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Speaker 1: This is Tom Rowlands Reese and you're listening to Switched

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Speaker 1: on the podcast brought to you by Bloomberg and EF.

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Speaker 1: Each year, be any Of publishes its flagship Levelized Cost

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Speaker 1: of Electricity Report, a global benchmark that compares the cost

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Speaker 1: of building and running different power technologies. Drawing all data

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Speaker 1: from across regions, technologies, and financing structures, it brings a

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Speaker 1: wide range of project level inputs together into a single

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Speaker 1: consistent view of how power economics are evolving. In recent years,

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Speaker 1: that story has been one of steady cost declines across

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Speaker 1: clean technologies, but in twenty twenty five the picture became

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Speaker 1: more mixed. Actually, storage costs continued to fall sharply, while

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Speaker 1: other technologies became more expensive, driven by supply chain constraints,

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Speaker 1: higher equipment costs, and changing market dynamics. At the same time,

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Speaker 1: the way we interpret those numbers matters as much as

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Speaker 1: the results themselves. On today's show, we also step behind

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Speaker 1: the scenes to look at how the report is built,

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Speaker 1: from gathering inputs across markets and technologies to making the

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Speaker 1: assumptions that allow very different assets to be compared on

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Speaker 1: a like for like basis. So what do these shifting

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Speaker 1: cost dynamics mean for the next phase of the energy transition,

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Speaker 1: and how should we think about LCOE in a system

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Speaker 1: where different technologies play very different roles. Joining me today

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Speaker 1: to review this year's levelized cost of Electricity is its

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Speaker 1: lead author, Amar vasdev, a senior associate from our Energy

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Speaker 1: economics team. Bn EF. Clients can find this along with

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Speaker 1: other associated research by heading to BNF go on the

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Speaker 1: Bloomberg terminal or BNEF dot com. If you'd like to

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Speaker 1: learn more about how BNF approaches strategy research on the

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Speaker 1: energy transition, including developments and commodity markets, trends across different sectors,

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Speaker 1: and the cross cutting technology shaping the future, you can

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Speaker 1: find more information on BNEF dot com and if you'd

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Speaker 1: like to speak with a member of our team about

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Speaker 1: becoming a client, email us at Sales dot BNF at

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Speaker 1: Bloomberg dot net. But for now, let's get into this

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Speaker 1: year's LCOEES and how these numbers come together. AMR, Welcome

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Speaker 1: to the podcast.

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Speaker 2: Thanks for having me.

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Speaker 1: We're here today to talk about LCOEES, the levelized cost

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Speaker 1: of electricity, which I know for some people know what

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Speaker 1: that is. Some people don't know what that is. Even

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Speaker 1: after I've spelled it out, so Amar, you know, just

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Speaker 1: to get us all on the same page. What is

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Speaker 1: the levelized cost of electricity?

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Speaker 2: Yeah, really good question there, Tom. So Effectively, the LSUY

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Speaker 2: in technical terms, is the long term off take price

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Speaker 2: that a project developer needs to recoup all of their costs,

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Speaker 2: pay taxes, and tip their internal rate of return. So

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Speaker 2: what underpins that metric? It really encapsulates a lot of

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Speaker 2: information around project costs and plant performance and tries to

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Speaker 2: consolidate that into a single metric.

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Speaker 1: So let me say this back to you in a

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Speaker 1: more simplistic way. We think about if we were to

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Speaker 1: build a power plant, how much would all of that cost,

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Speaker 1: including any fuel costs and operating costs, how much electricity

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Speaker 1: will it produce? And how much would we on average

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Speaker 1: have to sell that electricity at in order to cover

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Speaker 1: all those costs we just mentioned spot on nice Well

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Speaker 1: we're off to a great start then, So l Cuez,

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Speaker 1: I know if you go on energy Twitter or Energy

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Speaker 1: linked in, or I don't know if there is an

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Speaker 1: energy TikTok, there probably is. L Cuiz sometimes attracts a

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Speaker 1: little bit of I wouldn't say controversy. There are definitely

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Speaker 1: people who I would describe as LCOE haters who say

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Speaker 1: that it's not the best metric because the way we've

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Speaker 1: just described it, that sounds like a really logical way

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Speaker 1: to think about the all inclusive costs of electricity. So

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Speaker 1: why is it not universally accepted? Like what are the

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Speaker 1: issues that people have with it?

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Speaker 2: So, I mean, the metric itself holds a lot of

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Speaker 2: value and it has a lot of limitations as well.

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Speaker 2: It's just as good as what assumptions go into it,

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Speaker 2: and we are really thorough in terms of what we

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Speaker 2: put into it as much as we can be, and

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Speaker 2: we can go into that further effectively. The argument comes

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Speaker 2: down to the ability of l SUEZ as a metric

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Speaker 2: to compare different technologies that have different functions within power systems. So,

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Speaker 2: for example, how do we adequately compare a CCGT, a

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Speaker 2: combined cycle gas turbine plant that can provide baseload power

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Speaker 2: with a wind or solar asset that generates only when

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Speaker 2: the wind blows or the sun shines. So that's kind

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Speaker 2: of a talking point that people have in terms of

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Speaker 2: the operation of these assets. So we see the LCU

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Speaker 2: as a midpoint, not the end point. And the reason

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Speaker 2: we think that is because you can't take the LCU

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Speaker 2: in isolation and it doesn't necessarily say to you, if

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Speaker 2: you have solar is the cheapest technology, that your entire

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Speaker 2: grid should be based off of SOLA. That's not the

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Speaker 2: correct way of looking at it, and there's different ways

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Speaker 2: of then taking the LCUB. From that point, we can

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Speaker 2: produce a value adjusted LCU, which some organizations do, which

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Speaker 2: brings in power market assumptions. That's not our preferred approach,

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Speaker 2: and the reason for that is because you bake in

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Speaker 2: a static view potential of power systems over a thirty

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Speaker 2: year lifetime as you model the cash flows of those assets. Instead,

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Speaker 2: what we do at BNF in particular is we disaggregate

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Speaker 2: those costs inputs that go into the LCU and we

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Speaker 2: plug them into hourly power system models to see how

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Speaker 2: the power system is likely to function, and there you

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Speaker 2: can see the plethora of technologies that contribute to meeting demand.

