Analysis: The Actual Levelized Cost Of Energy Suggests Green Energy is Hiding Costs

A recent story on the Washington Policy Center website suggested that Intermittent sources of energy create cost and reliability risks for the Northwest. In that article, author Todd Myers notes: “The most widely cited source of energy LCOE comparison is Lazard who published a new comparison in April. That analysis finds the unsubsidized cost of new natural gas power is virtually identical to new commercial wind and solar over its lifetime, adjusting for expected future inflation.”

In this guest essay below, which originally appeared on WUWT, Willis Eschenbach finds essentially the same thing, but also discovers the reason that wind and solar appears more affordable is due to a lie of omission. – Editor

Guest Essay By Willis Eschenbach

A company named Lazard puts out an annual report on something called the “Levelized Cost Of Energy” (LCOE). Here’s the April 2023 version. The LCOE estimates the total capital, operations, and maintenance costs for new electric power plants coming into service. People use the Lazard LCOE all the time to claim that renewable electricity sources are now cheaper than fossil fuel electricity. However, the Lazard data has a problem—it doesn’t include the cost of backup and other costs for renewable energy. These costs fall into four groups: backup costs, balancing costs, grid connection costs, and grid reinforcement/extension costs.

A few days ago, I posted the following tweet:

I am SOOO tired of people using the Lazard’s Levelized Cost of Energy to directly compare say solar vs gas or wind vs coal.

The Lazard folks themselves say (emphasis mine)

“Direct comparisons to “competing” renewable energy generation technologies must take into account issues such as dispatch characteristics (e.g., baseload and/or dispatchable intermediate capacity vs. those of peaking or intermittent technologies).”

It’s not optional, so unless you’re taking those issues into account, you are LYING ABOUT RENEWABLES.

w.

Fortunately for me, a user yclept @Roadshow11235 gave me a link to something I’d never seen, an analysis of those very costs. So let me lay them out for you.

I’ll start with the original Lazard data.

Figure 1. Original April 2023 Lazard Levelized Cost Of Energy (LCOE)

Looking at those Lazard LCOE numbers, you can see why people claim that renewables are cheaper than fossil or nuclear. It looks like solar and onshore wind are the clear winners.

However, and it’s a very big however, this does not include the other costs listed above which mostly affect renewables. Let me define each of them:

• BACKUP: All power sources require backup power for the times when they are not generating any or enough power. However, the amount of backup required is much larger for intermittent sources.

• GRID BALANCING: Extra equipment is required when you have intermittent sources, to keep their highly variable input to the grid from destabilizing it.

• GRID CONNECTION: Renewable wind and solar power is variable voltage direct current. Before it can be fed into the grid, it must be run through costly synchronous inverters to convert it to stable voltage, stable frequency alternating current.

• GRID REINFORCEMENT/EXTENSION: Unlike fossil or nuclear plants, which can generally be sited as required, renewable sources of energy are often located far from where the power is needed. As a result, the grid will generally need to be extended, strengthened, or both for such sources.

How large are these costs? Well, the source linked above gives values for five nations—Finland, France, South Korea, the US, and the UK. The amounts vary for each country. For this analysis I’ve used, not the average of these, but the average plus one standard deviation of the data.

Why not use just the average? Good question.

• These figures are all from developed, industrialized countries with extensive grids already in place. When applied to the whole world, the grid-related costs will be higher.

• The less developed a country is, the more it costs to do business there, because many of the ancillary businesses, supplies, and transportation systems we take for granted in developed nations simply don’t exist.

• The greed factor will come into play. Existing renewables often have cozy agreements to sell their power at prices well above the market, and they are exploiting every loophole to do so.

• Unplanned events. Hailstorms destroy solar panels but don’t bother fossil plants. Ocean waves break and damage power cables coming to land from offshore wind turbines. See my post “Blocking The Wind” for examples.

• Finally, there’s what I modestly call “Willis’s Recursive Rule Of Construction”, which states that “Everything takes longer and costs more, even when you take Willis’s Recursive Rule into account.

With those caveats, here are the extra renewable costs for each of the power sources.

Figure 2. Total of the extra costs for each energy source. Note that for each source, the costs increase in line with the percentage of the total electricity supplied by that source (“penetration”).

You can see why Lazard says their levelized costs for renewables are not directly comparable to dispatchable or baseload fuels like nuclear, coal, and gas.

(It’s worth noting here that in many US states, the amount paid to power producers for electricity is on the order of $0.05 to $0.07 per kilowatt-hour. So with regards to solar farms, even if land, panels, mounting structures, and all the rest of the solar setup were totally free, it would still cost more than current power prices … but I digress …)

So, what does the original Lazard data look like when we add in the extra costs for each of the various power sources? Here you go …

Figure 3. Original April 2023 Lazard Levelized Cost Of Energy (LCOE, yellow lines) and LCOE plus ancillary backup, balancing, grid connection, and grid reinforcement/extension costs (colored lines). Note that nuclear is high in part because of the insane regulatory bureaucratic hoops you need to jump through to build one. This can be fixed.

Solar and wind not looking so good once you include all the costs …

Figure 3 above makes it quite clear why there are 1,008 new coal-fired power plants either announced, in planning, permitted, or under construction around the world.

Figure 4. Locations of 1,008 new coal power plants either announced, in planning, or under construction. I note in passing that Australian politicians think closing their 6 existing coal plants will save the planet. SOURCE

The reason those countries are building coal plants is that, unlike climate alarmist politicians in the West, people in most sane countries are looking at the total costs of different sources, not just the Lazard LCOE numbers.

Further affiant sayeth naught.

[UPDATE] For those who think this is only theoretical, ignorance of these facts cost the UK £10 million one day recently …

w.

UK ‘power dumping’ raises concerns over energy management – Energy Live News

Here on our green forested hillside near the ocean, after days of cold sea fog, we have sun today. Still no climate emergency, and I’m glad for the local warming. So I’m going outside to finish burying the Cat5e Ethernet cable to get internet over to the guest house … the work’s not fun, but the day is glorious.

With wishes that all of your days may be equally wonderful,

w.

As Always: I ask that when you comment, please quote the exact words you are discussing. This avoids endless misunderstandings.