March 12, 2025 • 32 mins
The cost of producing clean power has never been lower. Improving financial conditions and oversupply of key equipment drove costs to record lows in 2024. Yet while the levelized cost of electricity (LCOE) declined as a global average, different regions and technologies fell at different rates, and one key technology proved to be an outlier. On this episode, Dana Perkins is joined by Amar Vasdev, a senior associate from BNEF’s energy economics team, and Martin Tengler, BloombergNEF’s head of hydrogen research, to discuss findings from the flagship report “Levelized Cost of Electricity 2025: Record Lows”.
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com
Links to research notes from this episode:
Levelized Cost of Electricity 2025: Record Lows - https://www.bnef.com/flagships/lcoe
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Dana Perkins and you're listening to Switched on
the podcast brought to you by BNF, and today we're
taking a closer look at levelized cost of electricity.
Speaker 2 (00:10):
Now.
Speaker 1 (00:10):
Typically, clean energy lcoez have been defined by falling costs,
and twenty twenty four was no different. As the cost
of producing clean power reached record lows, Financial conditions improved
for clean power projects, and an oversupply of some renewable
energy equipment nudged this along. Mature technologies such as solar,
wind and energy storage led the way as prices fell,
(00:33):
and BNF scenarios show that there is potential for some
of these technologies to fall a further twenty to nearly
fifty percent by twenty thirty five. On today's show, we
talk about which clean power technology led the way and
why hydrogen was such an outlier. Today I'm joined by
amar Vezdev, a senior associate from BNF's Energy Economics team,
(00:55):
and BNF's head of Hydrogen Research, Martin Tangler, and they
share the find from the flagship report Levelized cost of
Electricity Update twenty twenty five record lows. BNF clients can
find it at BNF go on the Bloomberg Terminal or
at BNF dot com. Now let's get to talking about
l coees. Amar, thank you very much for joining today,
(01:25):
Thanks for having me, Dana and Martin, great having you
here too, Thanks Dana. So at BNIF, we have a
few reports that we consider to be our flagship reports.
These are things that cut across a number of different
themes and teams here at BNF, and one of them
is our levelized cost of Electricity, which I anticipate we'll
refer to as l cooees from here on out. And
it's a long standing report from the point that I
(01:47):
got in this industry where you had so much policy
intervention in order to essentially tip the scales on some
clean energy sources, which we no longer see in many
parts of the world as the levelized cost of life
tricity has improved for many of these technologies, as they
are more economically competitive in most parts of the world.
What I really want to understand is now that we're
(02:09):
at that place, now that we're not forecasting where the
break even place is going to be for many of
these technologies, why are we still looking at this so
intensely and why are l cos? Why is it a
flagship report for US.
Speaker 3 (02:21):
Yeah, good question, Dana. The LSU analysis is a company
wide effort to track the cost of power projects. It's
one of our longest standing publications. It started with just
a small handful of technologies and now in its sixteenth year,
we're looking at around twenty nine technologies across fifty four markets.
So it really pulls together a lot of the analysis
and a lot of the expertise across the company to
(02:44):
understand a bunch of different cost items that contribute to
overall project costs. So you can think of the LCUE
in away as a summary of how financing terms have changed,
how capex opics have evolved over over time, and if
we could also just take a step back understand what
an LCUE is. I think it's important to do that
just because over the last few years we've noticed a
(03:05):
concerted shift that are away from outright climate change denial
to denying the solutions, and I think the LCUs A
concept has taken a few strays there. So what is
an LCUE. It's the long term inflation indexed off take
price that a project developer needs to recoup all of
the project costs, pay the taxes and hit the HERD
or IRR, which is the internal rate of return. So
(03:26):
that means it's a useful metric to summarize how individual
costs have changed over time for a typical project in
a given market, and it can also inform the economic
competitiveness of power generating technologies in a given market, So
it sends an investment signal for which assets are worth
building to keep the lights on. As well as that. Internally,
we take the individual cost components and we run them
(03:47):
through our power models for our power market outlooks for
our new energy outlook to provide a view and how
power markets may evolve out to twenty fifty.
Speaker 1 (03:56):
Well, I think the one, you know, one of the
technologies which has been in this report for all sixteen
years and probably does the best job of illustrating the
fact that it has been typified by cost of clients
from many of these, although we will come to that
there are exceptions, has been solar. So can you talk
a little bit about where solar is now? And our
price is going to continue to fall because it feels
(04:18):
like they have been falling forever.
Speaker 3 (04:20):
Yeah, we've seen some really remarkable cost reductions since we've
been tracking the price of solar modules. Last year, solar
manufacturers of selling the average module for around ten cents
per what and so that's close to or below the
cost of production we estimate, and so when we adjust
for inflation, that's a ninety six percent reduction and price
(04:42):
since twenty ten, so really dramatic drop. And that's the
result of technology innovation, economies of scale, stiff price competition,
manufacturing experience, and more recently, structural overcapacity. And what we
see is if we focus on that over capacity angle,
there's a significant amount of of solar module manufacturing capabilities
around the world, mostly concentrated in China, and so the
(05:05):
capacity is about double of what was installed last year
in terror WAT terms, so around one point one terrawats
of manufacturing capacity and around six hundred gigawats of capacity
installed last year. And our Soda team forecasts out twenty
thirty five annual editions of solar and so even there
by twenty thirty five we only hit around nine hundred
(05:27):
gigawats or so, so the extent of the overcapacity is significant,
and so what that means is over the next few
years at least anyway, this is a structural issue so
it means that prices should stay around where they are now.
They could go lower, but I think they'll stay around
where they are.
Speaker 1 (05:42):
The other technology that is a really core part of
the clean energy system is wind. Now we know that
prices to fall and dramatically for onshore wind, but offshore
wind was once considered extremely expensive and even floating wind
was like a pie in the sky. Now we're starting
to see some projects that are really coming to life,
but let's focus on offshore wind, which has historically been
(06:04):
quite expensive. Where are we now.
Speaker 3 (06:06):
It still is expensive. But the good news is that
when we look at the lceeour global benchmark, which is
a capacity waste average of our market level LCUE estimates,
we expect COSTER to decline by around nine percent from
twenty twenty four through to the twenty twenty five and
then out to twenty thirty five. So ten years ahead
we estimate around a nine percent reduction. And so part
(06:29):
of the reason there is because the sector has had
notoriously a bad few years you could see, and so
we think that there's still potential for cost recovery until
the end of this decade, and so that will drive
down the cost from quite a high point where they
are today, and there are some regional differences between say China,
where turbine prices are super low, and the Americas and
(06:49):
Europe where prices are much higher.
Speaker 1 (06:51):
So sitting at the confluence of multiple different industries that
have had skin in the game to see battery pack
prices fall as consumer electronx vehicles and then stationary storage,
and the stationary storage part of it is really important
for the energy system because it helps balance our electricity supply.
So how about battery pack prices, because there are another
(07:12):
one of those stories where you've seen these really dramatic
cost of clients because we're going to start off with
the good and then we're going to take you to
some of the areas of friction. So battery packs leave
us on a high.