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Speaker 1: So, I mean, you know what you've hinted at is

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Speaker 1: there's a sort of a lot more complexity to a

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Speaker 1: power system than just simply you know which technology costs

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Speaker 1: the least, because it's kind of it's kind of like

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Speaker 1: saying what is better an apple or an orange based

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Speaker 1: on which costs less, But you know one of them

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Speaker 1: has more vitamin C, one of them has more fiber.

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Speaker 1: It depends what you need. The way I've always thought

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Speaker 1: about it is LCUE is a great way for ruling

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Speaker 1: certain things out. Like so for example, I mean, you

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Speaker 1: use the example of comparing solar to the CCGT, and

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Speaker 1: you know you're right, say, just because solar has a

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Speaker 1: cheaper LCOE than a CCGT, the CCGT can do things

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Speaker 1: that the solar can't do, and you know there's el

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Speaker 1: SOOE doesn't necessarily catch that. On the other hand, if

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Speaker 1: solar is more expensive than the CCGT or an other

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Speaker 1: technology that can do certain things, then maybe there's not

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Speaker 1: even a conversation to be had. Is that Am I

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Speaker 1: think about it the right way there? Or is that

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Speaker 1: even that over simplistic?

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Speaker 2: Yeah? No, I think that's that is a good way

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Speaker 2: to think about it. It's effectively a sign post. So

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Speaker 2: you start with that sign post and you work from there,

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Speaker 2: and that's your like like I said earlier, that's your midpoint.

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Speaker 2: That LCU is your midpoint, not your end point.

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Speaker 1: Got it. I just want to touch on the process

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Speaker 1: and we're talking about the results in a moment, but

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Speaker 1: the process, because you know, Amma, whether whether you like

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Speaker 1: it or not, your brand at BNF right now is

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Speaker 1: your Amma the Lcoe guy. I mean, you are insolently

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Speaker 1: connected with this project. Now. Everyone at BNF has their

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Speaker 1: area of expertise and they're not necessarily known for it.

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Speaker 1: And I suppose the reason that you're known as Amma

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Speaker 1: the Lcoe guy is that it involves you having to

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Speaker 1: actually corral a lot of people, get into touch with

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Speaker 1: a lot of people, you know, whereas other people can

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Speaker 1: just focus on their research in you know, we don't

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Speaker 1: work in silos at BNF, but they can, you know,

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Speaker 1: speak to maybe a small ecosystem of people. You kind

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Speaker 1: of need to talk to everyone to get their inputs.

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Speaker 1: So just tell us a little bit about why is

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Speaker 1: it that you kind of have to have such broad

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Speaker 1: outreach and you know, what is it that you're looking

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Speaker 1: for from all the from all the different people that

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Speaker 1: you're drawing on to get your inputs on this.

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Speaker 2: Yeah, really good question. I mean much to their dismay

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Speaker 2: or maybe to their satisfaction. For some of them, there

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Speaker 2: is at one point in the year a time when

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Speaker 2: I come to them and ask them to our analysts together.

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Speaker 1: Surely fact, you are a very charming guy. I'm so yeah.

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Speaker 2: As I say, we have and this on the ground

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Speaker 2: and they speak directly to stakeholders across the value chain,

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Speaker 2: so that includes project developers, utilities lenders, OEMs so original

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Speaker 2: equipment manufacturers, and their job is is to really get

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Speaker 2: to grips with the market and that can be their

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Speaker 2: regional coverage or it can be a specific technology or

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Speaker 2: sector so wind or solar or battery storage. And having

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Speaker 2: built up these contacts over the years, they know the

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Speaker 2: market really well and we want to flesh out with

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Speaker 2: our own lists and what exactly the cost of the

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Speaker 2: project is in terms of the capex, what is the

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Speaker 2: opex the plant performance, so what capacity factors do you

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Speaker 2: expect from this asset? But also importantly what are the

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Speaker 2: financing terms and how is the financing structure? What is

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Speaker 2: the share of debt and the share of equity, and

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Speaker 2: what is the interest rate and loans and what herd

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Speaker 2: or rates are project developers looking for to go ahead

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Speaker 2: with projects.

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Speaker 1: So this is it's really interesting, like because we aggregate

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Speaker 1: up on a global level a lot of very granular

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Speaker 1: local and sector specific detail. And that's why you know,

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Speaker 1: in a way, you're like this conductor you wave your

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Speaker 1: wand and this orchestra of analysts are all playing their

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Speaker 1: own little instrument. And so this is a real symphony

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Speaker 1: of a process. I suppose we end up with one melody,

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Speaker 1: one sound, but there's a huge amount of layers to it.

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Speaker 2: It's funny you bring up that analogy. It's something I've

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Speaker 2: thought about over the years. Slightly and you know, a

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Speaker 2: periods it can be slightly like John Cage four p.

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Speaker 2: Thirty three, where it's just four minutes and thirty three

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Speaker 2: of silence on my side while everyone is running around

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Speaker 2: a gathering data, and it can get more chaotic than that. Yeah,

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Speaker 2: it really does vary. There is a soundtrack to this,

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Speaker 2: and there is a flow. But in the end it

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Speaker 2: all comes together and it's all based on our analysts

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Speaker 2: or the musicians all playing their part, playing the instruments. Well,

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Speaker 2: are we get something great at the end of it?

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Speaker 1: So we have our teen collecting all of this information.

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Speaker 1: But I'm imagining that there's a fair amount of assumptions

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Speaker 1: that have to go into it. You know, maybe some

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Speaker 1: people say that they have other information that's different from

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Speaker 1: the information that we collected and disagree ultimately with our results.

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Speaker 1: So inevitably in any research process, this there is this.

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Speaker 1: Even when you do all the research, there's still going

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Speaker 1: to be a very a variety of potential interpretations, potential opinions,

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Speaker 1: depending on what assumptions we make. So would you say

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Speaker 1: to people who would say, well, you know, there's no

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Speaker 1: point us in doing this exercise since it'll only reflect

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Speaker 1: our assumptions.

