By Morgan Pitts 11/29/2018
Market research firm Lazard periodically releases reports analyzing the “Levelized Cost of Energy” (LCOE). The LCOE provides an apples-to-apples comparison between the expected lifetime costs of different types of proposed power plants. The LCOE is simply the lifetime cost of a power plant (including the cost of construction, operation, financing, and fuel) divided by the expected lifetime energy production of that power plant. (LCOE is measured in dollars per megawatt hour.) This comparison is important to utilities and merchant electricity generators when considering what types of power generating facilities they should build to meet future demand.
In November, Lazard released its 12th comparison of the LCOE of various generation technologies. In exciting news for proponents of renewable energy, the report finds that onshore wind is now the lowest-cost option for new generation, beating out all forms of fossil energy.
What is especially notable in this report is that not only is wind power the cheapest option for new construction, increasingly it is cheaper to build new wind capacity instead of keeping existing coal plants operating. Based on Lazard’s LCOE, the low-end price of new wind generation is about $29 per megawatt hour. The average cost of keeping an existing coal-fired power plant operating is $36 per megawatt hour.
While this sounds promising, not included in the LCOE are other costs associated with building and operating power plants. New transmission lines are expensive and their permitting and approval can be challenging, which introduces a practical constraint on the development of new wind or other renewable resources. While, in some cases, a new wind farm may appear cheaper than keeping an existing coal plant running, the coal plant benefits from the sunk costs of existing infrastructure that support it.
So, what does this mean for consumers? In the short term, not a whole lot. But over time, we can expect to see the costs of clean, renewable electricity continue to fall and lower emissions from electricity generation overall. That’s good news for everyone.