In my latest article for The Telegraph, I revisit the myth that renewable energy is cheap.

Predictably, some people have come back at me with “ah but Lazard says renewables ARE the cheapest form of energy – see their levelised cost analysis”. So let’s do that. Here, once again, is an explanation of why the Lazard levelised cost analysis does not show that renewables are the cheapest form of energy…

What does the Lazard analysis show?

To start with, we need to understand what the analysis does and does not include. Below is the first page of the introduction to the report, repeated verbatim:

Lazard’s Levelised Cost of Energy (“LCOE”) analysis addresses the following topics:

  • Comparative LCOE analysis for various generation technologies on a $/MWh basis, including sensitivities for U.S. federal tax subsidies, fuel prices, carbon pricing and cost of capital
  • Illustration of how the LCOE of onshore wind, utility-scale solar and hybrid projects compare to the marginal cost of selected conventional generation technologies
  • Illustration of how the LCOE of onshore wind, utility-scale solar and hybrid projects, plus the cost of firming intermittency in various regions, compares to the LCOE of selected conventional generation technologies
  • Historical LCOE comparison of various utility-scale generation technologies
  • Illustration of the historical LCOE declines for onshore wind and utility-scale solar technologies
  • Comparison of capital costs on a $/kW basis for various generation technologies
  • Deconstruction of the LCOE for various generation technologies by capital cost, fixed operations and maintenance (“O&M”) expense, variable O&M expense and fuel cost
  • Considerations regarding the operating characteristics and applications of various generation technologies
  • Appendix materials, including:
    • An overview of the methodology utilised to prepare Lazard’s LCOE analysis
    • A summary of the assumptions utilised in Lazard’s LCOE analysis

Other factors would also have a potentially significant effect on the results contained herein, but have not been examined in the scope of this current analysis. These additional factors, among others, could include: implementation and interpretation of the full scope of the Inflation Reduction Act (“IRA”); network upgrades, transmission, congestion or other integration-related costs; permitting or other development costs, unless otherwise noted; and costs of complying with various environmental regulations (e.g., carbon emissions offsets or emissions control systems). This analysis also does not address potential social and environmental externalities, including, for example, the social costs and rate consequences for those who cannot afford distributed generation solutions, as well as the long-term residual and societal consequences of various conventional generation technologies that are difficult to measure (e.g., nuclear waste disposal, airborne pollutants, greenhouse gases, etc.)

The key part is highlighted (my emphasis).

People are getting very excited about the “cost of firming intermittency”, described by this chart:

Lazard LOCE

It’s actually quite hard to work out what’s going on here. Renewables are being compared with the levelised costs of CCGTs ($39-101 /MWh) and gas peakers ($115-221 /MWh). Lazard has analysed the cost per technology per region, separating out the un-subsidised cost from the subsidised cost. Firming costs are added based on what each system operator says those costs are based on the main backup technology used, which in CAISO and PJM includes batteries.

We can see that only wind which is subsidised in the SPP region has a cost lower than the cheapest CCGT. In CAISO just about everything is more expensive than CCGTs – the cheapest technology comes in just below the most expensive CCGTs. Results elsewhere are more variable. Only gas generation has a cost range, and the ranges are wide, with the most expensive CCGTs being more than 2.5 times more expensive than the cheapest. This skews the analysis…why are the fossil fuel comparators given such a wide cost range but none of the other technologies are?

In any case, this chart does not “prove” renewables are cheaper than fossil fuel generation. On the contrary, when including the costs of backup generation, it shows that in many cases they are more expensive. And this does not include other important costs associated with the integration of renewables, in particular transmission upgrades. It’s unclear whether balancing costs are included in the cost of firming – I suspect not, but it is unclear (the word “balancing” does not feature in the report).