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Speaker 2: Yeah, the first is to always talk them through our

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Speaker 2: assumptions and our approach and see if we can find

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Speaker 2: a consensus there. And if not, then we have our

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Speaker 2: engine behind our analysis, the Energy Project Valuation model, and

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Speaker 2: that's available to clients, and that's our discounts cash flow

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Speaker 2: model that we use to calculate the l sueis that

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Speaker 2: we make available with all of the inputs that go

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Speaker 2: into our lcuies so that clients can play around and

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Speaker 2: adjust inputs, so.

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Speaker 1: In theory, clients can make their own version of.

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Speaker 2: Our report exactly. Yeah.

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Speaker 1: Oh wow, let's get getting onto talking about the findings.

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Speaker 1: I think we've kind of established how we get these numbers,

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Speaker 1: and you know the answer is, Ammar doesn't just pull

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Speaker 1: them out of the air. You know, AMA's a very

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Speaker 1: smart guy. He's not some all knowing sage as like.

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Speaker 1: He's rather, like we say, a conductor of a huge team.

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Speaker 1: So let's start at the broadest level, like what happened

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Speaker 1: to global clean power costs? Last year?

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Speaker 2: Twenty twenty five was a really mixed year for clean

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Speaker 2: power projects. Most power technologies became more expensive. There's a

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Speaker 2: common answer for listeners of the podcast. There's one answer

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Speaker 2: that comes up quite so often, and it should almost

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Speaker 2: be the byline of the podcast. It's China. And China

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Speaker 2: weighs heavily on our capacity weighted global LCU benchmarks because

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Speaker 2: of how much activity is there. And we saw power

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Speaker 2: market reforms that left project exposed to wholesale prices that

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Speaker 2: meant a higher perceived risk. And at the same time,

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Speaker 2: we're seeing market saturation, particularly within the solar segment in China,

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Speaker 2: and that means that assets are now being located in

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Speaker 2: areas with poorer resource. So we saw the cost of

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Speaker 2: soda increase by six percent year on year to reach

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Speaker 2: thirty nine dollars per make hour on average, and we

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Speaker 2: saw that onshore wind costs increased by two percent to

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Speaker 2: forty dollars per make what hour.

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Speaker 1: I just really want to understand this because this point

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Speaker 1: you've just made about Also, now projects are getting built

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Speaker 1: in less optimal locations in some of the markets with

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Speaker 1: really high update in particular like a six percent year

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Speaker 1: on year increase in the price of solar. I mean,

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Speaker 1: I always just thought that solar irradiation is reasonably uniform

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Speaker 1: or is it just more to do with whether the

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Speaker 1: grid is saturated with solar? Can you shine some light?

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Speaker 1: No pun intended on this a little bit more.

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Speaker 2: Yeah, we try to leave the course helment question for

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Speaker 2: our hourly power system modeling, so our new energy outlook

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Speaker 2: and our power market outlooks, so we really try and

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Speaker 2: focus on what the technical capabilities of the asset are.

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Speaker 2: So this is more of a question around where new

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Speaker 2: farms are popping up, where they're being located. So as

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Speaker 2: areas in China have kind of saturated with so that

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Speaker 2: they are now having to locate assets in areas with

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Speaker 2: less than ideal condition and so there is a degree

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Speaker 2: of variation and resource availability across across markets.

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Speaker 1: I actually didn't realize how much of a role that

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Speaker 1: would be playing on l C eas and I mean

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Speaker 1: something it really shows you're doing your research very thoroughly.

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Speaker 1: It's not you're not using sort of generic assumptions around

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Speaker 1: you know, the renewable resources, you know, the sunshine or

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Speaker 1: the wind. We're basing this on real projects there getting built.

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Speaker 1: So there's been an increase in the cost of wind globally,

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Speaker 1: an increase in the cost of solo globally. And as

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Speaker 1: you mentioned, is China maybe plays a disproportionate role in

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Speaker 1: that in terms of it's the size of the market

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Speaker 1: and the fact that we're basing this on what's actually

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Speaker 1: getting built. But I'm curious to know. You know, I

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Speaker 1: alluded to a moment ago. I mean our supply chain

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Speaker 1: is also playing a role here.

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Speaker 2: I mean supply chains are playing a role. We do have,

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Speaker 2: as we've known for the last few years, a degree

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Speaker 2: of overcapacity with module production, so on the solar side,

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Speaker 2: and so demand is far below supply. What we've seen

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Speaker 2: is a stabilization of module prices last year, and that's

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Speaker 2: as polysilicon manufacturers, as their margins are being squeezed. We're

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Speaker 2: now seeing a period of price consolidation that also on

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Speaker 2: the supply chain side. I do want to say it's

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Speaker 2: not all doom and gloom. We have seen remarkable reductions

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Speaker 2: in battery storage costs, so our LCUET has decreased by

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Speaker 2: around twenty seven percent, and that exceeded the eleven percent

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Speaker 2: we expected in our prior update for for twenty twenty five.

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Speaker 2: And that's because turnkey system costs have fallen as battery

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Speaker 2: packed prices have declined. And that's thanks to sole manufacturing,

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Speaker 2: over capacity, competition amongst manufacturers, and also an ongoing shift

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Speaker 2: to lower cost LIFTI mind phosphate batteries. So a lot

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Speaker 2: of it is to do with the supply chain as well.

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Speaker 1: And this is so I think we talked about, you know,

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Speaker 1: some version of this conversation on different episodes of the podcast.

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Speaker 1: But it feels like what were once the new technologies

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Speaker 1: that you know, could only get cheaper because there was

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Speaker 1: only growth, they've now matured to a point where, you know,

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Speaker 1: getting cheaper year on year isn't necessarily assured. But here's

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Speaker 1: the new generation. You know, it's like wind and solar

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Speaker 1: are like now proud parents and they're going gray a

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Speaker 1: little bit, but they're watching their child's storage go through

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Speaker 1: the same right of passage as they were of just

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Speaker 1: getting cheaper and cheaper and getting built more and more.

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Speaker 1: I know that's the white right way to frame it,

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Speaker 1: but it kind of that's just a feeling it feels like,

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Speaker 1: is that it's like a new generation has been born

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Speaker 1: and is now growing up, and the older generation is

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Speaker 1: also moving to the next phase of their lives.

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Speaker 2: Yeah, that three storage is definitely on the verge of

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Speaker 2: its teens. We saw pack races fall eight percent last year.