Speaker 3 (07:22):
Yeah, I think it's important to look at the EV
sector first, just because that is equivalent to five to
six times the demand for lithiumine battery packs compared to
the stationary storage segment, which is which is what we're
looking at here today. And so as EV sales didn't
grow as to the extent that was initially anticipated last year,
(07:44):
that meant that pack prices fell and so when we
translate that into LCUE terms, we saw around one hundred
and four dollars per megal hour, and we expect this
year that our global benchmark will fall below the one
hundreds to around ninety six dollars per megal hour.
Speaker 1 (07:58):
So renewables aren't the only thing that can see cost
to clients. So let's talk about some of the more
emitting parts of the energy value chain, kind of medium
and then to high high being call medium being gas.
We since we first started running this report, the US
went from being an energy importer to an energy exporter,
largely due to L ANDNG so liquefied natural gas. How
(08:21):
do gas and then coal compare and are they experiencing
cost to clients? Have things gotten more efficient, cheaper better
on that side as well?
Speaker 3 (08:29):
Yeah, So I think there's two parts to this. I
think one is, yes, there are always technological improvements for
coal and gas. They're much slower. For gas turbines, there
are a lot slower. You do get efficiency gains, but
slower than you would for renewables. But then on the
flip side, in some markets you have higher financing costs
and those are increasing because of higher perceived risk from investors.
(08:52):
The risk of stranded assets in the face of climate
goals push up the cost of capital. If we focus
on the US, that's a really good example because this
is one of the markets where it's like you said,
in exporter and so fuel prices are really cheap, and
fuel prices are really important to the LCUE, and so
the US benefits from the cheapest combined cycle gas turbine
LCU across the world for at least for the countries
(09:14):
that we track. So yeah, fuel price is a very
important component here. A few years ago, our long term
view on prices was a little bit higher following Russia's
invasion of Ukraine, but that now has price of called
our long term views a bit lowers. That's also helped
bring down the few the lcue's from twenty twenty two highs.
Speaker 1 (09:32):
So, as I alluded to, not everything has experienced cost declines,
and one technology has certainly been buzzy over the last
couple of years. And Martin, this is where you come
in what is happening with hydrogen Because in l COEZ
they are typically typified by cost declines and this last
year hydrogen was an outlier in a pretty big way.
(09:53):
So where is hydrogen on l COEZ And why are
plant costs rising?
Speaker 2 (09:57):
Yeah, so hydrogen costs or hybrid fired gas power plant
levelized costs have gone up quite significantly since the last publication.
Now there's one caveat here. This is green hydrogen fired,
which means the costs of green hydrogen that we model
have gone up. Now, why have the cost of green hydrogen,
(10:17):
which is hydrogen made from renewable electricity, which itself has
declined in costs as we just discussed, Why have those increased?
It's because the cost of electrolyzers, so that's the machines
that you use to split water into hydrogen oxygen, have
gone up in our latest surveys. Now, why did the
(10:38):
costs of electrolyzers go up so significantly? Part of it
has to do with the fact that there was inflation
and costs just went up across the board. But most
of this increase has to do with the fact that
when we were sending out surveys to companies just how
we gather these costs. We're sending out surveys to companies.
Until say twenty twenty two, people weren't really building any
(11:01):
big electoralizer projects, and so all the costs we were
getting were quite theoretical, and now people started building these
big projects, and these projects started running over in costs
quite significantly. So an example being the famous neon project
in Saudi Arabia, which is currently the biggest electoralizer project
under construction, ran over from an expected five billion dollars
(11:24):
to over eight billion dollars eight point four billion dollars
I believe in cost. And that's not the only project
where this happened. And that has to do with the
fact that people realize we're not just building the electoralizer,
we have to buy all this other equipment, all these things.
We were not anticipating that we need to invest into it,
we need to consider now. And that's led to an
increase in the price of electrolyzers and the cost of electoralizers.
(11:48):
In turn the cost of green hydrogen. So if you
then fire a gas plant with hydrogen with that hydrogen visa,
that hydrogen is going to be more expensive. That electricity
from that hygroen is also going to be more expensive.
So long starch, that's what happened. I'd add one final
point there, which means there's other ways to make hydrogen
clean hydrogen, not gray from fossil fuels. You can make
hydrogen from fossil fuels and capture the carbon that you
(12:11):
release as a result. It's called blue hydrogen, and that
would be cheaper to use in power than green hydrogen,
certainly at the moment, but probably not cheaper than just
using good old carbon capture and storage on a gas
fired part.
Speaker 1 (12:25):
Give me a number martin these hydrogen fired plant costs.
How much did it go up by?
Speaker 2 (12:30):
So overall the levelized cost of a hydrogen fired power
plant went top sixty four percent in this new publication.
Speaker 1 (12:38):
Okay, so then let's talk about that blue hydrogen. And
I think this actually fits really well into this geopolitical
landscape that everybody is talking about at the moment, which
has to do with the United States and whether or
not the Inflation Reduction Act will continue in its current form.
I think we know within a degree of certainty that
it will not continue in its current form. What the
(12:59):
future looks like is another conversation. So with the US
exporting natural gas so invariably having a lot of this
LNG available to them, and hydrogen green hydrogen specifically being
a part of the Inflation Reduction Act, and one of
the parts of the clean energy economy that really benefited
from it. What opportunity do you see presented for blue
(13:20):
hydrogen in the US, And you know, are all of
the forces kind of aligning to see this industry take off?
How do you see the hydrogen story unfolding? And really
the underlying question, which is a few steps removed, is
do we expect to see this lcoe for hydrogen, specifically
on blue to come down in the future and are
we expecting that curve to essentially have these dramatic declines
(13:44):
that we've seen in other industries over time.
Speaker 2 (13:46):
So blue hydrogen, so that's the hydrogen made from fossil
fuels the conventional way, the way we make it today
from natural gas, and then the carbon that's released, the
CO two that's released being captured at maybe sixty to
ninety percent or so of that CO two can be captured. Now,
you were asking me about the US data, which I
think is the right market to be asking about when
(14:07):
it comes to blue because Europe, which is where we
are all sitting right now, has a very strong bias
towards green. So European Union wants to be using green hydrogen.
It's legislated at target for the use of green hydrogen,
and there are some discussions about potentially changing that, but
that has not happened at this moment and will probably
not happen in the next couple of months for sure.
(14:29):
So that leaves really one place where this blue hydrogen
is a big focus, which is the US. Now, why
would anybody this is the question, why would anybody want
to use blue hydrogen in the first place? In the
US people use gray hydrogen today. Now, what's hydrogen used
for in the first place. It's not for power generation?
Why would you want to burn the hydrogen? It's very
(14:50):
expensive to make. You might as well burn the gas
from which you make it without making the hygien in
the first place, to save money. So hydrogen is used
for fertilizers, for production of ammonia, which is then used
to make fertilizers, also used for oliver fining. Unless you
have a user out there that's willing to pay for
this additional cost of capturing the carbon and getting that
blue hydrogen, which you don't right now in the US
(15:11):
there's no such incentive, then domestic use of blue hygien
is never going to happen, which is exactly what we're seeing.
Not really many companies interested in using blue hydrogen domestically.
