This is Dana Perkins and you're listening to Switched on the podcast brought to you by BNF, and today we're taking a closer look at levelized cost of electricity.

This is Dana Perkins and you're listening to Switched on the podcast brought to you by BNF, and today we're taking a closer look at levelized cost of electricity.

Now.

Now.

Typically, clean energy lcoez have been defined by falling costs, and twenty twenty four was no different. As the cost of producing clean power reached record lows, Financial conditions improved for clean power projects, and an oversupply of some renewable energy equipment nudged this along. Mature technologies such as solar, wind and energy storage led the way as prices fell, and BNF scenarios show that there is potential for some of these technologies to fall a further twenty to nearly fifty percent by twenty thirty five. On today's show, we talk about which clean power technology led the way and why hydrogen was such an outlier. Today I'm joined by amar Vezdev, a senior associate from BNF's Energy Economics team, and BNF's head of Hydrogen Research, Martin Tangler, and they share the find from the flagship report Levelized cost of Electricity Update twenty twenty five record lows. BNF clients can find it at BNF go on the Bloomberg Terminal or at BNF dot com. Now let's get to talking about l coees. Amar, thank you very much for joining today, Thanks for having me, Dana and Martin, great having you here too, Thanks Dana. So at BNIF, we have a few reports that we consider to be our flagship reports. These are things that cut across a number of different themes and teams here at BNF, and one of them is our levelized cost of Electricity, which I anticipate we'll refer to as l cooees from here on out. And it's a long standing report from the point that I got in this industry where you had so much policy intervention in order to essentially tip the scales on some clean energy sources, which we no longer see in many parts of the world as the levelized cost of life tricity has improved for many of these technologies, as they are more economically competitive in most parts of the world. What I really want to understand is now that we're at that place, now that we're not forecasting where the break even place is going to be for many of these technologies, why are we still looking at this so intensely and why are l cos? Why is it a flagship report for US.

Typically, clean energy lcoez have been defined by falling costs, and twenty twenty four was no different. As the cost of producing clean power reached record lows, Financial conditions improved for clean power projects, and an oversupply of some renewable energy equipment nudged this along. Mature technologies such as solar, wind and energy storage led the way as prices fell, and BNF scenarios show that there is potential for some of these technologies to fall a further twenty to nearly fifty percent by twenty thirty five. On today's show, we talk about which clean power technology led the way and why hydrogen was such an outlier. Today I'm joined by amar Vezdev, a senior associate from BNF's Energy Economics team, and BNF's head of Hydrogen Research, Martin Tangler, and they share the find from the flagship report Levelized cost of Electricity Update twenty twenty five record lows. BNF clients can find it at BNF go on the Bloomberg Terminal or at BNF dot com. Now let's get to talking about l coees. Amar, thank you very much for joining today, Thanks for having me, Dana and Martin, great having you here too, Thanks Dana. So at BNIF, we have a few reports that we consider to be our flagship reports. These are things that cut across a number of different themes and teams here at BNF, and one of them is our levelized cost of Electricity, which I anticipate we'll refer to as l cooees from here on out. And it's a long standing report from the point that I got in this industry where you had so much policy intervention in order to essentially tip the scales on some clean energy sources, which we no longer see in many parts of the world as the levelized cost of life tricity has improved for many of these technologies, as they are more economically competitive in most parts of the world. What I really want to understand is now that we're at that place, now that we're not forecasting where the break even place is going to be for many of these technologies, why are we still looking at this so intensely and why are l cos? Why is it a flagship report for US.

Yeah, good question, Dana. The LSU analysis is a company wide effort to track the cost of power projects. It's one of our longest standing publications. It started with just a small handful of technologies and now in its sixteenth year, we're looking at around twenty nine technologies across fifty four markets. So it really pulls together a lot of the analysis and a lot of the expertise across the company to understand a bunch of different cost items that contribute to overall project costs. So you can think of the LCUE in away as a summary of how financing terms have changed, how capex opics have evolved over over time, and if we could also just take a step back understand what an LCUE is. I think it's important to do that just because over the last few years we've noticed a concerted shift that are away from outright climate change denial to denying the solutions, and I think the LCUs A concept has taken a few strays there. So what is an LCUE. It's the long term inflation indexed off take price that a project developer needs to recoup all of the project costs, pay the taxes and hit the HERD or IRR, which is the internal rate of return. So that means it's a useful metric to summarize how individual costs have changed over time for a typical project in a given market, and it can also inform the economic competitiveness of power generating technologies in a given market, So it sends an investment signal for which assets are worth building to keep the lights on. As well as that. Internally, we take the individual cost components and we run them through our power models for our power market outlooks for our new energy outlook to provide a view and how power markets may evolve out to twenty fifty.

