Significant Developments
Lazard’s Levelized Cost of Electricity (LCOE) metric suggests solar and wind are the cheapest form of new power—with utility-scale solar
photovoltaic running $38-78/MWh and solar+storage at $50-131/MWh—while natural gas costs rose to a ten-year high. Combined cycle
LCOE runs from $41-116/MWh, depending on gas fuel costs, and peaker plants have a $138-262/MWh range. Increasingly, however, there
is industry pushback against Lazard’s high-level LCOE metric—which simply divides total capital and operating costs set against MWh
produced—in recognition that not all MWh of generation are alike. While solar is cheap, it cannot generate power at night. Wind requires
the wind to be blowing. Battery storage needs to be charged before it can discharge. Ancillary services, such as system inertia or
frequency regulation, are ignored. Further, the most pressing concern amid disrupted supply chains, natural gas turbine backlogs, rising
interest rates and stalled interconnection queues appears to be the ability to bring new capacity online.
The European Union has proposed a complete ban on Russian oil and gas imports by the end of 2027 in another long-term bullish tailwind
for US natural gas. Imports of Russian natural gas under short-term contracts may be banned as soon as June 17th, 2026. At present, one
long-term risk to US LNG exports is that in the late 2020s, soaring Qatari LNG, a possible conclusion to the Russia-Ukraine war, and risk
of weakening growth from China may soften demand for US LNG. Russia still accounted for 19% of European gas imports in 2024—and
an outright ban could sustain elevated US LNG capacity factors long-term.
< Natural Gas prices in Europe and Asia are over $13.00/MMBtu and likely to go over $15.00 soon
Dan Steffens
Energy Prospectus Group |
