An analysis made by investment bank Lazard found that the cost of building a new utility-scale solar or wind farm, in many cases, is lower than that of operating an existing coal plant, according to CBS News. This analysis doesn’t take into account government tax credits and other energy incentives that would make the wind and solar option even more cost-effective.
“There are some scenarios, in some parts of the U.S., where it is cheaper to build and operate wind and solar than keep a coal plant running,” explained a Lazard banker. “You have seen coal plants shutting down because of this.”
Lazard makes an analysis of this nature every year using a metric called the levelized cost of energy (LCOE), in which they consider the cost of components, operations, and debt. This helps them to arrive at a calculation of the smallest dollar amount per unit of energy in which an investor in the project would see a 12 percent return.
“The LCOE for coal this year is between $27 and $45 per megawatt,” wrote CBS. “That figure is $29 to $56 for a wind farm and $31 to $44 for a solar farm, depending on the technology used.”
This shift in energy costs comes largely as a result of innovation in renewables. Wind turbines are being built much larger, essentially doubling the efficiency of energy production from that of a decade ago. Wind and solar plants also tend to require less human labor than coal and nuclear plants, lowering the cost of production.
Both the wind and solar industries have grown exponentially over that time, and the rise of competition also contributes to driving down prices.
Lazard recognizes that their analysis only applies to developed economies and also must be excluded from countries like China and India who rely heavily on coal. The US, however, has seen a steep decline in the coal industry and can capitalize on the rising cost-efficiency of renewable energy.