Data from the OECD give an idea of the magnitude of these missing costs for selected countries including the US:

grid costs for renewables vs conventional generation

This indicates that excluding back-up costs which are included in the Lazard data, it is necessary to add $10.70 – 13.70 /MWh for on-shore wind, $18.42 – 21.42 /MWh for off-shore wind and $14.82 – 17.82 /MWh for solar. These are old data (from 2012) so not directly comparable – I wasn’t able to find an update on the OECD website. If anything, these costs are likely to be higher now, particularly grid infrastructure costs, given the increase in raw materials prices in the last couple of years.

Battle of the investment banks: JP Morgan challenges the Lazard approach

In the 2022 JP Morgan Annual Energy Paper, entitled The Elephants in the Room, there is further criticism of LCOE and the approach to the energy transition taken by many Western countries:

““levelised costs” comparing wind and solar power to fossil fuels are misleading barometers of the pace of change. Levelised cost estimates rarely include actual costs that high renewable grid penetration requires: (a) investment in transmission to create larger renewable coverage areas, (b) backup thermal power required for times when renewable generation is low, and (c) capital costs and maintenance of utility-scale battery storage. I am amazed at how much time is spent on this frankly questionable levelised cost statistic,”
– Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management

One of the elephants referenced in the title is grid infrastructure. Cembalest says that the US electricity grid has been called the “largest machine in the world”, comprising 7,700 power plants, 3,300 utilities and 2.7 million miles of power lines. While trying to electrify large segments of the heating and transport sectors, policy-makers will need to ensure the stability of this machine, something which is already causing problems (that I plan to address in an up-coming blog) – some US utilities are already struggling with rising grid outages with the average duration of outages in minutes per customer per year increasing.

US grid disturbances

Unfortunately, the development of new grid infrastructure is moving far too slowly to allow for the effective integration of renewable generation. In addition, the US shares similar grid connection issues to the UK, further hampering system efficiency.

Cembalest points out that a lot of the emissions reductions that have been achieved in the developed world over the past 25 years, have been achieved by shifting carbon-intensive manufacturing of steel, cement, ammonia and plastics to the developing world. Although energy consumption in the developed world is expected to continue to fall, the opposite is true in the developing world where energy consumption is projected to keep rising and where coal is still widely used.

He also says that fossil fuel use will remain high in the developed world – JP Morgan estimates that the US might need almost as much gas in 2035 as it uses today, based on assumptions about wind and solar growth, EV and heat pump adoption and the decommissioning of coal and nuclear plants. These factors combine to create a range of economic and geopolitical risks.

“…countries that reduce production of fossil fuels under the assumption that renewables can quickly replace them face substantial economic and geopolitical risks,”
– Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management

As an amusing aside, he points out one of the highest ratios in the world of energy science: the number of academic papers written on carbon sequestration divided by the actual amount of carbon sequestration (~0.1% of global emissions at last count).

EROI is a better measure and shows the problems with intermittent renewables

This peer-reviewed analysis published in the Journal of Management and Sustainability also criticises the use of LCOE:

“LCOE is inadequate to compare intermittent forms of energy generation with dispatchable ones and when making decisions at a country or society level. We introduce and describe the methodology for determining the full cost of electricity (FCOE) or the full cost to society. FCOE explains why wind and solar are not cheaper than conventional fuels and in fact become more expensive the higher their penetration in the energy system. The IEA confirms “…the system value of variable renewables such as wind and solar decreases as their share in the power supply increases”. This is illustrated by the high cost of the “green” energy transition,”
– Dr. Lars Schernikau, Independent; William Smith, Washington University, Saint Louis; Rosemary Prof. Falcon, University of the Witwatersrand, Johannesburg, South Africa

The paper is interesting read because it discusses the differences between generation technologies when using EROI (energy return on energy invested) rather than LCOE as the measure of comparison, and how much worse renewables perform on this measure, something which is clear when considering the chart below. They also frame this in the context of the Laws of Thermodynamics.