There are, of course, some exceptions, but unbalance, that's the story.
So the question for the US is who is going
to buy this blue hygien outside of the US. And
that's where we get to places like Japan and Korea,
(15:32):
and that's where we tie this back to this question
of l COOE levelized costs of electricity, because Japan, Korea,
these East Asian countries, they want to generate electricity using
ammonia co fired with coal in coal power plants. This ammonia,
which is NH three chemically, so that's nitrogen and three hydrogens,
(15:54):
is made using hydrogen, could be made using blue hydrogen.
If you burn it, you reduce the emission. But as
we've established, that is a very expensive thing to do,
even before you converted to ammonia, and now you've got
this additional step of converting it to ammonia. So the
question is when will the Japanese and the Koreans, as
we keep saying in pretty much all of our publications,
when will they realize that this is economic madness and
(16:18):
stop doing it. And in Korea, the signs are that
that's actually already happening. First auction they had on our
generation there was a disaster and bing F subscribers can
take a look at that report that we published at
the end of last year that reacted to this, to
the results of this auction in Japan. The auctions will
start happening this year, and we'll need to see what
kind of prices we'll end up seeing, but it's surely
(16:38):
going to be very, very expensive, more expensive than what
we're showing for hydrogen. So that's the question for the
US exporterers. Who's going to buy this blue hydrogen and
without any domestic incentives and with the economics being relatively
poor or without the incentives for using clean hydrogen in
the first place. In much of the world, you may
have task credits you does for blue, but it could
(17:01):
still be a hard sell.
Speaker 1 (17:02):
So as a fundamental premis, a country needs to ultimately
care about carbon emissions for hard to abate in order
for this to have a place, because the costs are
extremely high when comparatively on an l COE basis and
will continue to be because energy is made from energy.
In that circumstance, with the exception of fertilizer, can you
(17:23):
just point out really quickly whether or not that future
still sits on the ammonia side, or is there enough
competition from other sources a fertilizer that it is going
to continue to have a difficult road when it comes
to competition even there.
Speaker 2 (17:36):
Yeah, So if you want to decarbonize fertilizers, now there's
so many different kinds of fertilizers because plants need different chemicals.
So famously they need NP and K, so that's nitrogen,
phosphorus and potassium. The fertilizers that you make using a
hydrogen and ammonia are the N fertilizers as a nitrogen
based fertilizer, So the goal here actually is not to
(17:59):
feed the plant with hydrogen. It is to feed it
with nitrogen, and the hydrogen is the carrier of that
nitrogen and you cannot really get away from that. So
if you want people to eat, then you will need
to continue making fertilizers. And today those N fertilizers, nitrogen
based fertilizers are made from gray ammonia, so from ammonia
(18:21):
made with natural gas, and you could reduce the emissions
of that ammonia and the production of those fertilizers therefore
by swapping the source of hydrogen from gray to blue
or to green. Now, the important point to note is
that even if you do that, you're actually only reducing
your emissions from agriculture by a relatively small ten twenty
(18:44):
thirty percent, And most of the emissions happen after the
fertilizer has been applied to the field, and then you've
got plenty of emissions of nitrous oxide from there, which
is a very very strong greenhouse gas. So agriculture the
organization is going to be very very difficult. But if
you're going to do it, one part of the answer
needs to be clean hydrogen.
Speaker 1 (19:03):
So I'm going to ask you a chicken in an
egg question. So, harkening back to another flagship report we
have that also was a podcast, so check it out,
Energy Transition Investment Trends, we also saw in that that
there was a real decline in the amount of investment
in hydrogen. So something that was very buzzy is now
looking like that investment community is starting to cool on
(19:23):
the opportunity there. And the question is is it due
to the poor l coees or is it the other
way around. Are the lcoes more impacted by the decline
and investment. Is it chicken or is it egg et
t versus l COOE.
Speaker 2 (19:39):
So I think data what you're saying is not LCOE,
which is a levelized cost of electricity. About what you
mean is LCOH levelized cost of hydrogen, because it's that
hydrogen cost that matters, rather than the cost of the
electricity made from that hydrogen, which is which which is
a relatively niche use of the hydrogen. But the investment
in hydrogen that we track has followen to about twenty
(20:00):
four billion dollars in twenty twenty four from about forty
seven billion dollars in twenty twenty three, So that's literally
having in just a year. And in the end, it
comes down to costs being high and therefore demand being low,
and government incentives not being sufficient either bridge the gap
between the high cost that it costs to make this
(20:22):
green hydroen and the cost needed at which somebody would
actually be willing to use it, or some harder incentives,
some sticks like quotas, which we are starting to see
emerge in places like Europe, but they're not coming into
effect until twenty thirty. So why would you be investing
now if you've got another five years to go. So
that's the problem with hygien It's too expensive. There's therefore
(20:42):
not enough demand, and the demand is not being incentivized
sufficiently by governments, which in some cases it probably even
shouldn't be. So I'm not saying it should be incentivized.
I'm just saying it's not being incentivized, and therefore we're
seeing a hydrogen falling.
Speaker 1 (20:55):
So let's soom weigh out and let's go to other
parts of the world. There's one in Poticular where there
have certainly been a number of government incentives when it
comes to renewables, and we can talk about hydrogen as well.
So we've talked about the US, let's talk about l
coees in China. Are they an outlier too or are
the coast dramatically cheaper? Because China is a manufacturer for
(21:17):
many parts of the world for some of these technologies,
it is essentially setting the standard all over the world.
Speaker 3 (21:23):
Yeah, China is really one of the big stories here,
and so the country the market is really reaping the
rewards of its clean tech manufacturing capabilities. It's dominance there
as well as its access to coal. So we estimated
that the market can produce a megal hour of electricity
from those technologies at the cost that's around eleven to
sixty four percent lower than the rest of the world,
(21:45):
so really quite a quite large divergence from the rest
of the world. If we look, for example, there are
some notable examples here. So first we have standalone storage projects,
so we estimated an LCE of around seventy three dollars
per megwalt hour project in China, and the next cheapest
market is Australia at one hundred and thirty one dollars
per meg what hour, so that's around eighty percent more.
(22:08):
And then if we look outside of China, on average
costs are double. And again if we look at offshore
wind so their costs around fifty nine dollars per meg
what hour. We know that the sector has really struggled
over the last few years outside of the China, and
so the next closest market in terms of the LCUE
is Denmark and there we estimate an LCUE of around
(22:28):
ninety eight dollars per meg what hour, so around two
thirds more. And then on average and off your wind
farm outside of China, the cost there are triple those
found inside the market, there are a few pockets where
China is not the cheapest. So when it comes to
solar and it comes to coal, India is in fact
the cheapest. So they have strong domestic module manufacturing capabilities,
(22:52):
and also, of course the country has slightly better solar yields,
has access to low cost labor, and then on the
coal front, has access to cheaper coal prices.
Speaker 2 (23:02):
I would actually add on to what Amar was saying.
