Lazard's Latest LCOE Report Highlights Tightening Costs and Innovation Needs in RE Sector

The financial services group Lazard published the newest edition of its annual Levelised Cost of Energy (LCOE) analysis. The latest Levelized Cost of Energy Analysis (LCOE) report highlights several key trends and insights impacting the renewable energy landscape.

The report notes that despite some declines in high-end LCOE values for selected renewable technologies, the low-end LCOE values have increased for the first time, driven by persistent cost pressures such as high interest rates. This results in tighter overall LCOE ranges and relatively stable year-over-year averages. The findings suggest that well-capitalised companies, capable of leveraging economies of scale and maintaining robust balance sheets, will continue to lead the expansion of new renewable energy assets.

As the electricity demand grows, driven by factors such as the rise of artificial intelligence, data centre deployment, reindustrialization, onshoring, and electrification, the need for diverse generation fleets to meet baseload power requirements is becoming increasingly apparent. 

Despite the cost-competitiveness of renewable energy technologies, the timing mismatch between peak customer demand and renewable energy production underscores the need for complementary resources. Energy storage or fully dispatchable generation technologies, such as combined cycle gas turbines (CCGTs), are crucial in addressing this imbalance. This year's marginal cost analysis indicates that existing gas-fired generation remains price-competitive compared to new-build renewable energy technologies.

Further, the energy transition will require continuous innovation in technology, capital formation, and policy to achieve a diverse and advanced generation mix capable of reshaping the energy economy. Technologies not included in the current LCOE analysis, such as carbon capture, utilisation and sequestration (CCUS), long-duration energy storage, and new nuclear technologies, will need to mature further. 

Lazard's findings reaffirm the cost-competitiveness of renewables, suggesting they will continue to displace conventional generation. However, the timing and composition of the evolving energy mix will depend on various factors, including grid investment, permitting reform, transmission queue reform, economic policy, and advancements in flexible load and locally sited generation.