There’s been some pretty amazing news for renewable energy recently. Just this week, a consortium of companies announced that they will build a $4 billion wind farm, connected to a $2.6 billion high voltage direct current transmission line and a $1.4 billion compressed air energy storage facility near Los Angeles. That system will generate more power than the Hoover Dam and deliver dispatchable Wyoming wind energy to southern California. And with Elon Musk’s decision to build a $5 billion “Gigafactory” in Nevada to develop advanced battery technology for the all-electric car company Tesla, massive investments are being made to support clean and renewable energy resources. These announcements aren’t some futuristic bet on research and development: these are billion dollar investments on deployment. But why is this all happening now? Simply put, costs have dropped. Dramatically.
A new analysis by the financial advisory group, Lazard, highlights the substantial declines in renewable energy levelized cost of energy. Lazard describes itself as “the world’s leading financial advisory and asset management firm, advises on mergers, acquisitions, restructuring, capital structure and strategy.” Here’s the takeaway analysis from Lazard:
Source: Lazard 2014
All the costs reflected by Lazard are the unsubsidized costs; all energy resources receive some sort of subsidy, so this analysis levels the playing field. Even without the incentives, energy efficiency and wind energy are the lowest cost options for new sources of energy – beating out “conventional” sources of energy generation. Also, solar power is now extremely cost competitive against “gas peaking” generation – a key energy resource that solar power can help to displace. Aside from the cost competitiveness analysis, the really amazing thing is that costs for renewables have generally dropped from last year, while costs for “conventional” energy resources have generally gone up. Shown below is a chart comparing the levelized cost of energy changes, based on an average between the low and high costs, from Lazard’s 2013 analysis with the new 2014 analysis.
Solar photovoltaics, wind energy and solar thermal technology costs have all declined pretty substantially since Lazard’s analysis last year. Natural gas and energy efficiency costs have stayed the same, although to be fair, energy efficiency’s starting low cost of $0 per megawatt of energy saved is hard to beat. Meanwhile, coal, nuclear and integrated gasification combined cycle power costs continue to increase.
For clean and renewable energy, indeed the future is now.