energy value; stranded costs related to distributed generation or otherwise;
network upgrade, transmission or congestion costs; integration costs; and costs of complying with various environmental
regulations (e.g., carbon emissions offsets, emissions control systems). The analysis also does not address potential social and
environmental externalities, including, for example, the social costs and rate consequences for those who cannot afford
distribution generation solutions, as well as the long-term residual and societal consequences of various conventional
generation technologies that are difficult to measure (e.g., nuclear waste disposal, environmental impacts, etc.).
http://www.lazard.com/PDF/Levelized Cost of Energy - Version 8.0.pdf
Summary Considerations
Lazard has conducted this study comparing the levelized cost of energy for various conventional and Alternative Energy
generation technologies in order to understand which Alternative Energy generation technologies may be cost-competitive with
conventional generation technologies, either now or in the future, and under various operating assumptions, as well as to
understand which technologies are best suited for various applications based on locational requirements, dispatch
characteristics and other factors. We find that Alternative Energy technologies are complementary to conventional generation
technologies, and believe that their use will be increasingly prevalent for a variety of reasons, including RPS requirements,
carbon regulations, continually improving economics as underlying technologies improve and production volumes increase,
and government subsidies in certain regions.
In this study, Lazard’s approach was to determine the levelized cost of energy, on a $/MWh basis, that would provide an aftertax
IRR to equity holders equal to an assumed cost of equity capital. Certain assumptions (e.g., required debt and equity
returns, capital structure, and economic life) were identical for all technologies, in order to isolate the effects of key
differentiated inputs such as investment costs, capacity factors, operating costs, fuel costs (where relevant) and U.S. federal tax
incentives on the levelized cost of energy. These inputs were developed with a leading consulting and engineering firm to the
Power & Energy Industry, augmented with Lazard’s commercial knowledge where relevant. This study (as well as previous
versions) has benefitted from additional input from a wide variety of industry participants.
Lazard has not manipulated capital costs or capital structure for various technologies, as the goal of the study was to compare
the current state of various generation technologies, rather than the benefits of financial engineering. The results contained in
this study would be altered by different assumptions regarding capital structure (e.g., increased use of leverage) or capital costs
(e.g., a willingness to accept lower returns than those assumed herein).
Key sensitivities examined included fuel costs and tax subsidies. Other factors would also have a potentially significant effect
on the results contained herein, but have not been examined in the scope of this current analysis. These additional factors,
among others, could include: capacity value vs. energy value; stranded costs related to distributed generation or otherwise;
network upgrade, transmission or congestion costs; integration costs; and costs of complying with various environmental
regulations (e.g., carbon emissions offsets, emissions control systems). The analysis also does not address potential social and
environmental externalities, including, for example, the social costs and rate consequences for those who cannot afford
distribution generation solutions, as well as the long-term residual and societal consequences of various conventional
generation technologies that are difficult to measure (e.g., nuclear waste disposal, environmental impacts, etc.).