China has very cheap renewables. It also has very cheap electrolyzers,
so that's as I said earlier, the machines that make
hydrogen by splitting water using electricity, which in turn means
that our levelized cost of hydrogen analysis shows China is
the cheapest place to make green hydrogen from renewables in
(23:24):
the world today, which does give it opportunities to potentially
export that hydrogen, most likely in the form of ammonia,
because that's easier to export by ship than hydrogen itself
into parts of the world where that's needed, and most
likely that's going to be Europe where I've talked about
those quotas coming in in twenty thirty and we have
(23:46):
seen Chinese companies and I've seen actually quite a couple
trying to get certified in order to be able to
export this ammonia and this hydrogen out of China into
the EU so that it can meet the quote does
that the EU has created, which means China could become
a important supplier of green hydrogen green p ammonia to
(24:10):
Europe if Europe does not put on any kind of
trade barriers on that hydroend ammonia, which so far it
hasn't done that. But no, the kind of world we
live in, you can never be quite sure what will
happen in five years.
Speaker 3 (24:22):
Yeah, And I think that speaks to a wider point
as well, going back to the LCUVS that yes, China
is reaping the rewards of low cost manufacturing within the country,
but it is also benefiting other countries as well, like
we've seen with soda and if you see with wind
where manufacturing is regionalized, that's where you see higher costs
outside of the country.
Speaker 1 (24:41):
You know, tariffs are a really big buzzword, and I
would argue that we don't know what's coming in the
next couple of months as opposed to the next five years.
If we're really thinking about it, but that will certainly
have an impact on what next year is l coos
look like depending upon the region, So we may have
a very different region by regions to tell if we're
sitting in this room having the same conversation in a
(25:04):
year's time, Well, let's pivot to another technology that has
been popping up again and again, but actually one that
has been a part of the energy mix for a
very long time, So that's nuclear. At our recent summit
in San Francisco, so in February, we had a lot
of people together talking about servers, so data centers specifically
(25:24):
so data centers and increased energy demand due to a
number of factors, but certainly AI is playing into this
need for more data centers, and in that conversation some
of these big tech companies, we're discussing how really adding
capacity is extremely important, and yes, there will be more
renewable energy capacity, but nuclear and then even some of
(25:46):
the smaller location specific technologies like geothermal are starting to
be discussed in a more concrete way. And the underlying
question on this one is nuclear doesn't have great LCS,
and we can go into that, but does it even
matter if energy demand is going up? Pretty quickly, and
this is your opportunity to essentially defend l COE s
(26:09):
and why this exercise is or is not important to
do in the future.
Speaker 3 (26:13):
So I think with a nuclear we can go down
two routes. We can go down the LCUE route, and
we can also go down the route of what is
practical and pragmatic, so on the on the route with
the latter. So the last few nuclear projects across Europe
across the US have experienced both costs over run, so
that speaks to LCUE, but they've also experienced project delays.
(26:33):
And so if you have demand grown rapidly from data centers,
meeting that demand, it's no good if your power plant
is going to be built in ten, fourteen, seventeen years
from now, that demand really needs to be met in
the next few years. So that's one reason outside of
LUs why nuclear might not hold so much promise. And
then if we speak in terms of in LCUE terms,
(26:55):
if we talk through the economics, we estimate in the
US a new nuclear rector would cost four hundred and
forty five dollars per megal hour. We often get questions
around this is one of the highest estimates that we've
seen what's going on here, and we're quite confident in
our numbers. We're using real project data here, and we
looked at a study from MIT from the Advanced Nuclear Program,
(27:19):
and that report outlined a number of cost reductions and
improvements to construction that would also reduce the lead times.
So when we factored those in, and we also factored
in citing nuclear on retiring coal plants, so it could
benefit from the existing infrastructure that was available. So we're
talking grid connections here. As an example, we saw that
(27:41):
the LCUE came down to around two hundred and thirty
dollars per megal hour, and that is still triple that
of a combined cycle gas turbine plant, and it's around
fifty to eighty percent more than a solar or wind
farm with storage located on site. So really on an
LCUE basis, on a cost economic basis, maybe doesn't make
so much sense.
Speaker 1 (28:01):
So, Amar, you just very tactfully discussed the nuclear issue,
but you didn't get to my defense of l coees.
So Martin, Amar, tell me why do they still have
a place in our conversation and our consideration as we
think about the energy future.
Speaker 2 (28:18):
Well, I did make a post the other day on LinkedIn,
which gathered some quite a lot of responses when it
comes to hydrogen and l COOE, which is lots of
people in like I was saying earlier in Asia, I
want to talk about burning ammonia in co fired power plants.
But what Amar's report LCOE report has found that even
(28:41):
in places like Japan, we've actually reached what the l
COOE team, what a MARS team calls tipping point two,
which is one tipping point after tipping point one. What
does tipping point two mean? And what does tipping point
one mean? So tipping point one means what the l
COE of a technology, say solar, gets below the LCOE
(29:03):
of a fossil technology like coal, which has happened a
while ago. But tipping point two means it's actually cheaper
to build a new solar plant, new wind plant then
to continue running an existing coal plant or gas plant.
And that's where, according to the research that AMAR has published,
we got in Japan in twenty twenty four. So why
(29:24):
would Japan want to continue running its coal plants and
make them even more expensive by adding ammonia into them
instead of just building renewables which have reached this tipping
point too, and are cheaper to build than to continue
running those existing coal plants. So to me, that was
a really really interesting finding from Amar's report. And I
know there's lots of caveats there. The question around is
(29:46):
the electricity from the solar firmed up with batteries, is
that firm enough? Is that really comparable to the ammonia
with coal. There's lots of lots of good arguments why
we're still not there fully, but clearly this is showing
a trend, and it's showing that we're getting to a
world where building new solo new wind with batteries is
going to be cheaper than running existing fossil assets, and
making those assets even more expensive by adding ammonia or
(30:08):
hydrogen is just economic suicide.
Speaker 3 (30:11):
Yeah, I think, just to kind of bring up those caveats,
you know, we do think about this very carefully, and
we understand there's a lot of nuance. The lcuiesometric does
miss as a metric that does summarize a bunch of
cost items a bunch of makes a bunch of assumptions. Then,
and so as I was saying before, this is why
we take those individual cost components and we plug them
(30:33):
into our power models to look at what this looks
like on an hourly basis to meet demand for every
hour of the year out twenty fifty. And so if
we take our new Energy Outlook, which is another one
of our flagship reports that I have the chance to
work on, when we look at what an economics led
transition looks like for the power sector, we see by
(30:54):
twenty fifty renewables meet as much as seventy percent of
all demand, and wind and so alone commander of fifty
nine percent share. So that makes them kind of the
true work courses of the transition to cleaner electricity supply
under our economics lit scenario.
Speaker 1 (31:09):
You certainly gave me a lot to think about. A
lot of great data points here and really interesting themes.
For a report that's been running for sixteen years. To
have so many really thought provoking original findings this year,
I think is really great. Somar Martin, thank you very
much for joining today.
Speaker 3 (31:25):
Thanks for having me, Dana, Thanks data.
Speaker 1 (31:36):
Today's episode of Switched On was produced by Cam Gray
with production assistants from Kamala Shelling. Bloomberg NIF is a
service provided by Bloomberg Finance LP and its affiliates. This
recording does not constitute, nor should it be construed, as
investment ad vice, investment recommendations, or a recommendation as to
an investment or other strategy. Bloomberg ANNIAF should not be
considered as information sufficient upon which to base an investment decision.
