Key Takeaways
- The cost of building solar power projects in the U.S. has increased by 18% from a year earlier.
- Despite higher costs, solar energy is still the cheapest form of new electricity generation to build.
- Combined-cycle natural gas plants have seen their levelized cost rise to a 15-year high.
The cost of building solar power projects in the United States has surged by 18% from the previous year, according to an annual report released by financial advisory firm Lazard. This increase is attributed to various factors including tariffs, elevated interest rates, and inflationary pressures.
Despite these rising costs, solar energy remains the most cost-effective form of new electricity generation, underscoring its critical role in meeting growing power demands. The report highlights that while the levelized cost of utility-scale solar has increased to between $40-$98 per megawatt hour (MWh), it still outcompetes other sources such as combined-cycle natural gas plants.
Samuel Scroggins, head of renewables & sustainable infrastructure at Lazard, explained that higher capital costs and inflationary pressures have contributed significantly to the increased cost of solar projects. He noted that tariffs passed on from China to Southeast Asia and supply chain diversification are also factors driving up expenses.
The report further indicates that while the levelized cost for combined-cycle natural gas plants has risen to between $51-$129 per MWh, these plants remain attractive due to their consistent output. However, this increase in costs could lead to a shift towards renewables as they offer more flexibility and rapid deployment.
Record U.S. electricity demand, driven by the growth of data centers and the electrification of sectors like transportation, has heightened the need for new generating capacity. This increased demand is also contributing to higher development costs across all forms of power generation.
Renewables such as solar and onshore wind are expected to dominate new U.S. generating capacity in the near term due to their ability to be deployed quickly. Even after accounting for backup costs, these renewable projects remain broadly competitive with new gas-fired generation, indicating a significant role for renewables in meeting rising power demands.
Lazard’s findings suggest that while solar and storage costs have increased, they are still expected to play a crucial role in the energy mix. The firm warns that as equipment shortages and booming power demand continue to pressure the market, costs could rise further.
