Levelized electricity costs are a tool for determining asset productivity. Here is the situation of renewable resources at the global level and in the Italian market
IN 2023 renewable energy sources (FER) stood out. Annual capacity additions have increased by 50% compared to 2022, reaching almost 510 GW. This is also due to a number of falling costs at both the technology and project levels. One of the financial metrics that can be used to evaluate this trend is Balanced energy costs – LCOE for renewables 2024. Let’s take a detailed look at what this tool is for and what values it is associated with in the renewable energy sector on a global and national level.
What is the Levelized Cost of Energy (LCOE)?
Deciding to invest in a power generation project requires a number of considerations. Primarily on feasibility, but also and above all on profitability. The the balanced price of electricity is a tool for determining the productivity of assetswhich calculates not only the costs of construction, but also the costs of management, maintenance and dismantling and possibly also of fuel.
In detail LCOE can be defined as the average total operating cost of the system divided by the amount of electricity it is expected to produce over its lifetime. However, it also indicates the average minimum price at which the generated electricity must be sold for the project to break even.
Of course: this is not an exclusive tool for renewable energy sources. LCOE is performed including the price of fuel (if present) in the calculation a useful parameter for comparing the competitiveness of different projects and resources: photovoltaic, wind, nuclear, gas and coal. And using separate calculations, it is also possible to obtain the LCOE of storage systems and hydrogen production.
This metric is sometimes accompanied by another: the so-calledVALCOE’ or LCOE Adjustedi.e value-adjusted levelized electricity costs. This is a metric created by the International Energy Agency (IEA) that also includes the value of this energy produced for the electricity grid in the calculation. This can include factors such as output variability, timing of generation to match demand, and the ability to provide ancillary services to the grid. “Based on LCOE – explains the IEA – Estimates of energy value, capacity and flexibility are included to provide a more comprehensive metric of the competitiveness of energy generation technologies.”
Renewables LCOE 2024: what is the levelized cost of electric RES?
Various industry reports come to the rescue by tracking the competitiveness of various plants from year to year. Among the most famous is the one he wrote Lazarda well-known financial consulting and management company. His latest report on the subject confirms a fact that has been known for a long time: Renewable energy sources continue to be cost competitive with conventional generationwhich accelerates the abandonment of fossil fuels.
The most striking fact? Offshore wind and energy photovoltaics have the lowest LCOE of all electricity generation technologies. It also narrowly outperforms gas-fired combined cycle power plants. In detailcoastal wind has been classified as the most cost-effective source of electricity generation for new power plants ranging from $27/MWh to $73/MWh.
The photovoltaics on an industrial scale follows closely, with range from $29 to $92/MWhbut highlighting the most aggressive cost reduction curve of all technologies considered. Suffice it to say that in 2009, large PV systems had an average LCOE of over $350/MWh. withaddition of storage systems Utility-scale PV LCOE is growing within reach between $60 and $210/MWh.
And again:coastal wind shows the average LCOE between $74 and $139/MWh; The commercial and industrial size photovoltaics (C&I) between $54 and $191/MWh while that residential boasts the highest LCOE range among them $122 and $284/MWh.
LCOS 2024, leveled storage costs
Lazard’s report also offers an overview of the so-called LCOS – Levelized Cost of Storagethus the levelized cost of energy storage. In this case, they range from a maximum of $882-1,101 per MWh for 6 kW 4-hour residential storage systems to a minimum of $170-296 per MWh for 100 MW 4-hour 4-hour energy-scale storage systems.
In the middle are C&I storage systems with 1 MW and 2 hours of capacity with LCOS between $373 and $518 per MWh, large storage (100 MW) with 4 hours ranging between $170 and $296 per MWh, and 2-hour with LCOS between 188 and 322 USD per MWh.
Renewable LCOE in Italy
Lazard’s report focuses mainly on the American market and also offers an overview of the effects of American subsidies on these costs. But if we wanted to focus onLCOE of renewable energy in Italy? A recent publication comes to the rescue Renewable Energy Report 2024he wroteEnergy & Strategy Group Milan Polytechnic.
The paper analyzes progress at national level in achieving green energy targets in Italy, taking into account technological, regulatory and market aspects. Between individual chapters we also find in-depth analysis of technological trends and levelized prices of renewable energy.
In general, the document states for large utility photovoltaic systemsi.e. with an installed capacity of 1 MW and above, LCOE between 65 and 80 euros per MWh. And highlighting the great differences between northern and southern Italy. In fact, the authors make a further division by distinguishing PV systems between 1-5 MW and 20 MW systems. For different sizes, the LCOE is obviously different due to the different weights of the cost components. In the latter case, there is actually a capital cost to connect and partly to increase the plot, but the cost of the modules is significantly reduced due to greater economies of scale. Translated: LCOE for a 1-5 MW PV system is between 70 and 80 €/MWh, for a 20 MW PV it is equal to 65-75 €/MWh.
Balanced energy costs for equipment offshore wind energy ranging from 20 MW 90-100 €/MWh. In this case, the value appears to be increasing on the 2022 data due to increases in OEM costsespecially when it comes to European wind turbine manufacturers. Further in case strengthening interventions LCOE facing 8-10% increase under the pressure of “extra” costs associated with the dismantling of the old plant.
The report also contains an important explanation. Or “If we also take into account the need to reward the capital of those who invest in large plants, the LCOE (…) increases by an additional 5-10 EUR/MWh for each additional percentage of the cost of capital rewardedA”. In other words, PV LCOE increases up to €80-95/MWh, while wind LCOE increases up to €105-120/MWh.
“It is important to emphasize how within the framework of future decrees on incentives for renewable sources (and especially FAIR), auction bases that are too far from the presented values would not be particularly attractive to investors. This threatens to have a significant impact on the competitiveness of auctions“, the authors write.
In case medium-sized photovoltaic systems (i.e. residential and C&I) the document does not provide levelized costs but deals with data on the profitability of these installations in terms of Internal rate of return (IIR) az amortization period (Payback period). These classes of installations guarantee good profitability under current market conditions with a return on investment of around 10 years.
However, the future looks a bit more uncertain end of pure measurement mode. Repeal of this facility at the end of 2024 will extend the amortization period by another 7-8 years, especially for non-benefiting C&I systems 70% photovoltaic bonus.
LCOE for agrovoltaics and floating wind
There is also mention of new renewable technologies, from agro-voltaics to offshore wind farms, including floating wind.
“Foragrovoltaic LCOE is estimated between 95 and 115 €/MWhdue to higher investment costs”, whileOffshore wind is recording values between €115 and €135/MWh in a fixed configuration and between 150 and 180 €/MWh in “floating”.. Even storage systems, necessary to stabilize the network.so far lead to significant cost increases, with LCOEs for integrated systems (photovoltaic and wind + storage systems) estimated at 120-140 EUR/MWh”.