Lazard’s annual analysis said that, between 2021 and 2023, the LCoE of unsubsidised onshore wind in America increased from a mean of $36/MWh to $50/MWh – a rise of 38%.
The report, by the Bahamas-based investment bank, found that the LCoE of unsubsidised utility-scale solar-photovoltaics increased from a mean of $38/MWh to $60/MWh during the same time period.
LCoE measures the average net present cost of electricity generation for a generator over its lifetime, allowing a comparison of different generation types.
Lazard’s analysis assumed 60% debt at an 8% interest rate and 40% equity at 12% cost. It also uses US-focused data.
Inflation bucks downward trend
Longer-term, the unsubsidised mean cost of onshore wind has dropped from $74/MWh in the decade until 2023 and from $135/MWh since Lazard started the annual analyses in 2009.
“Even in the face of inflation and supply chain challenges, the LCoE of best-in-class onshore wind and utility-scale solar has declined at the low-end of our cost range, the reasons for which could catalyse ongoing consolidation across the sector – although the average LCoE has increased for the first time in the history of our studies,” said the report.
The decrease has been driven by decreasing capital costs, improving technologies and increased competition, said Lazard.
The LCoE of onshore wind currently varies from $24/MWh to $75/MWh, said the investment bank.
Offshore wind’s LCoE varies are in the $72-140/MWh range, while onshore wind and storage are priced at $42-114/MWh.
Meanwhile, Lazard found that the average lifetime cost of unsubsidised gas-combined cycle – the cheapest of the fossil-fuel generation methods – increased less steeply but from a higher base, from $60/MWh to $70/MWh over the same two years.
And the LCoE of gas peakers decreased from $173/MWh to $168/MWh from 2021-2023.
Gas combined cycle’s LCoE varies from $39 to $101, said Lazard, with coal currently at $68/MWh to $166/MWh, while nuclear costs $141/MWh to $221/MWh.
“The cost of fossil fuels is less competitive than the cost of new wind and solar – and the LCoE of renewables continues to decline,” said Sam Scroggins, Lazard’s vice president of power and energy.
The cost of capital for onshore wind is $1,025-$1,700/kW, while for offshore wind it is $3,000-5,000/kW. The capital cost for combined cycle gas is an estimated $650-1,300/kW, for gas peakers it is $700-1,150/kW and for utility-scale solar-photovoltaics, it is $700-1,400/kW.
New-build unsubsidised wind’s LCoE varies from $24/MWh to $75/MWh, or $0-$66/MWh with the US production tax credit (PTC), said the bank. The marginal cost of existing nuclear is $29-34/MWh. The marginal cost of existing gas-combined cycle is $51-$73/MWh. And the marginal cost of existing coal is $29-$74/MWh.
For the cheapest wind, just $4/MWh is for O&M, and $12/MWh for offshore wind, while for gas combined cycle, the fixed and variable O&M costs total $4/MWh.
New solar versus new wind
Scroggins also noted that the reduction in the LCoE of new solar is starting to outpace that of new wind.
Rates of decline in the LCoE for utility-scale solar and onshore wind have slowed in recent years, but the pace of decline for utility-scale solar continues to be higher than that for onshore wind. An observed five-year compound annual decline of 8% in the average LCoE was detected for utility-scale solar, compared with 4% for onshore wind.
When current US government subsidies are included, the cost of onshore wind and utility-scale solar continues to be competitive with the marginal cost of existing coal, nuclear and combined cycle gas generation.
The values average $25/MWh for utility-scale wind and $27/MWh for utility-scale solar with subsidies, while the LCoE average is $42/MWh for coal, $29/MWh for nuclear and $24/MWh for combined cycle gas generation, said the bank.