Renewables Becoming Cost Competitive; Other Challenges Remain
In September 2014, Lazard published its annual levelized cost of energy (LCOE) report. The analysis calculates the LCOE of renewable technologies in the absence of subsidies, such as the federal Investment Tax Credit or the Production Tax Credit. Lazard finds the LCOE of wind and utility-scale solar PV is competitive with coal and becoming competitive with combined cycle natural gas.
- The LCOE reflects the lifetime cost of energy required to build and operate a generation facility; the metric is one way to compare different generation technologies.
- According to Lazard, technologies with the lowest unsubsidized LCOE include: energy efficiency ($0–$50/MWh); wind ($37–$81/MWh); combined cycle natural gas ($61–$87/MWh); coal ($66–151/MWh); and utility-scale solar PV ($72–$86/MWh).
- Utility-scale solar PV assumes high insolation jurisdiction (e.g., southwest United States); low end represents the average costs of single axis tracking (the most efficient utility-scale solar); high end represents the average costs of fixed-tilt installation (the least efficient utility-scale solar).
- Although rooftop residential solar PV is discussed a lot in the trade presses, it is still one of the most expensive generation technologies ($180–$265/MWh).
- Analysis excludes integration costs and reserves required to ensure reliability.
There is a growing business case to add cost effective utility-scale renewables to the generation portfolio; however, the business case becomes more complex with high penetrations of renewables. In these scenarios, utilities and ISO/RTOs must be capable of managing significant variable generation as part of normal grid operations. In addition, determining “high penetration” is unique to each gird operator and dependent on local and regional system characteristics.
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