Well, that was a fun read during my morning cup of coffee!
So, there is a bit of misdirection here, perhaps unintentional. Of course, compared to other analysts (and marketplace investors) these headline numbers seem nuts. After all, we are not building a lot of nukes in the US, we are retiring a bunch of coal plants, and we are building a lot of renewable energy, much of that with storage.
In the executive summary, they say that following re costs (obv divide by 1000 to get cost per kWh):
new nuclear $122/MWh
wind+storage $291/MWh
solar+storage $431/MWh
coal $90/MWh **
gas $40/MWh **
and they reference Exhibit 20 on page 12. But the costs are actually from Exhibit 21 on page 12, which **lists coal at $90/MWh and gas at $40/MWh.
This rank ordering seems to be odds with current market trends, like shutting down existing coal plants to build lots of renewable energy.
It also seems to undercut their financial argument bc nuclear looks like a big loser next to coal and gas! But they omit the coal and gas numbers for the headline... Hmmm, bc they are only talking about low carbon tech.
Let's look at exhibit 20, which they actually referenced in the executive summary. It has the following:
new nuclear $71/MWh
wind+storage $132MWh
solar+storage $141/MWh
coal $93/MWh
gas $103/MWh
These look pretty different from exhibit 21, and a LOT more reasonable on a first pass.
The reference for the renewable numbers is an analysis by Lazard 2023.
https://www.lazard.com/research-insights/2023-levelized-cost-of-energyplus/
That report looks reasonable enough, and in line with other research I have read, and discusses its methodology in detail.
The nuke and fossil numbers are from "BofA Research Investment Committee, Lazard, Entler,et al. (2018)." which I could not locate anywhere. So the assumptions and methodology used to compute those figures are not publicly stated.
But ofc, the 'crazy' headline numbers are from Exhibit 21, what is the source for those? Its from: "BofA Research Investment Committee, Idel 2022" which is ALSO not publicly available, so its methodology and assumptions cannot be assessed either.
How are the two sets of numbers different? The associated text says:
Levelized cost of energy” (LCOE) measures an energy source’s lifetime costs divided by energy output and is a common standard for comparing different energy projects. Most LCOE calculations do not account for factors like natural gas or expensive battery backup power for solar or wind farms. Solar and wind look more expensive than almost any alternative on an unsubsidized basis when accounting for those external factors (Exhibit 20). This is especially true when accounting for the full system costs (LFSCOE) that include balancing and supply obligations (Exhibit 21). Nuclear appears to be the cheapest scalable, clean energy source by far.
So the second set of numbers are LCOE, a conventional measure, drawn from the available Lazard white paper, and internal BoA analysis (with Lazard) that presumably uses similar assumptions. The first (headline) set of numbers adjusts the numbers (mostly upwards for renewables) by "
accounting for the full system costs (LFSCOE) that include balancing and supply obligations", and they don't say anything other than that re where the numbers come from.
Unpacking, I would suggest that "
balancing and supply obligations" means having a whole nother generator system sitting on standby to provide backup for some small number of hours per year. How many hours? How much backup? They don't say... but it appears to double to cost of wind+storage and triple the cost of solar+ storage... I wonder what that could be?? And apparently the cost of backing up nuclear (and unstated 'all-in costs') do not make such a large multiple.
Obviously, without stating their assumptions, the "full system LCOE" calculation is not compelling. I have seen many arguments over the years that solar doesn't work financially because you need to have a completely fueled and ready to go fossil (or other) plant standing by as backup. And as a result, solar
automatically costs more than just running that backup fossil plant (in terms of capital). But apparently, the folks at BoA are not willing to share the deets on this calculation, despite the numbers driving the executive summary. Very suss.
BTW, Exhibit 22 talks about EROI, an idea haven't seen thrown around since the Peak Oil scare days and 'The Oil Drum' blog.
EROI measures the quantity of energy supplied per quantity of energy used in the supply process. A higher number means better returns. The EROI ratio below 7x indicates that wind, biomass, and non-concentrated solar power may not be economically viable without perpetual subsidies.