Yeah, good question, Dana. The LSU analysis is a company wide effort to track the cost of power projects. It's one of our longest standing publications. It started with just a small handful of technologies and now in its sixteenth year, we're looking at around twenty nine technologies across fifty four markets. So it really pulls together a lot of the analysis and a lot of the expertise across the company to understand a bunch of different cost items that contribute to overall project costs. So you can think of the LCUE in away as a summary of how financing terms have changed, how capex opics have evolved over over time, and if we could also just take a step back understand what an LCUE is. I think it's important to do that just because over the last few years we've noticed a concerted shift that are away from outright climate change denial to denying the solutions, and I think the LCUs A concept has taken a few strays there. So what is an LCUE. It's the long term inflation indexed off take price that a project developer needs to recoup all of the project costs, pay the taxes and hit the HERD or IRR, which is the internal rate of return. So that means it's a useful metric to summarize how individual costs have changed over time for a typical project in a given market, and it can also inform the economic competitiveness of power generating technologies in a given market, So it sends an investment signal for which assets are worth building to keep the lights on. As well as that. Internally, we take the individual cost components and we run them through our power models for our power market outlooks for our new energy outlook to provide a view and how power markets may evolve out to twenty fifty.

Well, I think the one, you know, one of the technologies which has been in this report for all sixteen years and probably does the best job of illustrating the fact that it has been typified by cost of clients from many of these, although we will come to that there are exceptions, has been solar. So can you talk a little bit about where solar is now? And our price is going to continue to fall because it feels like they have been falling forever.

Well, I think the one, you know, one of the technologies which has been in this report for all sixteen years and probably does the best job of illustrating the fact that it has been typified by cost of clients from many of these, although we will come to that there are exceptions, has been solar. So can you talk a little bit about where solar is now? And our price is going to continue to fall because it feels like they have been falling forever.

Yeah, we've seen some really remarkable cost reductions since we've been tracking the price of solar modules. Last year, solar manufacturers of selling the average module for around ten cents per what and so that's close to or below the cost of production we estimate, and so when we adjust for inflation, that's a ninety six percent reduction and price since twenty ten, so really dramatic drop. And that's the result of technology innovation, economies of scale, stiff price competition, manufacturing experience, and more recently, structural overcapacity. And what we see is if we focus on that over capacity angle, there's a significant amount of of solar module manufacturing capabilities around the world, mostly concentrated in China, and so the capacity is about double of what was installed last year in terror WAT terms, so around one point one terrawats of manufacturing capacity and around six hundred gigawats of capacity installed last year. And our Soda team forecasts out twenty thirty five annual editions of solar and so even there by twenty thirty five we only hit around nine hundred gigawats or so, so the extent of the overcapacity is significant, and so what that means is over the next few years at least anyway, this is a structural issue so it means that prices should stay around where they are now. They could go lower, but I think they'll stay around where they are.

Yeah, we've seen some really remarkable cost reductions since we've been tracking the price of solar modules. Last year, solar manufacturers of selling the average module for around ten cents per what and so that's close to or below the cost of production we estimate, and so when we adjust for inflation, that's a ninety six percent reduction and price since twenty ten, so really dramatic drop. And that's the result of technology innovation, economies of scale, stiff price competition, manufacturing experience, and more recently, structural overcapacity. And what we see is if we focus on that over capacity angle, there's a significant amount of of solar module manufacturing capabilities around the world, mostly concentrated in China, and so the capacity is about double of what was installed last year in terror WAT terms, so around one point one terrawats of manufacturing capacity and around six hundred gigawats of capacity installed last year. And our Soda team forecasts out twenty thirty five annual editions of solar and so even there by twenty thirty five we only hit around nine hundred gigawats or so, so the extent of the overcapacity is significant, and so what that means is over the next few years at least anyway, this is a structural issue so it means that prices should stay around where they are now. They could go lower, but I think they'll stay around where they are.