(31:59):
Neither m Burg Finance LP nor any of its affiliates
makes any representation or warranty as to the accuracy or
completeness of the information contained in this recording, and any
liability as a result of this recording is expressly disclaimed.
This is Dana Perkins and you're listening to Switched on
the podcast brought to you by BNF, and today we're
taking a closer look at levelized cost of electricity.
Speaker 2 (00:10):
Now.
Speaker 1 (00:10):
Typically, clean energy lcoez have been defined by falling costs,
and twenty twenty four was no different. As the cost
of producing clean power reached record lows, Financial conditions improved
for clean power projects, and an oversupply of some renewable
energy equipment nudged this along. Mature technologies such as solar,
wind and energy storage led the way as prices fell,
(00:33):
and BNF scenarios show that there is potential for some
of these technologies to fall a further twenty to nearly
fifty percent by twenty thirty five. On today's show, we
talk about which clean power technology led the way and
why hydrogen was such an outlier. Today I'm joined by
amar Vezdev, a senior associate from BNF's Energy Economics team,
(00:55):
and BNF's head of Hydrogen Research, Martin Tangler, and they
share the find from the flagship report Levelized cost of
Electricity Update twenty twenty five record lows. BNF clients can
find it at BNF go on the Bloomberg Terminal or
at BNF dot com. Now let's get to talking about
l coees. Amar, thank you very much for joining today,
(01:25):
Thanks for having me, Dana and Martin, great having you
here too, Thanks Dana. So at BNIF, we have a
few reports that we consider to be our flagship reports.
These are things that cut across a number of different
themes and teams here at BNF, and one of them
is our levelized cost of Electricity, which I anticipate we'll
refer to as l cooees from here on out. And
it's a long standing report from the point that I
(01:47):
got in this industry where you had so much policy
intervention in order to essentially tip the scales on some
clean energy sources, which we no longer see in many
parts of the world as the levelized cost of life
tricity has improved for many of these technologies, as they
are more economically competitive in most parts of the world.
What I really want to understand is now that we're
(02:09):
at that place, now that we're not forecasting where the
break even place is going to be for many of
these technologies, why are we still looking at this so
intensely and why are l cos? Why is it a
flagship report for US.
Speaker 3 (02:21):
Yeah, good question, Dana. The LSU analysis is a company
wide effort to track the cost of power projects. It's
one of our longest standing publications. It started with just
a small handful of technologies and now in its sixteenth year,
we're looking at around twenty nine technologies across fifty four markets.
So it really pulls together a lot of the analysis
and a lot of the expertise across the company to
(02:44):
understand a bunch of different cost items that contribute to
overall project costs. So you can think of the LCUE
in away as a summary of how financing terms have changed,
how capex opics have evolved over over time, and if
we could also just take a step back understand what
an LCUE is. I think it's important to do that
just because over the last few years we've noticed a
(03:05):
concerted shift that are away from outright climate change denial
to denying the solutions, and I think the LCUs A
concept has taken a few strays there. So what is
an LCUE. It's the long term inflation indexed off take
price that a project developer needs to recoup all of
the project costs, pay the taxes and hit the HERD
or IRR, which is the internal rate of return. So
(03:26):
that means it's a useful metric to summarize how individual
costs have changed over time for a typical project in
a given market, and it can also inform the economic
competitiveness of power generating technologies in a given market, So
it sends an investment signal for which assets are worth
building to keep the lights on. As well as that. Internally,
we take the individual cost components and we run them
(03:47):
through our power models for our power market outlooks for
our new energy outlook to provide a view and how
power markets may evolve out to twenty fifty.
Speaker 1 (03:56):
Well, I think the one, you know, one of the
technologies which has been in this report for all sixteen
years and probably does the best job of illustrating the
fact that it has been typified by cost of clients
from many of these, although we will come to that
there are exceptions, has been solar. So can you talk
a little bit about where solar is now? And our
price is going to continue to fall because it feels
(04:18):
like they have been falling forever.
Speaker 3 (04:20):
Yeah, we've seen some really remarkable cost reductions since we've
been tracking the price of solar modules. Last year, solar
manufacturers of selling the average module for around ten cents
per what and so that's close to or below the
cost of production we estimate, and so when we adjust
for inflation, that's a ninety six percent reduction and price
(04:42):
since twenty ten, so really dramatic drop. And that's the
result of technology innovation, economies of scale, stiff price competition,
manufacturing experience, and more recently, structural overcapacity. And what we
see is if we focus on that over capacity angle,
there's a significant amount of of solar module manufacturing capabilities
around the world, mostly concentrated in China, and so the
(05:05):
capacity is about double of what was installed last year
in terror WAT terms, so around one point one terrawats
of manufacturing capacity and around six hundred gigawats of capacity
installed last year. And our Soda team forecasts out twenty
thirty five annual editions of solar and so even there
by twenty thirty five we only hit around nine hundred
(05:27):
gigawats or so, so the extent of the overcapacity is significant,
and so what that means is over the next few
years at least anyway, this is a structural issue so
it means that prices should stay around where they are now.
They could go lower, but I think they'll stay around
where they are.
Speaker 1 (05:42):
The other technology that is a really core part of
the clean energy system is wind. Now we know that
prices to fall and dramatically for onshore wind, but offshore
wind was once considered extremely expensive and even floating wind
was like a pie in the sky. Now we're starting
to see some projects that are really coming to life,
but let's focus on offshore wind, which has historically been
(06:04):
quite expensive. Where are we now.
Speaker 3 (06:06):
It still is expensive. But the good news is that
when we look at the lceeour global benchmark, which is
a capacity waste average of our market level LCUE estimates,
we expect COSTER to decline by around nine percent from
twenty twenty four through to the twenty twenty five and
then out to twenty thirty five. So ten years ahead
we estimate around a nine percent reduction. And so part
(06:29):
of the reason there is because the sector has had
notoriously a bad few years you could see, and so
we think that there's still potential for cost recovery until
the end of this decade, and so that will drive
down the cost from quite a high point where they
are today, and there are some regional differences between say China,
where turbine prices are super low, and the Americas and
(06:49):
Europe where prices are much higher.
Speaker 1 (06:51):
So sitting at the confluence of multiple different industries that
have had skin in the game to see battery pack
prices fall as consumer electronx vehicles and then stationary storage,
and the stationary storage part of it is really important
for the energy system because it helps balance our electricity supply.
So how about battery pack prices, because there are another
(07:12):
one of those stories where you've seen these really dramatic
cost of clients because we're going to start off with
the good and then we're going to take you to
some of the areas of friction. So battery packs leave
us on a high.
Speaker 3 (07:22):
Yeah, I think it's important to look at the EV
sector first, just because that is equivalent to five to
six times the demand for lithiumine battery packs compared to
the stationary storage segment, which is which is what we're
looking at here today. And so as EV sales didn't
grow as to the extent that was initially anticipated last year,
(07:44):
that meant that pack prices fell and so when we
translate that into LCUE terms, we saw around one hundred
and four dollars per megal hour, and we expect this
year that our global benchmark will fall below the one
hundreds to around ninety six dollars per megal hour.