At the end of the day, they are saying that renewables don't make enough energy to pay off their construction
in energy, assigning an arbitrary 15% factor (if construction energy is over 15% of ultimate yield) to say that 'it just won't work'.
These numbers on energy yield for renewable systems were debunked a decade ago.
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But turnabout is fair play.
Let's look at Lazard:
https://www.lazard.com/research-insights/2023-levelized-cost-of-energyplus/
which gives the second set of numbers, that are better than the first set, but still make fossils looks stupid cheap, and renewables look uncompetitive (in 2023). The report does look at price trends, and says a bunch of stuff that seems reasonable, like cost trends for renewables are falling rapidly (implying that they would be more competitive in the future). They also say that carbon capture and storage CCS is both uneconomic and unlikely to get cheaper in the future! Speaking truth to power.
So, do I agree with Lazard's analysis? Nope. I think they are making one BIG mistake.
Capacity factor.
1. The fossil and nuke plants are assumed to be used at high capacity factors (over 80%).
2. Renewables without storage are assumed to run at their natural capacity factors (like 20-30%).
3. Renewables + storage are assumed to have 4 hour storage sufficient to spread their output over the early evening demand period (the head of the duck curve).
Assumption 2 and 3 are very sensible, and what everyone does. Assumption 1 is the conventional assumption (and has been correct for decades), but in a high renewable penetration world, it is
fundamentally incorrect. That renewable energy with a low price undercuts the other generators midday, and with storage undercuts effectively most demand. So Assumption 1 is only valid if you assume that overproduction results in curtailing the renewables, rather than the more expensive fossil and nuke plants (which can't be throttled that fast). Curtailment aside, if the wholesale price of kWh drops during the day due to high solar penetration, the financial benefits of the fossil and nuke plants have to take a hit.
In other words, in a high renewable penetration world, is it very difficult for conventional plants operate profitably at high capacity factor. Maybe a fossil plant would need to shut down and restart daily. Maybe the nuke plant can't compete except in the winter season.
And when the capacity factor for those incumbents starts to drop due to these economic factors, their LCOE explodes due to capital costs. And the capital cost for nukes is esp high. This is how new tech disrupts old tech, in a nutshell, by changing the profit calculation that used to work for decades.
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I have a close friend who was a lifelong VP at a couple different major banks. IMO, the banking industry is all about making money at very low risk using relatively simple formulae like compound interest. Bankers write contracts that make them guaranteed money if they pay, and they get bailed out by insurance or the govt if the contract doesn't pay. Heads I win, Tails you lose.
My friend is a smart enough fellow, but not that sophisticated. He looks clients in the eye and judges them worth of a loan or not (and thinks this sufficient) and makes money whether he is correct or not. His math skills extend to adding up debts and credits, and computing compound interest (which puts him ahead of ~70% of americans). But a complicated market analysis that requires Monte Carlo or integrating ODEs or agent based modeling? Naw... he has quants working for him to do that.
So I am basically skeptical that some shop at BoA does some new analysis that is very different from another (publicly available) analysis that they did recently (the two number tables), get a wild result, and I am expected to believe it. These are the same folks whose 'novel analyses' gave us the Great Financial Crisis a while ago (that my friend was directly involved in, but still is not sure what went wrong).
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TL, DR; someone at BoA has their head in a very old fashioned 'OIl Drum' place regarding the future of the energy system, and is cherry picking and cooking their own internal analyses to make nukes look great and say (explicitly) that
renewables don't work. The crazy stuff is saved for page 12, and buried in references that are not publicly accessible, and broadly contrary to their analyses that ARE accessible.
It appears that the authors are assuming that we need to build a low carbon energy system (so no fossils, and CCS is too expensive) and that renewables are not feasible for unstated technical/cost reasons (that appear based on obsolete reasoning). So, unsurprisingly, they conclude that nukes are the only way to go, and compute nuke costs making favorable assumptions (like 90% capacity factor), and get a reasonable looking price.
Methinks they want me to invest in nukes. My conclusion is to not invest in BoA.