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Speaker 2: That's compared to thirteen and twenty percent in the years prior,

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Speaker 2: So there is a degree of a slow down in

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Speaker 2: the cost reductions and that's something we will see with

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Speaker 2: storage going forward to the problems with solar and wind

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Speaker 2: now in terms of where we see some cost increases,

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Speaker 2: will likely see that with storage in the coming years.

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Speaker 1: And I don't know if you know, if we're using

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Speaker 1: my like generational analogy really works, starts to break down

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Speaker 1: when we start thinking about fossil fuels, because although they

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Speaker 1: have existed for a lot longer and they're not necessarily

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Speaker 1: showing any signs of kind of getting old in that regard,

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Speaker 1: but I know that you also, you know, we don't

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Speaker 1: just do that levelized cost of electricity of clean energy.

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Speaker 1: We also look at fossil fuels. So what I mean specifically,

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Speaker 1: I think the most important one to talk about is gas.

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Speaker 1: What have you observed in terms of trends with.

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Speaker 2: Gas gas turbines. Projects using gas turbines have had a

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Speaker 2: really interesting year. So combine, our combined cycle gas turbine

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Speaker 2: l SUE rose sixteen percent to one hundred and two

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Speaker 2: dollars per make out. That's an all time high.

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Speaker 1: How much of that is related to changes in our

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Speaker 1: assumptions around lifetime fuel costs if we do change those

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Speaker 1: assumptions that is, and how much of it it's just

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Speaker 1: due to the changes in the kind of the cost

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Speaker 1: of building one of those projects.

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Speaker 2: Yeah, this is definitely more of a Capex story. We

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Speaker 2: did see the fuel price story play out following Russia's

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Speaker 2: invasion of Ukraine, where the long term view for gas

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Speaker 2: prices had moved further up. They've since called so that

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Speaker 2: story is less there, but it's definitely on the Capex site.

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Speaker 2: So we're seeing gas turbine manufacturing capacity really struggling to

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Speaker 2: keep up with demand from data centers in particular, and

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Speaker 2: as a result, we've seen wait times for turbines increase,

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Speaker 2: and we've also seen gas plant capex a double over

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Speaker 2: the last two years in the US alone.

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Speaker 1: I find all this really interesting because it seems like,

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Speaker 1: you know, we say there was an increased in costs

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Speaker 1: of CAPEX on some of the clean power sides, maybe

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Speaker 1: with SOLA that was you could argue that's a market

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Speaker 1: correction and that the anomaly was that prices were solo

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Speaker 1: in the last couple of years, and that maybe the

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Speaker 1: market has right sized itself a little bit. But in

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Speaker 1: any case, you have technology, with the exception of batteries,

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Speaker 1: you have technologies like new and old getting a little

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Speaker 1: bit more expensive this year. And I don't know when

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Speaker 1: we're sitting here in a year's time or will be debating,

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Speaker 1: but it really strikes me, and again this is something

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Speaker 1: that I've been kind of saying on other versions of podcast.

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Speaker 1: It really feels like right now, when we're in this

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Speaker 1: messy middle, the messages that there's everything to play for,

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Speaker 1: you know, bringing those CAPEX costs down, whether it's for

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Speaker 1: wind or solar, or whether it's for gas turbines, is

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Speaker 1: so much connected to how much the the companies that

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Speaker 1: would be making those investments believe in the long term

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Speaker 1: future of that technology, because you know, they definitely don't

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Speaker 1: want to fall into the trap of over capacities. So

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Speaker 1: I find this is a really like right now, we're

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Speaker 1: in a really interesting inflection point potentially in the energy transition.

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Speaker 1: I genuinely don't know which way we go from here.

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Speaker 1: One of the things we always do with the LCOE

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Speaker 1: Report is we talk about, now, what in any given

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Speaker 1: market is the cheapest form of power. I realized that,

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Speaker 1: you know, the LCOE is, as we've discussed, a simplification,

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Speaker 1: and you know, it's not just about what the cheapest

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Speaker 1: form of power is, and then now is saying what's

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Speaker 1: the cheapest form of power? But it is kind of

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Speaker 1: interesting to see. So when you did that exercise this year,

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Speaker 1: what were some of the interesting trends that stood out?

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Speaker 2: Yeah, So what we found is either wind or soda

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Speaker 2: is the cheapest source of new bulk electrict generation in

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Speaker 2: markets that are around worth around four fifths of global

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Speaker 2: power supply, and that's up twenty two percentage points from

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Speaker 2: a year ago and over double the share in twenty twenty.

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Speaker 2: So things have improved quite drastically for renewables. Yeah, and

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Speaker 2: the most notable change since our last update is the US,

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Speaker 2: where wind has actually replaced gas as the cheapest source

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Speaker 2: of new new bill generation and these are unsubsidized costs,

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Speaker 2: so excluding tax credits.

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Speaker 1: That's really interesting and I think really important, not just

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Speaker 1: because you we've seen it change, but you know, historically,

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Speaker 1: when we've been talking about mature markets and we think

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Speaker 1: about our on new NG outlook, we've put a lot

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Speaker 1: of emphasis on comparing the cost of new wind and

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Speaker 1: solar to existing colon gas because effectively that's what new

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Speaker 1: wind and solar would be having to compete with. But

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Speaker 1: now that we're in this data center era in the

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Speaker 1: US and globally and there's demand growth, suddenly it actually

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Speaker 1: really matters that the lcue for renewables in this case wind,

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Speaker 1: I think you said for the US is cheaper than

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Speaker 1: for new build gas, because actually new build gas really matters.

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Speaker 1: It's a part of the equation. Were there any countries

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Speaker 1: where it flipped the other way because we saw, as

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Speaker 1: you say, an increase in the global lcue of wind

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Speaker 1: and solar, So were there any markets that went from

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Speaker 1: renewables being the cheapest form of power to flopper fuels

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Speaker 1: being the cheapest form of power.

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Speaker 2: So in Turkey we saw that new coal fire generation

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Speaker 2: would undercut on shore wind on a love live'ed basis.

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Speaker 2: That is a reversal of the trend that we had

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Speaker 2: seen previously where on shore wind was cheaper. But we

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Speaker 2: do see without forecasts that wind should regain its cost

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Speaker 2: advantage in the next two years, and that's as turbine

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Speaker 2: prices ease and performance improves.