Speaker 1 (07:58):
So renewables aren't the only thing that can see cost
to clients. So let's talk about some of the more
emitting parts of the energy value chain, kind of medium
and then to high high being call medium being gas.
We since we first started running this report, the US
went from being an energy importer to an energy exporter,
largely due to L ANDNG so liquefied natural gas. How
(08:21):
do gas and then coal compare and are they experiencing
cost to clients? Have things gotten more efficient, cheaper better
on that side as well?
Speaker 3 (08:29):
Yeah, So I think there's two parts to this. I
think one is, yes, there are always technological improvements for
coal and gas. They're much slower. For gas turbines, there
are a lot slower. You do get efficiency gains, but
slower than you would for renewables. But then on the
flip side, in some markets you have higher financing costs
and those are increasing because of higher perceived risk from investors.
(08:52):
The risk of stranded assets in the face of climate
goals push up the cost of capital. If we focus
on the US, that's a really good example because this
is one of the markets where it's like you said,
in exporter and so fuel prices are really cheap, and
fuel prices are really important to the LCUE, and so
the US benefits from the cheapest combined cycle gas turbine
LCU across the world for at least for the countries
(09:14):
that we track. So yeah, fuel price is a very
important component here. A few years ago, our long term
view on prices was a little bit higher following Russia's
invasion of Ukraine, but that now has price of called
our long term views a bit lowers. That's also helped
bring down the few the lcue's from twenty twenty two highs.
Speaker 1 (09:32):
So, as I alluded to, not everything has experienced cost declines,
and one technology has certainly been buzzy over the last
couple of years. And Martin, this is where you come
in what is happening with hydrogen Because in l COEZ
they are typically typified by cost declines and this last
year hydrogen was an outlier in a pretty big way.
(09:53):
So where is hydrogen on l COEZ And why are
plant costs rising?
Speaker 2 (09:57):
Yeah, so hydrogen costs or hybrid fired gas power plant
levelized costs have gone up quite significantly since the last publication.
Now there's one caveat here. This is green hydrogen fired,
which means the costs of green hydrogen that we model
have gone up. Now, why have the cost of green hydrogen,
(10:17):
which is hydrogen made from renewable electricity, which itself has
declined in costs as we just discussed, Why have those increased?
It's because the cost of electrolyzers, so that's the machines
that you use to split water into hydrogen oxygen, have
gone up in our latest surveys. Now, why did the
(10:38):
costs of electrolyzers go up so significantly? Part of it
has to do with the fact that there was inflation
and costs just went up across the board. But most
of this increase has to do with the fact that
when we were sending out surveys to companies just how
we gather these costs. We're sending out surveys to companies.
Until say twenty twenty two, people weren't really building any
(11:01):
big electoralizer projects, and so all the costs we were
getting were quite theoretical, and now people started building these
big projects, and these projects started running over in costs
quite significantly. So an example being the famous neon project
in Saudi Arabia, which is currently the biggest electoralizer project
under construction, ran over from an expected five billion dollars
(11:24):
to over eight billion dollars eight point four billion dollars
I believe in cost. And that's not the only project
where this happened. And that has to do with the
fact that people realize we're not just building the electoralizer,
we have to buy all this other equipment, all these things.
We were not anticipating that we need to invest into it,
we need to consider now. And that's led to an
increase in the price of electrolyzers and the cost of electoralizers.
(11:48):
In turn the cost of green hydrogen. So if you
then fire a gas plant with hydrogen with that hydrogen visa,
that hydrogen is going to be more expensive. That electricity
from that hygroen is also going to be more expensive.
So long starch, that's what happened. I'd add one final
point there, which means there's other ways to make hydrogen
clean hydrogen, not gray from fossil fuels. You can make
hydrogen from fossil fuels and capture the carbon that you
(12:11):
release as a result. It's called blue hydrogen, and that
would be cheaper to use in power than green hydrogen,
certainly at the moment, but probably not cheaper than just
using good old carbon capture and storage on a gas
fired part.
Speaker 1 (12:25):
Give me a number martin these hydrogen fired plant costs.
How much did it go up by?
Speaker 2 (12:30):
So overall the levelized cost of a hydrogen fired power
plant went top sixty four percent in this new publication.
Speaker 1 (12:38):
Okay, so then let's talk about that blue hydrogen. And
I think this actually fits really well into this geopolitical
landscape that everybody is talking about at the moment, which
has to do with the United States and whether or
not the Inflation Reduction Act will continue in its current form.
I think we know within a degree of certainty that
it will not continue in its current form. What the
(12:59):
future looks like is another conversation. So with the US
exporting natural gas so invariably having a lot of this
LNG available to them, and hydrogen green hydrogen specifically being
a part of the Inflation Reduction Act, and one of
the parts of the clean energy economy that really benefited
from it. What opportunity do you see presented for blue
(13:20):
hydrogen in the US, And you know, are all of
the forces kind of aligning to see this industry take off?
How do you see the hydrogen story unfolding? And really
the underlying question, which is a few steps removed, is
do we expect to see this lcoe for hydrogen, specifically
on blue to come down in the future and are
we expecting that curve to essentially have these dramatic declines
(13:44):
that we've seen in other industries over time.
Speaker 2 (13:46):
So blue hydrogen, so that's the hydrogen made from fossil
fuels the conventional way, the way we make it today
from natural gas, and then the carbon that's released, the
CO two that's released being captured at maybe sixty to
ninety percent or so of that CO two can be captured. Now,
you were asking me about the US data, which I
think is the right market to be asking about when
(14:07):
it comes to blue because Europe, which is where we
are all sitting right now, has a very strong bias
towards green. So European Union wants to be using green hydrogen.
It's legislated at target for the use of green hydrogen,
and there are some discussions about potentially changing that, but
that has not happened at this moment and will probably
not happen in the next couple of months for sure.
(14:29):
So that leaves really one place where this blue hydrogen
is a big focus, which is the US. Now, why
would anybody this is the question, why would anybody want
to use blue hydrogen in the first place? In the
US people use gray hydrogen today. Now, what's hydrogen used
for in the first place. It's not for power generation?
Why would you want to burn the hydrogen? It's very
(14:50):
expensive to make. You might as well burn the gas
from which you make it without making the hygien in
the first place, to save money. So hydrogen is used
for fertilizers, for production of ammonia, which is then used
to make fertilizers, also used for oliver fining. Unless you
have a user out there that's willing to pay for
this additional cost of capturing the carbon and getting that
blue hydrogen, which you don't right now in the US
(15:11):
there's no such incentive, then domestic use of blue hygien
is never going to happen, which is exactly what we're seeing.
Not really many companies interested in using blue hydrogen domestically.
There are, of course, some exceptions, but unbalance, that's the story.
So the question for the US is who is going
to buy this blue hygien outside of the US. And
that's where we get to places like Japan and Korea,
(15:32):
and that's where we tie this back to this question
of l COOE levelized costs of electricity, because Japan, Korea,
these East Asian countries, they want to generate electricity using
ammonia co fired with coal in coal power plants. This ammonia,
which is NH three chemically, so that's nitrogen and three hydrogens,
(15:54):
is made using hydrogen, could be made using blue hydrogen.
