Why Is Cheap Electricity So D@mn Expensive? – Watts Up With That?

Guest Post by Willis Eschenbach

We’ve been told over and over by very serious people that wind and solar are far cheaper than natural gas and coal … and yet the more renewables we add to the grid, the more our electricity bills keep going up and up. Ever wonder why that is?

If you want to see how to lie with numbers while wearing a suit and a straight face, look no further than Lazard’s Levelized Cost of Energy—LCOE, for those fond of acronyms and allergic to reality. LCOE is the financial world’s favorite energy cost yardstick: strip-mined of context, it tells you—supposedly—how much it costs to generate a megawatt-hour from any shiny new wind turbine, solar panel, or gas plant, averaged over its life.

Currently, Lazard says:

“Despite facing macro challenges and headwinds, utility-scale solar and onshore wind remain the most cost-effective forms of new-build energy generation on an unsubsidized basis (i.e., without tax subsidies). As such, renewable energy will continue to play a key role in the buildout of new power generation in the U.S. as the lowest-cost and quickest-to-deploy generation.”

See below how much cheaper wind and solar are than gas or coal? Sounds fair. Appears to be precise.

In reality? It’s financial alchemy, the spreadsheet version of Schrödinger’s Cat: deeply misleading, and possibly dead when you open the box.

Here’s the pitch. LCOE claims to offer a one-stop number: capital, operations, maintenance, fuel, and some sparkling optimism about the plant actually running at the output you wish it did.

What it doesn’t tell you—because the truth is a budget line item nobody wants to explain—is what it costs to actually plug that source into the chaos of a real grid. LCOE blithely ignores grid integration, backup, balancing, transmission upgrades, stabilization, wind turbine blades snapping off, and the nasty habit of solar and wind to give you exactly zero when you need power most.

In short, the LCOE measures the cost of what the plant should produce at the fence, not what it costs to deliver real, reliable electricity to your coffee maker when you actually want it.

Of course, to avoid lawsuits, in the fine print underneath the above graph Lazard says (emphasis mine):

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, may include: recent tariff-related cost impacts; implementation and interpretation of the full scope of the IRA; economic policy, transmission queue reform, network upgrades and other transmission matters, congestion, curtailment or other integration-related costs; permitting or other development costs, unless otherwise noted. This analysis is intended to represent a snapshot in time and utilizes a wide, but not exhaustive, sample set of Industry data. As such, we recognize and acknowledge the likelihood of results outside of our ranges. Therefore, this analysis is not a forecasting tool and should not be used as such given the complexities of our evolving Industry, grid and resource needs. Except as illustratively sensitized herein, this analysis does not consider the intermittent nature of selected renewables energy technologies or the related grid impacts of incremental renewable energy deployment. 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.

and:

Variations in fuel prices can materially affect the LCOE of conventional generation technologies, but direct comparisons to “competing” renewable energy generation technologies must take into account issues such as dispatch characteristics (e.g., baseload and/or dispatchable intermediate capacity vs. peaking or intermittent technologies)

So, since Lazard is lying to us, what do we need to make informed decisions? Enter LFSCOE, the Levelized Full System Cost Of Energy—a metric so drearily comprehensive it’s almost honest. LFSCOE stuffs at least most of those hidden extras back into the variable column: the new transmission lines, the battery storage, the backup generators running on gas or coal, the cost of running a grid that isn’t just a science fair project for intermittent electrons. You want to compare wind, solar, nuclear, and gas on a somewhat level field? This is where the rubber finally meets the road, and it’s filled with potholes.

Here are some estimates. The LCOE for utility-scale solar? Lazard currently says $0.024–$0.096 per kilowatt-hour (kWh), which is $24 to $96 per megawatt-hour (MWh)—a figure recited like gospel at every green energy conference. For onshore wind, $0.024–$0.075/kWh, reported with the certainty of Newtonian physics. But plug these into the grid at scale and watch the magic unravel. When you add the hard system costs—grid balancing, expanded transmission, dedicated backup—real-world LFSCOE numbers emerge, and the story turns bleak for “cheap” renewables.

Recent system studies (IEA, EIA, Fraunhofer, you name it) peg the true LFSCOE for new onshore wind, at modest penetration levels (say, Germany or Texas): $0.08–$0.14/kilowatt-hour ($80 – $140 per megawatt-hour) after you factor in balancing, storage, congestion, and all the rest. Solar PV, barring the magical desert utopia where the sun shines every day, runs $0.07–$0.13/kWh if you want the lights to actually stay on and the grid not to wobble. Offshore wind, king of bad surprises, lopes in around $0.12-$0.18/kWh, and someone’s still writing up the bill for winterizing those turbine-servicing fleets of maintenance vessels.

Meanwhile, the real-world LFSCOE for new combined-cycle gas—dispatchable, flexible, can be sited anywhere, shows up during the Super Bowl—still hovers around $0.05–$0.075/kWh, system costs included. Nuclear? If you actually build it on budget (a rare unicorn), $0.9–$0.12/kWh, but the output’s reliable, the US is easing the regulatory mania which will lower prices, prices are dropping for the new mini-reactors, and you don’t have to build Texas-sized batteries for a cloudy week in February. Here’s an overview of the above numbers.

Lazard’s LCOE, in other words, is a metric for making renewables look good in PowerPoints, Excel dashboards, and glossy investor prospectuses. It’s the swimsuit edition of the energy-cost beauty contest—ignoring the fact that when you take solar and wind home to dinner, you’re also on the hook for their utility bills, therapy sessions, and spare bedrooms for all their unreliable friends.

It gets shadier. Lazard doesn’t wear the blame alone; the entire consultancy-policymaker-energy-industrial complex has played along. Banks issue green loans, politicians issue green press releases, and somewhere along the line, actual grid operators are left counting the hours until the next rolling blackout—brought to you by “record renewable penetration.”

So, does LCOE tell us anything useful?

Sure. It tells you what it would cost to build a power plant if you never had to connect it to anything, if electrons were wishful thinking, and if the world were as flat as a spreadsheet.

On the other hand, if you want to know what you’ll actually pay to keep the grid running—on a steamy Saturday afternoon in August in the Florida Panhandle, when it’s overcast and wind’s at a dead calm, everyone’s aircon sounds like it’s warming up for takeoff, and it’s anyone’s guess if your freezer will survive—you’d better reach for LFSCOE, dust off your reality glasses, and start counting all your hidden costs.

If energy policy were ever honestly debated, LCOE would be confined to the footnotes, right next to unicorn sightings and promised Powerball payouts.

But as long as reality is subordinate to narrative and the cost of electrons is calculated by the people selling you the next miracle, the first thing to get blacked out will be the truth.

Sigh …

My very best to all,

w.

Yeah, You’ve Heard It Before: When you comment, quote the exact words you are discussing. It’s surprising how much unnecessary friction it avoids.

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