The other technology that is a really core part of the clean energy system is wind. Now we know that prices to fall and dramatically for onshore wind, but offshore wind was once considered extremely expensive and even floating wind was like a pie in the sky. Now we're starting to see some projects that are really coming to life, but let's focus on offshore wind, which has historically been quite expensive. Where are we now.

The other technology that is a really core part of the clean energy system is wind. Now we know that prices to fall and dramatically for onshore wind, but offshore wind was once considered extremely expensive and even floating wind was like a pie in the sky. Now we're starting to see some projects that are really coming to life, but let's focus on offshore wind, which has historically been quite expensive. Where are we now.

It still is expensive. But the good news is that when we look at the lceeour global benchmark, which is a capacity waste average of our market level LCUE estimates, we expect COSTER to decline by around nine percent from twenty twenty four through to the twenty twenty five and then out to twenty thirty five. So ten years ahead we estimate around a nine percent reduction. And so part of the reason there is because the sector has had notoriously a bad few years you could see, and so we think that there's still potential for cost recovery until the end of this decade, and so that will drive down the cost from quite a high point where they are today, and there are some regional differences between say China, where turbine prices are super low, and the Americas and Europe where prices are much higher.

It still is expensive. But the good news is that when we look at the lceeour global benchmark, which is a capacity waste average of our market level LCUE estimates, we expect COSTER to decline by around nine percent from twenty twenty four through to the twenty twenty five and then out to twenty thirty five. So ten years ahead we estimate around a nine percent reduction. And so part of the reason there is because the sector has had notoriously a bad few years you could see, and so we think that there's still potential for cost recovery until the end of this decade, and so that will drive down the cost from quite a high point where they are today, and there are some regional differences between say China, where turbine prices are super low, and the Americas and Europe where prices are much higher.

So sitting at the confluence of multiple different industries that have had skin in the game to see battery pack prices fall as consumer electronx vehicles and then stationary storage, and the stationary storage part of it is really important for the energy system because it helps balance our electricity supply. So how about battery pack prices, because there are another one of those stories where you've seen these really dramatic cost of clients because we're going to start off with the good and then we're going to take you to some of the areas of friction. So battery packs leave us on a high.

So sitting at the confluence of multiple different industries that have had skin in the game to see battery pack prices fall as consumer electronx vehicles and then stationary storage, and the stationary storage part of it is really important for the energy system because it helps balance our electricity supply. So how about battery pack prices, because there are another one of those stories where you've seen these really dramatic cost of clients because we're going to start off with the good and then we're going to take you to some of the areas of friction. So battery packs leave us on a high.

Yeah, I think it's important to look at the EV sector first, just because that is equivalent to five to six times the demand for lithiumine battery packs compared to the stationary storage segment, which is which is what we're looking at here today. And so as EV sales didn't grow as to the extent that was initially anticipated last year, that meant that pack prices fell and so when we translate that into LCUE terms, we saw around one hundred and four dollars per megal hour, and we expect this year that our global benchmark will fall below the one hundreds to around ninety six dollars per megal hour.

Yeah, I think it's important to look at the EV sector first, just because that is equivalent to five to six times the demand for lithiumine battery packs compared to the stationary storage segment, which is which is what we're looking at here today. And so as EV sales didn't grow as to the extent that was initially anticipated last year, that meant that pack prices fell and so when we translate that into LCUE terms, we saw around one hundred and four dollars per megal hour, and we expect this year that our global benchmark will fall below the one hundreds to around ninety six dollars per megal hour.

So renewables aren't the only thing that can see cost to clients. So let's talk about some of the more emitting parts of the energy value chain, kind of medium and then to high high being call medium being gas. We since we first started running this report, the US went from being an energy importer to an energy exporter, largely due to L ANDNG so liquefied natural gas. How do gas and then coal compare and are they experiencing cost to clients? Have things gotten more efficient, cheaper better on that side as well?

So renewables aren't the only thing that can see cost to clients. So let's talk about some of the more emitting parts of the energy value chain, kind of medium and then to high high being call medium being gas. We since we first started running this report, the US went from being an energy importer to an energy exporter, largely due to L ANDNG so liquefied natural gas. How do gas and then coal compare and are they experiencing cost to clients? Have things gotten more efficient, cheaper better on that side as well?