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Speaker 1: And I just spoke a moment ago about how we

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Speaker 1: are Also an interesting comparison is wind and solar versus

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Speaker 1: existing fossil fuel plants. Where are we seeing wind and

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Speaker 1: solar out competing existing fossil fuels.

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Speaker 2: Yeah, so we're seeing that in a large number of

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Speaker 2: markets that we cover. So wind or soda are now

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Speaker 2: out competing existing coal gas assets in markets that account

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Speaker 2: for half of global electricity generation. But the fossil fuel economics,

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Speaker 2: the economs of fossil fuel plants do remain strongest in

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Speaker 2: markets with cheap domestic fossil fuels. So think of Saudi

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Speaker 2: Arabia and the US, for example, and they benefit from

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Speaker 2: some of the lowest gas prices globally. Likewise, in Australia,

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Speaker 2: the coal fleet operates at some of the lowest costs worldwide,

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Speaker 2: but the fleet is now on it's part to closure.

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Speaker 1: I think another thing that you know, we haven't touched

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Speaker 1: on that you do in the Lcoe report is you know,

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Speaker 1: you kind of talked about how actually the power system

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Speaker 1: is effectively never going to be run on one technology.

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Speaker 1: It's a combination of technologies playing different roles. So I

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Speaker 1: would be doing you a disservice if I didn't ask

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Speaker 1: about where we've actually also done leveli's cost of electricity

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Speaker 1: of combinations of technologies, because you're you know, we talked

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Speaker 1: you we use the example of solar and ccgts fundamentally

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Speaker 1: play different roles. But actually, if you're building a data center,

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Speaker 1: a CCGT would be one option to power it solar

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Speaker 1: you would worry about, you know, well, what about when

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Speaker 1: the sun's not shining. But sola plus a battery Now

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Speaker 1: we're talking about actually something that's more of affair comparison. Now,

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Speaker 1: it's never going to be perfect. So what are we

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00:22:56,680 --> 00:23:00,080
Speaker 1: seeing in terms of the combination of solar and storage

435
00:23:00,200 --> 00:23:01,720
Speaker 1: and levelized costs of electricity?

436
00:23:02,240 --> 00:23:06,840
Speaker 2: Yeah, some really interesting numbers here. So there's three factors

437
00:23:06,840 --> 00:23:09,600
Speaker 2: at play here. So one is cheap sola, declining battery

438
00:23:09,640 --> 00:23:13,960
Speaker 2: storage costs, and thirdly the increase in gas turbine capex.

439
00:23:14,160 --> 00:23:17,040
Speaker 2: So those three come together that provide quite a strong

440
00:23:17,119 --> 00:23:19,879
Speaker 2: case for solar plus storage. So what we did in

441
00:23:19,920 --> 00:23:23,040
Speaker 2: this update was we modeled using a new model, our

442
00:23:23,160 --> 00:23:27,280
Speaker 2: co located pal Mix Optimizer model to size a Pevian

443
00:23:27,359 --> 00:23:30,560
Speaker 2: storage asset to meet a one hundred megawatt load in

444
00:23:30,760 --> 00:23:34,600
Speaker 2: different ISOs in the US. So we looked at PJM,

445
00:23:34,960 --> 00:23:40,080
Speaker 2: COT and California, and what we found was in PGM

446
00:23:40,240 --> 00:23:43,639
Speaker 2: solar alone can meet up to thirty four percent of

447
00:23:43,840 --> 00:23:47,439
Speaker 2: demand at a cheaper cost than a gas turbine, and

448
00:23:47,480 --> 00:23:51,919
Speaker 2: then if you add storage, you can stretch to one

449
00:23:52,000 --> 00:23:55,440
Speaker 2: hundred percent of annual demand being met with a combination

450
00:23:55,480 --> 00:23:59,359
Speaker 2: of those two technologies. But that is only competitive against

451
00:23:59,400 --> 00:24:02,600
Speaker 2: gas turbine when meeting up to forty two percent of

452
00:24:02,680 --> 00:24:05,040
Speaker 2: data centered a month. So effectively, you take your soda

453
00:24:05,280 --> 00:24:08,560
Speaker 2: asset from being economically competitive at thirty four percent to

454
00:24:08,640 --> 00:24:12,359
Speaker 2: forty two percent once you add storage to the system.

455
00:24:12,680 --> 00:24:15,800
Speaker 1: So what you're saying is, in theory, if you had

456
00:24:15,920 --> 00:24:18,320
Speaker 1: enough solar and a big enough battery, you could run

457
00:24:18,560 --> 00:24:21,360
Speaker 1: a power system entirely off of that, but it would

458
00:24:21,400 --> 00:24:24,159
Speaker 1: be economically very inefficient in terms of like you'd be

459
00:24:24,200 --> 00:24:27,359
Speaker 1: overbuilding in many regards. So a more interesting question is

460
00:24:27,520 --> 00:24:30,199
Speaker 1: not is this cheaper than gas or is it not

461
00:24:30,320 --> 00:24:34,480
Speaker 1: cheaper than gas? It's how much of the system's needs

462
00:24:34,520 --> 00:24:37,480
Speaker 1: can you meet with this combination of solar and storage

463
00:24:37,520 --> 00:24:40,200
Speaker 1: before it's oncompetitive with gas? Is that what you're basically saying?

464
00:24:40,440 --> 00:24:42,520
Speaker 2: Yeah, exactly, And so we've.

465
00:24:42,400 --> 00:24:45,440
Speaker 1: Gone from I think you said in PGM we're hitting

466
00:24:45,480 --> 00:24:47,080
Speaker 1: forty two percent, but we were.

467
00:24:47,000 --> 00:24:49,840
Speaker 2: Ware before at thirty four with just solar.

468
00:24:50,200 --> 00:24:52,040
Speaker 1: And do we track how that percent? I guess this

469
00:24:52,080 --> 00:24:53,520
Speaker 1: is the first time you've done the modeling like this.

470
00:24:53,600 --> 00:24:55,159
Speaker 1: I was going to ask, have you tracked how that

471
00:24:55,200 --> 00:24:56,960
Speaker 1: percentage has evolved over time?

