The latest research on renewables shows that the levelied cost of energy is a function of learning as much as project costs.
When an industry is young, it’s considered to be risky, he says, so the cost of financing is high. But as experience in the industry grows, lenders and investors become more comfortable with the assets and are willing to offer more competitive rates, which also leads to lower costs. “It’s not just the upfront capital costs that can benefit from learning. Instead, it’s really all five or six LCOE inputs can benefit from learning by doing over time. All of them can contribute to lower costs.
The researchers determined LCOE-based learning rates were 15% for wind and 24% for solar. “Once you calculate those historical learning rates, you can then apply them to forward-looking deployment projections,” Bolinger says. For example, if by 2030 the cumulative deployment of wind doubled twice, it would imply a 30% reduction in the LCOE. “The whole thing about learning curves is that you’re looking at historical relationships, and then you’re extrapolating them.
Previously this kind of research was largely based on capital costs, which only focused on the upfront installment cost, probably because it’s easier to find empirical data on installment costs, but harder to gather additional data about the other costs involved in LCOE, according to Bolinger. “Your data intensity escalates quite a bit if you’re hoping to do this based on LCOE. But if you think about it, LCOE is really the correct metric you want to be using here because capital cost is just one of five or six inputs into the LCOE equation. And the industry, over time, has historically focused on optimizing or reducing LCOE rather than having a narrow focus on capital costs.”In their summary, the researchers focus on the historical declines in the cost of renewables.
“Though we portray these LCOE reductions over time, it is worth clarifying that within a learning curve framework, it is cumulative deployment, rather than time itself, that drives the cost reduction. In other words, a decline in LCOE over time is a manifestation, but not a direct measurement, of learning,” the researchers report.Mark Bolinger points out that there is a large amount of literature on learning rate and learning curve theory.
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