A report by Lazard, an asset management and financial advisory company, found that the low ends of the Levelized Cost of Energy (LCOE) for renewable energy technologies in the U.S. have increased for the first time, driven by persistent cost pressures such as high interest rates.

Despite declines in the high-end LCOE for selected renewable energy technologies, the overall LCOE ranges have tightened, resulting in relatively stable LCOE averages year-over-year. This trend highlights the advantage of well-capitalized companies in building new renewable energy assets​.

The report found that the LCOE for new-build utility-scale solar ranged between $29/MWh and $92/MWh, just behind onshore wind, which had the lowest LCOE ranging from $27/MWh to $73/MWh. Utility-scale solar also had a far lower LCOE than that of coal ($69/MWh to $168/MWh).

Energy Storage

The report saw incremental declines in the low-end levelized cost of storage (LCOS) year-over-year. The decline was partly driven by a fall in cell prices with increased manufacturing capacity in China and reduced mineral pricing. The lower LCOS was offset by higher engineering, procurement, and construction costs due to the growing demand, increased timeline scrutiny, and skilled labor shortages.

Due to the Input Tax Credit under the Inflation Reduction Act and lower cell prices, there is a trend of oversizing battery capacity to offset future degradation and useful life considerations. But, the lack of clarity on what qualifies for local content is leading to delays. The recently proposed Section 301 import tariffs on lithium-ion batteries could also lead to increased domestic battery supply but with uncertain cost results.

The LCOE for the 100 MW, 4-hour utility scale standalone storage was in the range of $170/MWh to $296/MWh, while the subsidized storage systems were in the range of $124/MWh to $226/MWh.

Lithium-ion batteries remain the most cost-competitive short-term storage option. However, the industry is looking for non-lithium-based technology solutions, especially for longer-duration use.

Hydrogen costs

The levelized cost of green hydrogen using PEM technology for electrolyzers of 20 to 100 MW capacity ranges from $4.45 to $6.05 per kg and $4.33 to $5.49 for green hydrogen using alkaline technology.

With subsidies, green hydrogen can achieve significantly lower levelized costs. For instance, subsidized green hydrogen can reach costs under $2/kg, making it competitive with conventional grey hydrogen produced from natural gas​.

The report’s authors said that meeting baseload power needs will require a mix of diverse generation technologies. While renewable energy remains cost-competitive, the increasing power demand, driven by factors like AI growth, data center deployment, and electrification, necessitates complementing renewables with firming resources such as energy storage or gas-fired generation.

The report emphasized the need for a balanced energy mix to address the timing imbalance between peak demand and renewable production​.

It said continuous technological innovation, capital formation, and policy were essential for the energy transition. This includes the development of advanced generation technologies, carbon capture, and long-duration energy storage. The cost-competitiveness of renewables will continue to drive the displacement of conventional generation. However, the exact timing and mix will depend on grid investment, permitting reform, and economic policies​.

Last April, a Lazard report highlighted how onshore wind and utility-scale solar were competitive with conventional generation technologies in some locations, even without subsidies.

This was further evidenced by how renewable projects remained cost-effective despite the 2021 fuel crisis, according to a report by the International Renewable Energy Agency.