472
00:24:57,440 --> 00:24:58,359
Speaker 2: Not yet?

473
00:24:58,480 --> 00:25:00,760
Speaker 1: No, I guess you know we're when we have next

474
00:25:00,880 --> 00:25:03,000
Speaker 1: years reporting, you right rerun the exercise. We'll have two

475
00:25:03,119 --> 00:25:05,200
Speaker 1: data points on this, because I think that's a really

476
00:25:05,240 --> 00:25:08,000
Speaker 1: interesting way of looking at it. Actually, and I'm really

477
00:25:08,040 --> 00:25:12,400
Speaker 1: surprised that in uh PGM it's forty two percent. And

478
00:25:12,640 --> 00:25:15,280
Speaker 1: what am I reading here? In California? Do you already

479
00:25:15,280 --> 00:25:17,320
Speaker 1: say this eighty four percent? Yeah?

480
00:25:17,560 --> 00:25:21,840
Speaker 2: But this does vary regionally, So in California where you

481
00:25:22,000 --> 00:25:27,040
Speaker 2: have higher gas prices but slightly better soda resource solar

482
00:25:27,080 --> 00:25:30,159
Speaker 2: plus storage can meet eighty four percent of demand at

483
00:25:30,160 --> 00:25:33,720
Speaker 2: a lower cost than gas. We did also look at

484
00:25:33,840 --> 00:25:36,879
Speaker 2: how the cost of meeting the residual sixteen percent of

485
00:25:36,880 --> 00:25:39,560
Speaker 2: demand with a gas turbine. So if we were to

486
00:25:39,560 --> 00:25:42,680
Speaker 2: locate that pair that with soda and storage, that would

487
00:25:42,720 --> 00:25:45,240
Speaker 2: cost around one hundred and forty four dollars per megle out.

488
00:25:45,720 --> 00:25:49,159
Speaker 2: So that is higher than a gas turbine alone, but

489
00:25:49,240 --> 00:25:51,879
Speaker 2: that's around half of what it would cost if you

490
00:25:51,920 --> 00:25:54,359
Speaker 2: were to just oversize your soda and storage further.

491
00:25:54,840 --> 00:25:56,880
Speaker 1: And this is you know, like if we're taking because

492
00:25:57,560 --> 00:25:59,280
Speaker 1: I'm going to make a comment on that it's as

493
00:25:59,359 --> 00:26:01,920
Speaker 1: high as eighty four percent in California? Is this bace

494
00:26:02,000 --> 00:26:04,760
Speaker 1: purely on what we know about power demand in California,

495
00:26:04,840 --> 00:26:08,359
Speaker 1: what we know about the costs of the technologies in California,

496
00:26:08,359 --> 00:26:10,800
Speaker 1: the cost of gas in California, what we know about

497
00:26:11,000 --> 00:26:13,560
Speaker 1: sola in California. We're just thinking about it in terms

498
00:26:13,600 --> 00:26:16,520
Speaker 1: of a system, a theoretical system just built from a

499
00:26:16,560 --> 00:26:19,479
Speaker 1: combination of those technologies. Or are we also thinking about

500
00:26:19,720 --> 00:26:23,640
Speaker 1: existing resources that are already there in California, like nuclear,

501
00:26:23,840 --> 00:26:26,800
Speaker 1: like hydro? Yeah? Which way around is it?

502
00:26:27,000 --> 00:26:30,240
Speaker 2: Yeah? So we've just thought of this as a purely

503
00:26:30,280 --> 00:26:34,439
Speaker 2: as an off site project with a flatload profile. So

504
00:26:34,600 --> 00:26:37,720
Speaker 2: in some ways that's with a flatload profile, that's one

505
00:26:37,760 --> 00:26:42,720
Speaker 2: of the trickiest scenarios to meet where you don't have

506
00:26:42,800 --> 00:26:46,119
Speaker 2: any any variability and you don't have any say, oh,

507
00:26:46,160 --> 00:26:49,160
Speaker 2: the trige opportunity for the batteries with a whole cell

508
00:26:49,240 --> 00:26:51,879
Speaker 2: power price. So yeah, it's purely just off site one

509
00:26:51,920 --> 00:26:53,560
Speaker 2: hundred megawater it.

510
00:26:54,040 --> 00:26:56,679
Speaker 1: But the thinking about the sort of the typical daily

511
00:26:56,720 --> 00:27:00,000
Speaker 1: demand profile you would think makes it easier for solar

512
00:27:00,080 --> 00:27:01,960
Speaker 1: to me even more of the demand if you had

513
00:27:02,080 --> 00:27:05,400
Speaker 1: done the exercise, like you know, because demand is higher

514
00:27:05,480 --> 00:27:07,240
Speaker 1: during the days, so there's a sort of a certain

515
00:27:07,280 --> 00:27:09,920
Speaker 1: amount that SOLA gets to chump through before you even

516
00:27:09,920 --> 00:27:11,640
Speaker 1: bring batteries into the equation.

517
00:27:12,080 --> 00:27:14,480
Speaker 2: Yeah, we would have to look at the results from

518
00:27:14,520 --> 00:27:17,399
Speaker 2: our Paler Mark outlook or our new Energy outlook to

519
00:27:17,680 --> 00:27:21,439
Speaker 2: really see what the utility side looks like for California.

520
00:27:21,480 --> 00:27:25,760
Speaker 2: But with this is in complete isolation, and so once

521
00:27:25,800 --> 00:27:29,639
Speaker 2: you factor in those additional generation technologies, you might not

522
00:27:29,720 --> 00:27:33,400
Speaker 2: need to oversize your SOLA and your storage so much

523
00:27:33,400 --> 00:27:36,399
Speaker 2: so it would actually be more cost effective to allow

524
00:27:36,480 --> 00:27:39,720
Speaker 2: those range of technologies to play out than just confining

525
00:27:39,720 --> 00:27:40,680
Speaker 2: yourself to those two.

526
00:27:41,080 --> 00:27:43,120
Speaker 1: Do you know why I am so fascinated by this?