If you burn it, you reduce the emission. But as
we've established, that is a very expensive thing to do,
even before you converted to ammonia, and now you've got
this additional step of converting it to ammonia. So the
question is when will the Japanese and the Koreans, as
we keep saying in pretty much all of our publications,
when will they realize that this is economic madness and
(16:18):
stop doing it. And in Korea, the signs are that
that's actually already happening. First auction they had on our
generation there was a disaster and bing F subscribers can
take a look at that report that we published at
the end of last year that reacted to this, to
the results of this auction in Japan. The auctions will
start happening this year, and we'll need to see what
kind of prices we'll end up seeing, but it's surely
(16:38):
going to be very, very expensive, more expensive than what
we're showing for hydrogen. So that's the question for the
US exporterers. Who's going to buy this blue hydrogen and
without any domestic incentives and with the economics being relatively
poor or without the incentives for using clean hydrogen in
the first place. In much of the world, you may
have task credits you does for blue, but it could
(17:01):
still be a hard sell.
Speaker 1 (17:02):
So as a fundamental premis, a country needs to ultimately
care about carbon emissions for hard to abate in order
for this to have a place, because the costs are
extremely high when comparatively on an l COE basis and
will continue to be because energy is made from energy.
In that circumstance, with the exception of fertilizer, can you
(17:23):
just point out really quickly whether or not that future
still sits on the ammonia side, or is there enough
competition from other sources a fertilizer that it is going
to continue to have a difficult road when it comes
to competition even there.
Speaker 2 (17:36):
Yeah, So if you want to decarbonize fertilizers, now there's
so many different kinds of fertilizers because plants need different chemicals.
So famously they need NP and K, so that's nitrogen,
phosphorus and potassium. The fertilizers that you make using a
hydrogen and ammonia are the N fertilizers as a nitrogen
based fertilizer, So the goal here actually is not to
(17:59):
feed the plant with hydrogen. It is to feed it
with nitrogen, and the hydrogen is the carrier of that
nitrogen and you cannot really get away from that. So
if you want people to eat, then you will need
to continue making fertilizers. And today those N fertilizers, nitrogen
based fertilizers are made from gray ammonia, so from ammonia
(18:21):
made with natural gas, and you could reduce the emissions
of that ammonia and the production of those fertilizers therefore
by swapping the source of hydrogen from gray to blue
or to green. Now, the important point to note is
that even if you do that, you're actually only reducing
your emissions from agriculture by a relatively small ten twenty
(18:44):
thirty percent, And most of the emissions happen after the
fertilizer has been applied to the field, and then you've
got plenty of emissions of nitrous oxide from there, which
is a very very strong greenhouse gas. So agriculture the
organization is going to be very very difficult. But if
you're going to do it, one part of the answer
needs to be clean hydrogen.
Speaker 1 (19:03):
So I'm going to ask you a chicken in an
egg question. So, harkening back to another flagship report we
have that also was a podcast, so check it out,
Energy Transition Investment Trends, we also saw in that that
there was a real decline in the amount of investment
in hydrogen. So something that was very buzzy is now
looking like that investment community is starting to cool on
(19:23):
the opportunity there. And the question is is it due
to the poor l coees or is it the other
way around. Are the lcoes more impacted by the decline
and investment. Is it chicken or is it egg et
t versus l COOE.
Speaker 2 (19:39):
So I think data what you're saying is not LCOE,
which is a levelized cost of electricity. About what you
mean is LCOH levelized cost of hydrogen, because it's that
hydrogen cost that matters, rather than the cost of the
electricity made from that hydrogen, which is which which is
a relatively niche use of the hydrogen. But the investment
in hydrogen that we track has followen to about twenty
(20:00):
four billion dollars in twenty twenty four from about forty
seven billion dollars in twenty twenty three, So that's literally
having in just a year. And in the end, it
comes down to costs being high and therefore demand being low,
and government incentives not being sufficient either bridge the gap
between the high cost that it costs to make this
(20:22):
green hydroen and the cost needed at which somebody would
actually be willing to use it, or some harder incentives,
some sticks like quotas, which we are starting to see
emerge in places like Europe, but they're not coming into
effect until twenty thirty. So why would you be investing
now if you've got another five years to go. So
that's the problem with hygien It's too expensive. There's therefore
(20:42):
not enough demand, and the demand is not being incentivized
sufficiently by governments, which in some cases it probably even
shouldn't be. So I'm not saying it should be incentivized.
I'm just saying it's not being incentivized, and therefore we're
seeing a hydrogen falling.
Speaker 1 (20:55):
So let's soom weigh out and let's go to other
parts of the world. There's one in Poticular where there
have certainly been a number of government incentives when it
comes to renewables, and we can talk about hydrogen as well.
So we've talked about the US, let's talk about l
coees in China. Are they an outlier too or are
the coast dramatically cheaper? Because China is a manufacturer for
(21:17):
many parts of the world for some of these technologies,
it is essentially setting the standard all over the world.
Speaker 3 (21:23):
Yeah, China is really one of the big stories here,
and so the country the market is really reaping the
rewards of its clean tech manufacturing capabilities. It's dominance there
as well as its access to coal. So we estimated
that the market can produce a megal hour of electricity
from those technologies at the cost that's around eleven to
sixty four percent lower than the rest of the world,
(21:45):
so really quite a quite large divergence from the rest
of the world. If we look, for example, there are
some notable examples here. So first we have standalone storage projects,
so we estimated an LCE of around seventy three dollars
per megwalt hour project in China, and the next cheapest
market is Australia at one hundred and thirty one dollars
per meg what hour, so that's around eighty percent more.
(22:08):
And then if we look outside of China, on average
costs are double. And again if we look at offshore
wind so their costs around fifty nine dollars per meg
what hour. We know that the sector has really struggled
over the last few years outside of the China, and
so the next closest market in terms of the LCUE
is Denmark and there we estimate an LCUE of around
(22:28):
ninety eight dollars per meg what hour, so around two
thirds more. And then on average and off your wind
farm outside of China, the cost there are triple those
found inside the market, there are a few pockets where
China is not the cheapest. So when it comes to
solar and it comes to coal, India is in fact
the cheapest. So they have strong domestic module manufacturing capabilities,
(22:52):
and also, of course the country has slightly better solar yields,
has access to low cost labor, and then on the
coal front, has access to cheaper coal prices.
Speaker 2 (23:02):
I would actually add on to what Amar was saying.
China has very cheap renewables. It also has very cheap electrolyzers,
so that's as I said earlier, the machines that make
hydrogen by splitting water using electricity, which in turn means
that our levelized cost of hydrogen analysis shows China is
the cheapest place to make green hydrogen from renewables in
(23:24):
the world today, which does give it opportunities to potentially
export that hydrogen, most likely in the form of ammonia,
because that's easier to export by ship than hydrogen itself
into parts of the world where that's needed, and most
likely that's going to be Europe where I've talked about
those quotas coming in in twenty thirty and we have
(23:46):
seen Chinese companies and I've seen actually quite a couple
trying to get certified in order to be able to
export this ammonia and this hydrogen out of China into
the EU so that it can meet the quote does
that the EU has created, which means China could become
a important supplier of green hydrogen green p ammonia to
(24:10):
Europe if Europe does not put on any kind of
trade barriers on that hydroend ammonia, which so far it
hasn't done that. But no, the kind of world we
live in, you can never be quite sure what will
happen in five years.
