Climate Advocacy: Incompetence Versus Intentional Fraud -- Lazard Edition
/My last post, on December 14, asked readers, when considering climate advocacy journalism and reports promoting wind- or solar-generated energy, to ask themselves whether the author is merely incompetent versus perhaps committing intentional fraud. The post focused on a particular piece that had been published in November in euronews.green, byline Lauren Crosby Medlicott. In that piece, Ms. Medlicott had egregiously cherrypicked some operating data from the Spanish El Hierro Island wind/storage electricity system to make it appear that that system is a success, when in fact it is a disastrous failure. Could this really have been mere incompetence on her part, or was Ms. Medlicott intentionally seeking to deceive her readers?
Ms. Medlicott’s piece was so appalling that I was unable just to let it pass. On the other hand, to be honest, Ms. Medlicott is a relatively small fish in the climate advocacy game. Are the larger fish any more honest?
Among the big players in this game, one that stands out is the investment bank Lazard. As an investment bank, Lazard makes its money — in its case quite big money — by causing deals to happen between investors and project developers. Investment banks often promote themselves by issuing reports on conditions for investment in various economic sectors. In Lazard’s case, back around 2008, they decided to become the gurus of green energy investing by issuing annual reports on what they call the Levelized Cost of Energy, or LCOE. They have continued to issue the LCOE reports annually since then, so I’m gathering that this must be quite a lucrative business. Here is a link for the most recent Lazard LCOE Report, which came out earlier this year in April 2023.
The Lazard LCOE Reports are famous for their repeated conclusion that wind turbines and solar panels have become the cheapest sources for generation of electricity. When you read someone in climate advocacy journalism reciting that talking point, most often the source of the point is one of these Lazard reports. In a post back in March 2019, title “Why Do Renewable Energy Sources Need Government Subsidies?,” I put together a sample list of half a dozen outlets citing Lazard LCOE studies for the proposition that wind and solar are the cheapest source of electricity. Those sources included, for example, the Financial Times, CBS News, Australia’s governmental research arm CSIRO, Axios, Think Progress, and others.
For the first decade or so of its LCOE reports, Lazard calculated the cost of energy from wind and solar without including any cost at all for the backup or storage needed to turn those sources into a fully-functioning 24/7/365 electrical grid. But somewhere in there Lazard starting adding to its reports some additional pages on what they call the Levelized Cost of Storage, or LCOS. Remarkably, after adding in the cost of storage, Lazard still seems to be coming to the conclusion that wind and solar generation are usually cheaper than generation from fossil fuels, or at the very least they are competitive. Could this possibly be right?
The Lazard 2023 LCOE Report is presented almost entirely in the form of charts and graphs. There is very little text, and you will struggle to try to figure out what assumptions underlie the conclusions. (From the website Watt-Logic, commenting on the 2023 Lazard LCOE report, and particularly on Lazard’s calculation of the cost of “firming” intermittent renewable generation with storage: “It’s actually quite hard to work out what’s going on here.”; from Andy May at Watts Up With That, December 11, “[T]hey bury critical details in the fine print and do not define their terms.”)
With that introduction, here is the key chart from the 2023 Lazard LCOE Report giving figures for cost of wind and solar power with “firming,” supposedly compared to the cost of generating electricity from natural gas “CT” or natural gas “combined cycle.”
By all means take your time to try to digest all of that. If you go to the Lazard Report for assistance, you will not find any useful text beyond what is there in the footnotes at the bottom of the chart. I read the chart as putting the “levelized cost” of “firming” intermittent wind and solar generation at as little as $23/MWh in the Midwest, up to a maximum of $98/MWh in California. Add this cost of “firming” to the “unsubsidized” cost of wind and solar generation, and you get a total for “firmed” power from wind and solar that is mostly within the range (and often toward the lower end) of costs for generation from combined cycle natural gas plants, and at most toward the low end of the range of costs for generation from natural gas “peaker” plants. In other words, while wind and solar are not proven to always be “the cheapest” after including the costs of “firming,” they are generally toward the cheaper end of the range of costs from natural gas generation, and certainly not out of the range of affordability.
But wait a minute. Where did they get these costs of “firming”? These costs appear ridiculously low compared to amounts that I find in my December 2022 energy storage Report. Study those fine print footnotes all you want, and I do not think you are going to find the answer. Can we find anything anywhere else in this Lazard document to help us understand the difference?
After spending some time trying to figure this out, the best I come up with is this chart from page 17 of the Lazard LCOE Report:
This appears to be the set of assumptions they apply for how energy storage will be used to “firm” the intermittent wind and solar generation. Let’s pluck a few key numbers out of this chart:
In the column headed “Storage Duration (Hours),” we find a minimum of 1 and a maximum of 4. Four hours of duration just happens to be the norm for the capability of today’s most cost-effective battery storage technology, lithium ion batteries. Unfortunately, the studies that I feature in my energy storage Report calculate that the number of hours duration of storage needed to fully “firm” a system using only wind and solar generation would be at least one month (720 hours), and potentially two to three months (1440 to 2160 hours). Lazard would seem to be off by a factor of somewhere between 180 and 540 of what would be needed.
Then there is a column headed “90% DOD Cycles/Day.” In each case the entry is “1.” I interpret this to mean that whatever battery we are dealing with here is assumed to have one full charge/discharge cycle per day. The next column tells us they are assuming 350 days per year, so therefore they are assuming that the batteries cycle 350 times per year. So the batteries can spread their costs over 350 cycles per year, or 7000 cycles in 20 years. Unfortunately, as shown in my energy storage Report, due to seasonal patterns of the wind and sun, much of the battery storage capacity needed to “firm” a wind/solar generation system will only go through one full charge and discharge cycle per year. Thus, for this part of the storage capacity, Lazard would appear to be understating the cost of the storage by a factor of 350.
Am I maybe interpreting this chart incorrectly? Perhaps. The Lazard people certainly don’t make it easy to figure out their assumptions. But the two issues that I have identified would be about right in their effects to explain the differences between the costs produced by Lazard, and the costs that I estimated, where the difference is about one to two orders of magnitude (that is, a factor of between 10 and 100).
Now, consider the question of whether cost figures in the Lazard Report are the result of rank incompetence versus intentional deception. Could the people at Lazard who produce all these fancy and complex charts and graphs really not know that 4 hour duration batteries cycling once per day are not going to come close to solving the intermittency problems of wind and solar generation? Or do they really know that, and they are just hoping to sell a few hundreds of billions of dollars worth of wind turbines and solar panels before the stupid politicians and investors figure out the scam?