527
00:27:43,560 --> 00:27:46,720
Speaker 1: There's a personal anecdote here is a couple of years ago,

528
00:27:46,920 --> 00:27:51,200
Speaker 1: I was presenting, you know, on BNF's worldview at a conference,

529
00:27:51,400 --> 00:27:54,119
Speaker 1: and I was talking about California, and I was just

530
00:27:54,160 --> 00:27:59,560
Speaker 1: simply saying how much of an impact solar and batteries

531
00:27:59,600 --> 00:28:03,080
Speaker 1: are going to have for other generators because they they

532
00:28:03,240 --> 00:28:06,160
Speaker 1: you know, they're gonna eat up so much of the market.

533
00:28:06,400 --> 00:28:09,520
Speaker 1: And someone that put up their hand and was like,

534
00:28:09,960 --> 00:28:13,400
Speaker 1: you know, I've never heard such madness, you know, kind

535
00:28:13,440 --> 00:28:15,400
Speaker 1: of easier saying this guy doesn't know what he's talking about,

536
00:28:15,680 --> 00:28:17,840
Speaker 1: craziness saying that you could just run the whole of

537
00:28:17,880 --> 00:28:21,200
Speaker 1: California off just solar and batteries. And I was sort

538
00:28:21,200 --> 00:28:23,520
Speaker 1: of like, well, that's not what I was saying. Actually,

539
00:28:23,560 --> 00:28:26,280
Speaker 1: I was just saying that they're gonna eat the opportunity

540
00:28:26,280 --> 00:28:29,360
Speaker 1: of other generators such as hydro. This guy, I realized,

541
00:28:29,440 --> 00:28:33,359
Speaker 1: was as from the hydro industry. But now I'm learning

542
00:28:33,400 --> 00:28:35,919
Speaker 1: that if I had been saying that, it wouldn't have

543
00:28:36,040 --> 00:28:42,240
Speaker 1: even been that crazy. So I'm feeling real affirmation coming

544
00:28:42,280 --> 00:28:46,320
Speaker 1: out of this conversation. There's a bunch of stuff in

545
00:28:46,360 --> 00:28:48,640
Speaker 1: the report. It's there's so many substories. I mean, we

546
00:28:48,640 --> 00:28:52,560
Speaker 1: haven't talked about things like compressed air energy storage, long

547
00:28:52,640 --> 00:28:55,560
Speaker 1: duration storage. There's a whole conversation we had around the

548
00:28:55,600 --> 00:28:58,240
Speaker 1: cost of capital, which I don't think we'll get to today,

549
00:28:58,240 --> 00:29:00,920
Speaker 1: but please do check out the podcast we recently put

550
00:29:00,920 --> 00:29:04,480
Speaker 1: out about the role of private capital in clean power markets.

551
00:29:04,640 --> 00:29:07,160
Speaker 1: Before you go, I just wanted to sort of get

552
00:29:07,480 --> 00:29:12,200
Speaker 1: your take on the situation currently happening in the in

553
00:29:12,240 --> 00:29:15,400
Speaker 1: the Middle East, because my understanding is, although you didn't

554
00:29:15,400 --> 00:29:17,560
Speaker 1: write about it in this report, you've been getting a

555
00:29:17,600 --> 00:29:20,560
Speaker 1: lot of questions about it, and you know how that

556
00:29:20,680 --> 00:29:22,920
Speaker 1: changes the picture, And now now a's an opportunity to

557
00:29:23,000 --> 00:29:26,560
Speaker 1: sort of en mass answer the FAQs that you've been getting.

558
00:29:27,040 --> 00:29:29,560
Speaker 2: Yeah, I mean, of course this fed outside of the

559
00:29:29,600 --> 00:29:32,880
Speaker 2: scope of the report. It's not an event we or

560
00:29:33,400 --> 00:29:37,440
Speaker 2: many people had necessarily predicted at the time of writing

561
00:29:37,840 --> 00:29:41,400
Speaker 2: or producing our numbers. But yeah, we're definitely feeling questions

562
00:29:41,400 --> 00:29:43,760
Speaker 2: on it. We've seen a few interesting things. There's two

563
00:29:43,760 --> 00:29:48,040
Speaker 2: angles here. Predominantly, one is the inflation story, and that

564
00:29:48,080 --> 00:29:51,600
Speaker 2: comes via increases in fuel prices. But the second is

565
00:29:51,920 --> 00:29:55,880
Speaker 2: the cost of capital. We've seen a recent story on

566
00:29:56,400 --> 00:30:00,440
Speaker 2: Bloomberg that traders have increased bets on in trust rate

567
00:30:00,520 --> 00:30:03,960
Speaker 2: hikes from the ECB, the European Central Bank and the

568
00:30:03,960 --> 00:30:07,840
Speaker 2: Bank of England due to soaring energy prices, which is

569
00:30:08,040 --> 00:30:11,760
Speaker 2: creating some pheares of an inflation spike and that could

570
00:30:11,760 --> 00:30:16,000
Speaker 2: trickle down to project developers. So we find that capex

571
00:30:16,040 --> 00:30:19,200
Speaker 2: intensive wind and solar are over twice as sensitive to

572
00:30:19,960 --> 00:30:23,840
Speaker 2: debt costs. So for every one hundred basis points increase

573
00:30:23,920 --> 00:30:27,520
Speaker 2: in those debt costs, else you have solar increases by

574
00:30:27,880 --> 00:30:30,280
Speaker 2: a couple of dollars per megal hour, but a CCGC

575
00:30:30,400 --> 00:30:33,440
Speaker 2: projects only increases by around one dollar per megal hour.

