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