Speaker 3 (24:22):
Yeah, And I think that speaks to a wider point
as well, going back to the LCUVS that yes, China
is reaping the rewards of low cost manufacturing within the country,
but it is also benefiting other countries as well, like
we've seen with soda and if you see with wind
where manufacturing is regionalized, that's where you see higher costs
outside of the country.
Speaker 1 (24:41):
You know, tariffs are a really big buzzword, and I
would argue that we don't know what's coming in the
next couple of months as opposed to the next five years.
If we're really thinking about it, but that will certainly
have an impact on what next year is l coos
look like depending upon the region, So we may have
a very different region by regions to tell if we're
sitting in this room having the same conversation in a
(25:04):
year's time, Well, let's pivot to another technology that has
been popping up again and again, but actually one that
has been a part of the energy mix for a
very long time, So that's nuclear. At our recent summit
in San Francisco, so in February, we had a lot
of people together talking about servers, so data centers specifically
(25:24):
so data centers and increased energy demand due to a
number of factors, but certainly AI is playing into this
need for more data centers, and in that conversation some
of these big tech companies, we're discussing how really adding
capacity is extremely important, and yes, there will be more
renewable energy capacity, but nuclear and then even some of
(25:46):
the smaller location specific technologies like geothermal are starting to
be discussed in a more concrete way. And the underlying
question on this one is nuclear doesn't have great LCS,
and we can go into that, but does it even
matter if energy demand is going up? Pretty quickly, and
this is your opportunity to essentially defend l COE s
(26:09):
and why this exercise is or is not important to
do in the future.
Speaker 3 (26:13):
So I think with a nuclear we can go down
two routes. We can go down the LCUE route, and
we can also go down the route of what is
practical and pragmatic, so on the on the route with
the latter. So the last few nuclear projects across Europe
across the US have experienced both costs over run, so
that speaks to LCUE, but they've also experienced project delays.
(26:33):
And so if you have demand grown rapidly from data centers,
meeting that demand, it's no good if your power plant
is going to be built in ten, fourteen, seventeen years
from now, that demand really needs to be met in
the next few years. So that's one reason outside of
LUs why nuclear might not hold so much promise. And
then if we speak in terms of in LCUE terms,
(26:55):
if we talk through the economics, we estimate in the
US a new nuclear rector would cost four hundred and
forty five dollars per megal hour. We often get questions
around this is one of the highest estimates that we've
seen what's going on here, and we're quite confident in
our numbers. We're using real project data here, and we
looked at a study from MIT from the Advanced Nuclear Program,
(27:19):
and that report outlined a number of cost reductions and
improvements to construction that would also reduce the lead times.
So when we factored those in, and we also factored
in citing nuclear on retiring coal plants, so it could
benefit from the existing infrastructure that was available. So we're
talking grid connections here. As an example, we saw that
(27:41):
the LCUE came down to around two hundred and thirty
dollars per megal hour, and that is still triple that
of a combined cycle gas turbine plant, and it's around
fifty to eighty percent more than a solar or wind
farm with storage located on site. So really on an
LCUE basis, on a cost economic basis, maybe doesn't make
so much sense.
Speaker 1 (28:01):
So, Amar, you just very tactfully discussed the nuclear issue,
but you didn't get to my defense of l coees.
So Martin, Amar, tell me why do they still have
a place in our conversation and our consideration as we
think about the energy future.
Speaker 2 (28:18):
Well, I did make a post the other day on LinkedIn,
which gathered some quite a lot of responses when it
comes to hydrogen and l COOE, which is lots of
people in like I was saying earlier in Asia, I
want to talk about burning ammonia in co fired power plants.
But what Amar's report LCOE report has found that even
(28:41):
in places like Japan, we've actually reached what the l
COOE team, what a MARS team calls tipping point two,
which is one tipping point after tipping point one. What
does tipping point two mean? And what does tipping point
one mean? So tipping point one means what the l
COE of a technology, say solar, gets below the LCOE
(29:03):
of a fossil technology like coal, which has happened a
while ago. But tipping point two means it's actually cheaper
to build a new solar plant, new wind plant then
to continue running an existing coal plant or gas plant.
And that's where, according to the research that AMAR has published,
we got in Japan in twenty twenty four. So why
(29:24):
would Japan want to continue running its coal plants and
make them even more expensive by adding ammonia into them
instead of just building renewables which have reached this tipping
point too, and are cheaper to build than to continue
running those existing coal plants. So to me, that was
a really really interesting finding from Amar's report. And I
know there's lots of caveats there. The question around is
(29:46):
the electricity from the solar firmed up with batteries, is
that firm enough? Is that really comparable to the ammonia
with coal. There's lots of lots of good arguments why
we're still not there fully, but clearly this is showing
a trend, and it's showing that we're getting to a
world where building new solo new wind with batteries is
going to be cheaper than running existing fossil assets, and
making those assets even more expensive by adding ammonia or
(30:08):
hydrogen is just economic suicide.
Speaker 3 (30:11):
Yeah, I think, just to kind of bring up those caveats,
you know, we do think about this very carefully, and
we understand there's a lot of nuance. The lcuiesometric does
miss as a metric that does summarize a bunch of
cost items a bunch of makes a bunch of assumptions. Then,
and so as I was saying before, this is why
we take those individual cost components and we plug them
(30:33):
into our power models to look at what this looks
like on an hourly basis to meet demand for every
hour of the year out twenty fifty. And so if
we take our new Energy Outlook, which is another one
of our flagship reports that I have the chance to
work on, when we look at what an economics led
transition looks like for the power sector, we see by
(30:54):
twenty fifty renewables meet as much as seventy percent of
all demand, and wind and so alone commander of fifty
nine percent share. So that makes them kind of the
true work courses of the transition to cleaner electricity supply
under our economics lit scenario.
Speaker 1 (31:09):
You certainly gave me a lot to think about. A
lot of great data points here and really interesting themes.
For a report that's been running for sixteen years. To
have so many really thought provoking original findings this year,
I think is really great. Somar Martin, thank you very
much for joining today.
Speaker 3 (31:25):
Thanks for having me, Dana, Thanks data.
Speaker 1 (31:36):
Today's episode of Switched On was produced by Cam Gray
with production assistants from Kamala Shelling. Bloomberg NIF is a
service provided by Bloomberg Finance LP and its affiliates. This
recording does not constitute, nor should it be construed, as
investment ad vice, investment recommendations, or a recommendation as to
an investment or other strategy. Bloomberg ANNIAF should not be
considered as information sufficient upon which to base an investment decision.
(31:59):
Neither m Burg Finance LP nor any of its affiliates
makes any representation or warranty as to the accuracy or
completeness of the information contained in this recording, and any
liability as a result of this recording is expressly disclaimed.
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