576
00:30:33,640 --> 00:30:36,480
Speaker 2: And just to talk about the relative economics and the

577
00:30:37,160 --> 00:30:41,520
Speaker 2: competitive competitiveness of those technologies in the UK, a CCGT

578
00:30:41,800 --> 00:30:44,160
Speaker 2: would cost one hundred and sixty two dollars per megal

579
00:30:44,200 --> 00:30:47,400
Speaker 2: hour and onshore wind eighty seven dollars per megal hour,

580
00:30:47,520 --> 00:30:49,960
Speaker 2: So we might if we do see some increases in

581
00:30:50,000 --> 00:30:52,880
Speaker 2: the cost of capital, they wouldn't be enough to erode

582
00:30:53,080 --> 00:30:58,880
Speaker 2: the economic advantage. Then, on the fuel price angle, we

583
00:30:59,440 --> 00:31:04,080
Speaker 2: have seen some interesting there's been some interesting stories there

584
00:31:04,120 --> 00:31:07,600
Speaker 2: as well of course, and what we I pulled the

585
00:31:07,680 --> 00:31:12,240
Speaker 2: data from the terminal yesterday to look at the forward

586
00:31:12,240 --> 00:31:17,520
Speaker 2: curves for the Dutch TTF, the Dutch Transfer Title facility,

587
00:31:17,880 --> 00:31:21,160
Speaker 2: which is kind of the European gas benchmark gas price,

588
00:31:21,400 --> 00:31:24,640
Speaker 2: and the forward curve a few years ahead was not

589
00:31:24,800 --> 00:31:27,360
Speaker 2: too dissimilar from what it was when we would have

590
00:31:27,640 --> 00:31:31,840
Speaker 2: used those assumptions to build our gas price back in September.

591
00:31:31,920 --> 00:31:34,040
Speaker 2: So it's really only the short term where there's been

592
00:31:34,040 --> 00:31:36,760
Speaker 2: an impact. So if you're building an asset today, at

593
00:31:36,880 --> 00:31:39,880
Speaker 2: least based on the forward curve, you shouldn't experience higher

594
00:31:39,920 --> 00:31:42,400
Speaker 2: prices compared to what we are thinking six months ago.

595
00:31:42,760 --> 00:31:45,920
Speaker 2: So that's one thing. So what it really comes down

596
00:31:45,960 --> 00:31:49,320
Speaker 2: to is the immediate impact, and that becomes very much

597
00:31:49,320 --> 00:31:52,200
Speaker 2: a power market question, and it comes down to the

598
00:31:52,320 --> 00:31:56,360
Speaker 2: likelihood of fuel switching between gas plants and coal plants

599
00:31:56,400 --> 00:31:58,080
Speaker 2: based on their short and module cost.

600
00:31:59,080 --> 00:32:02,040
Speaker 1: This is really interesting thing, you know, from what you're saying,

601
00:32:02,520 --> 00:32:04,920
Speaker 1: it's like this situation, this war that's happened in the

602
00:32:04,920 --> 00:32:07,320
Speaker 1: Middle least unsurprisingly it's in at least in the NIT,

603
00:32:07,400 --> 00:32:10,680
Speaker 1: I'm only gonna make things more expensive. So this question

604
00:32:10,760 --> 00:32:12,520
Speaker 1: of like, yeah, everything's gonna get more expensive, But in

605
00:32:12,600 --> 00:32:15,040
Speaker 1: terms of how it tips the balance between in your

606
00:32:15,120 --> 00:32:18,640
Speaker 1: world between what has a competitive advantage, it boils down

607
00:32:18,640 --> 00:32:22,440
Speaker 1: to if capital gets more expensive, then that tips the

608
00:32:22,440 --> 00:32:25,440
Speaker 1: balance towards fossil fuels, and if fossil fuels get more expensive,

609
00:32:25,480 --> 00:32:28,680
Speaker 1: that tips the balance towards renewables. Is that out of

610
00:32:28,720 --> 00:32:31,320
Speaker 1: a simplification an apt summary of kind of what you've

611
00:32:31,360 --> 00:32:32,000
Speaker 1: just said.

612
00:32:31,960 --> 00:32:34,560
Speaker 2: No, I think that's really Apptmary, Well.

613
00:32:34,280 --> 00:32:39,760
Speaker 1: Thank you. Has been a really fascinating discussion. And I

614
00:32:39,800 --> 00:32:44,480
Speaker 1: do you a disservice by saying your Amma the Lcoe guy,

615
00:32:44,600 --> 00:32:47,760
Speaker 1: because you know, well, firstly, you're a very good person

616
00:32:47,840 --> 00:32:50,280
Speaker 1: to speak to. It's been it's been a really interesting conversation.

617
00:32:50,440 --> 00:32:53,320
Speaker 1: But there's a huge amount of insight and really even

618
00:32:53,400 --> 00:32:55,920
Speaker 1: just making sense of the narratives that are coming out,

619
00:32:55,920 --> 00:32:58,440
Speaker 1: and in particular, you know, maybe in years gone by,

620
00:32:58,600 --> 00:33:01,400
Speaker 1: this report would have just been yeah, when we renewables

621
00:33:01,400 --> 00:33:03,920
Speaker 1: got cheaper again, here are the markets where they're now

622
00:33:03,960 --> 00:33:07,160
Speaker 1: more competitive than fossil fuels. Again. Now we're in this

623
00:33:07,320 --> 00:33:10,360
Speaker 1: really interesting sort of all bets are off right now,

624
00:33:10,480 --> 00:33:13,080
Speaker 1: and so you making sense of this picture is is

625
00:33:13,080 --> 00:33:16,200
Speaker 1: so valuable and interesting. So really enjoyed this conversation. Thank

626
00:33:16,200 --> 00:33:17,600
Speaker 1: you for joining the podcast.

627
00:33:18,000 --> 00:33:20,200
Speaker 2: Thanks Tom, I enjoyed it too, and always a pleasure

628
00:33:20,240 --> 00:33:22,600
Speaker 2: to be on and have the chance to speak with you.

629
00:33:31,480 --> 00:33:34,600
Speaker 1: Today's episode of Switched On was produced by Cam Gray

630
00:33:34,840 --> 00:33:38,520
Speaker 1: with production assistance from Kamala Shelling. Bloomberg NIF is a

631
00:33:38,560 --> 00:33:41,720
Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This

632
00:33:41,800 --> 00:33:44,479
Speaker 1: recording does not constitute, nor should it be construed, as

633
00:33:44,520 --> 00:33:48,480
Speaker 1: investment advice, investment recommendations, or a recommendation as to an

634
00:33:48,480 --> 00:33:51,680
Speaker 1: investment or other strategy. Bloomberg AINNIF should not be considered

635
00:33:51,720 --> 00:33:55,000
Speaker 1: as information sufficient upon which to base an investment decision.

636
00:33:55,120 --> 00:33:58,080
Speaker 1: Neither Bloomberg Finance LP nor any of its affiliates makes

637
00:33:58,120 --> 00:34:01,840
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638
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