The 1st Law states that energy can never be lost, only converted from one form to another. The 2nd Law introduces the concept of entropy, which describes the usefulness or value of energy (high entropy = high disorder, or low value of energy). This Law explains why, in a natural state, heat always moves from warm to cold and not the other way round. When energy is converted from one form to another, “useful” energy is lost ie entropy increases.

The logical conclusion is that the conversion and storage of energy should be avoided as much as possible, since these result in the loss of useful energy (renewables proponents say that “surplus” renewable energy can be converted and stored for future use, but this implies a significant over-build of renewables in excess of peak instantaneous demand). Any loss of useful energy directly translates into reduced system energy efficiency, and a lowering of the EROI. It also results in direct warming of the biosphere since the energy losses are typically in the form of heat lost to the environment.

“It can be concluded that wind and solar have a very low EROI and are therefore a step backward in history in terms of net system energy efficiency. Their grid-scale employment risks energy starvation and is therefore not desirable economically nor environmentally…The full cost of electricity FCOE and EROI illustrate that wind and solar are unfortunately not the solution to humanity’s energy problem. At grid scale, they will lead to undesired economic and environmental outcomes. The use of LCOE for the purpose of discussing the “green” energy transition must cease because it continues to mislead decision makers,”
– Schernikau, et al

material requirements for different generation technologies

The Lazard analysis clearly takes into account capital costs, however this paper quantifies the relative amounts of different materials needed to build different types of generation, which impacts costs but also the environmental footprint of these assets, something that is often ignored. Concrete and steel are particularly energy intensive to produce.

I have complained in the past about the lack of data on lifecycle emissions for different generation technologies, something echoed by the authors:  “the only positive aspect, such expansion [of renewable generation] will limit the use of fossil raw materials mined. The question is, however, if it would truly reduce total raw material use when honestly and truly accounting for the entire life cycle from resource mining, via material transportation, processing, manufacturing and operation, to recycling. Further research is required here.”

The authors conclude that energy policy and investors should not favour wind, solar, biomass, geothermal, hydro, nuclear, gas, or coal but should support all energy systems in a manner which avoids energy shortages and energy poverty. They point out that all energy requires taking resources from the planet and processing them, negatively impacting the environment, and that the goal should be to minimise these negative impacts by increasing, energy and material efficiencies. They suggest policy-makers refocus on the entirety of the energy trilemma but with environmental protection rather than de-carbonisation as the third pillar, saying that this translates into two paths for the future of energy:

  • investing in education and base research to pave the path towards a “New Energy Revolution” where energy systems can sustainably wean off fossil fuels; and
  • at the same time supporting investment in conventional energy systems to improve their efficiency and reduce the environmental burden of generating the energy required for daily life.

This is an interesting if controversial suggestion. The authors are essentially saying that we’re some way away from being able to do away with fossil fuels (consistent with the JP Morgan analysis above as well as many other forecasts) and so some efforts should be made to make the best of this by making fossil fuel use as efficient as possible.

This is a sensible approach – so far the focus, where any thought has been given to making fossil fuels “better”, has been on carbon capture, but as noted by JP Morgan, and as I have often argued, this technology is so far failing to make much of an impression, and there are doubts as to whether it will ever be viable in the power sector (for CCGTs). There are likely to be ways of making gas and coal fired power stations more efficient, which would reduce emissions, but there is little research into this because it is no longer perceived as useful. However, if fossil fuel use even in the power sector is likely to realistically continue for decades, there would be benefits to exploring this further.


It’s clear that the levelised cost approach does not accurately describe the relative costs to the consumer of renewable generation compared with conventional energy sources, and it is therefore deeply mis-leading. The fact so many people responded to my article with “but Lazard…” illustrates that the understanding of its limitations is poor. Also, people want to believe that renewables are cheap because that strengthens the arguments for deploying them at scale. Whether we should do that or not is not the point of this analysis – the point is that decisions need to be made based on accurate information. Consumers are not interested in the ins and outs, they just care what shows up on their bills, and that includes the full system costs of all sources of generation. That is the only metric that really counts.

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