JASON DEIGN NOVEMBER 09, 2017

Financial advisory firm Lazard is out with its eleventh annual levelized cost of energy analysis. It shows renewable energy costs continue to drop compared to conventional generation.

But the data is also a reality check.

While wind and utility-scale PV can now out-compete almost any conventional generation source, including combined-cycle gas in some cases, the report also revealed that cost improvements for these intermittent renewables are diminishing.

Utility-scale solar LCOE dropped 86 percent in the last eight years. For wind, the figure was 67 percent. But most of these reductions took place in the first four years under study.

Looking at the last four years alone, utility-scale PV LCOE dropped 36 percent and wind fell 24 percent. And comparing last year with 2017, the LCOE reductions were in single figures: around 9 percent for utility-scale solar and 4 percent for wind.

For commercial and industrial-scale solar, costs fell 8 percent over the last four years and less than 1 percent in the last year.

Given that wind and utility-scale solar already have lower LCOEs than conventional generation, this stagnation might not seem like a big deal. The problem is that neither PV nor wind can be dispatched at will.

However, adding storage to renewables often eliminates the LCOE advantage.

As an example, Lazard calculated that utility-scale crystalline-silicon PV now has an LCOE range of $46 to $53 per megawatt-hour of generation -- less than the lowest levelized cost for coal, at $60, or natural gas, at $68. But adding a battery and bidirectional inverter to the PV system to deliver 10 hours of storage with a 52 percent capacity factor brought the cost up to $82 per megawatt-hour.

The next challenge for renewables will be to undercut traditional generation even when accounting for storage.

Since wind and solar cost reductions are slowing, the emphasis will be on how much further storage costs can fall. To this end, Lazard’s eleventh LCOE analysis was accompanied by a third annual levelized cost of storage (LCOS) report.

LCOS, however, turns out to be a slippery measure. While LCOE is essentially a calculation of the costs of generating electricity under given conditions, LCOS must take account of the value of stored energy when it is discharged back into the electricity system.

This value can vary widely depending on how many functions the energy is carrying out, and the value of each. “The total of all potential value streams available for a given system thus defines the maximum economically viable cost for that system,” said the report.

“Importantly, incremental sources of revenue may only become available as costs decrease below a certain value. In many cases, local market/regulatory rules are not available to reward the owner of an energy storage project to provide all of potential revenue streams.”

Lazard’s LCOS study covered peaker replacement, distribution, microgrid, commercial and residential use cases, and was limited to three energy storage technology categories: flow batteries, lead-acid batteries and lithium-ion batteries.

The analysis found vanadium flow batteries could achieve a minimum LCOS of $184 per megawatt-hour for distribution network applications and $209 per megawatt-hour for peaker replacement, ahead of lithium-ion at $272 and $282, respectively.

But lithium-ion had the best capital cost-reduction outlook, Lazard said. The firm expected lithium-ion batteries to drop by 36 percent in the next five years, compared to 28 percent for zinc-bromide flow batteries and 19 percent for vanadium.

Will these cost reductions allow storage and intermittent renewables to overtake traditional generation in the near term? Lazard didn’t seem to think so.

“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,” it said.


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