Lazard: still unreliable

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From Net Zero Watch

By Andrew Montford

A year ago I was rather critical of Lazard’s annual report about the cost of power generation, in particular in relation to offshore wind. The 16th edition of the report has just been published, and there are some interesting changes.

The most egregious problem last time round was capex, and so it’s good to see that Lazard have bumped up costs for the new edition, by 20% for their optimistic assumptions and by 40% for the pessimistic. That gives a new range of $3000-5000 per megawatt of capacity. The graph below shows this range (in pink) alongside build costs for recent UK offshore windfarms (converted to USD at 1.3). So they are now in the right ballpark.

Figure 1

However, elsewhere, things are not so plausible.

For capacity factors, Lazard seem less sure of themselves. The pessimistic figure has fallen from 49% to 45%, while the optimistic one has risen, from 53% to 55%. The 2023 range of 45%-55% is, however, implausible. The output of offshore windfarms declines over their lives, and the levelized cost calculation should reflect that. Lazard’s numbers are barely acceptable as estimates of first year values, let alone a lifetime average. This can be seen in Figure 2, which shows the Lazard range, again in pink, against the same set of recent UK offshore windfarms. The diamonds represent the average capacity factor to date, while the black tails represent the range of values into which the lifetime average is likely to fall.

It’s the same story for operational expenditure. Lazard’s new range is $60-80,000 per megawatt of capacity per year. Recent UK windfarms have been spending at a rate of over $150,000 per megawatt (again converted from Sterling at a rate of 1.3), and, because opex increases over windfarm lifetimes, the lifetime average will be more like $200,000/MW. This is shown in Figure 3.

Overall then, Lazard’s figures remain highly implausible, and they remain a highly unreliable source for information about energy costs.