Publication Date: August 11, 2025

Overview: Lazard published its June 2025 Levelized Cost of Energy (LCOE+) analysis, available here: lazards-lcoeplus-june-2025.pdf, highlighting trends in energy capital and operating costs by source of generation and storage.

The analysis contains valuable information for companies and investors seeking to understand the cost of generating electricity and factors that contribute to costs by source.

It reveals that renewable technologies like onshore wind and utility-scale solar remain the most cost-competitive for new electricity generation in the U.S. on an unsubsidized basis, with costs ranging from $37–$86/MWh for wind and $38–$78/MWh for solar.

However, as renewable penetration increases, the need for firm capacity—resources that provide reliable power during peak demand—drives up the value of gas, nuclear, hydro, and longer-duration storage. The report highlights widening gaps between renewable levelized costs and marginal costs of existing gas plants due to low gas prices and high demand, while emphasizing grid resilience amid extreme weather and energy security concerns. Storage costs declined notably, but tariffs introduce uncertainty. Diverse generation mixes are essential for long-term reliability.

Facts

• Lazard’s LCOE Version 18.0 states that unsubsidized renewable energy remains the most cost-competitive form of generation, with onshore wind at $37–$86/MWh and utility-scale solar at $38–$78/MWh, compared to gas combined cycle at $48–$109/MWh.
  
• The analysis notes a widening gap between new wind/solar LCOEs and marginal costs of operating combined-cycle gas turbines (CCGTs), driven by persistent low gas prices ($3.45/MMBTU fuel assumption), high energy demand, and increasing renewable LCOEs.
  
• Storage costs declined in Levelized Cost of Storage (LCOS) Version 10.0, with utility-scale 4-hour systems at $115–$254/MWh, attributed to oversupply of battery cells from lower EV demand and advancements in cell capacity/energy density.
  
• Firming intermittency costs rise with renewable penetration; for example, in CAISO, solar’s effective load-carrying capability (ELCC) is 7%, requiring additional firm capacity at a net cost of new entry (Net CONE) of $18.92/kW-month.
  
• The report indicates nuclear benefits from scale efficiencies, with Vogtle units 3 and 4 showing a ~30% cost learning curve, and existing nuclear providing low variable costs for resilience.
  
• Historical trends show solar LCOE declined 84% since 2009, while wind declined 55%, but recent years saw slight increases due to inflation and supply issues.

Perspectives

• Lazard (report authors): Renewables are the lowest-cost and quickest-to-deploy resources for new generation, but diverse fleets including nuclear, geothermal, and long-duration storage are needed for reliability, as firm capacity value rises with intermittency.
  
• Sierra Club (environmental advocacy group): The sustained cost-competitiveness of renewables supports rapid deployment to meet climate goals, emphasizing that policy should prioritize zero-operating-emission firming options like storage over fossil fuels to enhance energy security.
  
• American Petroleum Institute (oil and gas industry representative): Low gas prices and CCGT flexibility make natural gas essential for firming renewables, providing resilience during high-demand periods and extreme weather. Land-locked areas where solar and wind are unavailable benefit from pipeline infrastructure capacity for more localized increases in energy.
  
• PJM Interconnection (grid operator): Capacity accreditation methodologies are evolving to reduce values for correlated resources like solar, increasing firming costs to ensure reliability, with seasonal adjustments potentially impacting future planning.
  
• Nuclear Energy Institute (nuclear advocacy group): Existing nuclear offers high reliability and capacity value, with life extensions cost-effective; new builds demonstrate efficiency gains, positioning nuclear as key for zero-carbon firm power amid rising demand.

Considerations

• Increasing renewable penetration lowers energy costs but elevates firming expenses, as seen in ELCC declines, necessitating balanced portfolios for affordability and reliability.
  
• Storage market expansion beyond wholesale to regions like Arizona and Florida improves returns via lower costs and higher prices, enhancing grid resilience in high-growth areas.
  
• Policy tools like federal tax credits reduce renewable LCOEs, but uncertainties from tariffs and interconnection delays could hinder deployment and raise overall system costs.
  
• Extreme weather and demand growth underscore the need for diverse generation, including emerging technologies like long-duration storage and geothermal, to ensure energy security.
  
• Capacity market reforms in ISOs like PJM and CAISO, incorporating seasonal ELCC, may materially increase firming costs for intermittents in the short term while promoting innovation long-term.

Readers are encouraged to review sources and form their own views on this topic.

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