Yeah, So I think there's two parts to this. I think one is, yes, there are always technological improvements for coal and gas. They're much slower. For gas turbines, there are a lot slower. You do get efficiency gains, but slower than you would for renewables. But then on the flip side, in some markets you have higher financing costs and those are increasing because of higher perceived risk from investors. The risk of stranded assets in the face of climate goals push up the cost of capital. If we focus on the US, that's a really good example because this is one of the markets where it's like you said, in exporter and so fuel prices are really cheap, and fuel prices are really important to the LCUE, and so the US benefits from the cheapest combined cycle gas turbine LCU across the world for at least for the countries that we track. So yeah, fuel price is a very important component here. A few years ago, our long term view on prices was a little bit higher following Russia's invasion of Ukraine, but that now has price of called our long term views a bit lowers. That's also helped bring down the few the lcue's from twenty twenty two highs.

Yeah, So I think there's two parts to this. I think one is, yes, there are always technological improvements for coal and gas. They're much slower. For gas turbines, there are a lot slower. You do get efficiency gains, but slower than you would for renewables. But then on the flip side, in some markets you have higher financing costs and those are increasing because of higher perceived risk from investors. The risk of stranded assets in the face of climate goals push up the cost of capital. If we focus on the US, that's a really good example because this is one of the markets where it's like you said, in exporter and so fuel prices are really cheap, and fuel prices are really important to the LCUE, and so the US benefits from the cheapest combined cycle gas turbine LCU across the world for at least for the countries that we track. So yeah, fuel price is a very important component here. A few years ago, our long term view on prices was a little bit higher following Russia's invasion of Ukraine, but that now has price of called our long term views a bit lowers. That's also helped bring down the few the lcue's from twenty twenty two highs.

So, as I alluded to, not everything has experienced cost declines, and one technology has certainly been buzzy over the last couple of years. And Martin, this is where you come in what is happening with hydrogen Because in l COEZ they are typically typified by cost declines and this last year hydrogen was an outlier in a pretty big way. So where is hydrogen on l COEZ And why are plant costs rising?

So, as I alluded to, not everything has experienced cost declines, and one technology has certainly been buzzy over the last couple of years. And Martin, this is where you come in what is happening with hydrogen Because in l COEZ they are typically typified by cost declines and this last year hydrogen was an outlier in a pretty big way. So where is hydrogen on l COEZ And why are plant costs rising?

Yeah, so hydrogen costs or hybrid fired gas power plant levelized costs have gone up quite significantly since the last publication. Now there's one caveat here. This is green hydrogen fired, which means the costs of green hydrogen that we model have gone up. Now, why have the cost of green hydrogen, which is hydrogen made from renewable electricity, which itself has declined in costs as we just discussed, Why have those increased? It's because the cost of electrolyzers, so that's the machines that you use to split water into hydrogen oxygen, have gone up in our latest surveys. Now, why did the costs of electrolyzers go up so significantly? Part of it has to do with the fact that there was inflation and costs just went up across the board. But most of this increase has to do with the fact that when we were sending out surveys to companies just how we gather these costs. We're sending out surveys to companies. Until say twenty twenty two, people weren't really building any big electoralizer projects, and so all the costs we were getting were quite theoretical, and now people started building these big projects, and these projects started running over in costs quite significantly. So an example being the famous neon project in Saudi Arabia, which is currently the biggest electoralizer project under construction, ran over from an expected five billion dollars to over eight billion dollars eight point four billion dollars I believe in cost. And that's not the only project where this happened. And that has to do with the fact that people realize we're not just building the electoralizer, we have to buy all this other equipment, all these things. We were not anticipating that we need to invest into it, we need to consider now. And that's led to an increase in the price of electrolyzers and the cost of electoralizers. In turn the cost of green hydrogen. So if you then fire a gas plant with hydrogen with that hydrogen visa, that hydrogen is going to be more expensive. That electricity from that hygroen is also going to be more expensive. So long starch, that's what happened. I'd add one final point there, which means there's other ways to make hydrogen clean hydrogen, not gray from fossil fuels. You can make hydrogen from fossil fuels and capture the carbon that you release as a result. It's called blue hydrogen, and that would be cheaper to use in power than green hydrogen, certainly at the moment, but probably not cheaper than just using good old carbon capture and storage on a gas fired part.

Yeah, so hydrogen costs or hybrid fired gas power plant levelized costs have gone up quite significantly since the last publication. Now there's one caveat here. This is green hydrogen fired, which means the costs of green hydrogen that we model have gone up. Now, why have the cost of green hydrogen, which is hydrogen made from renewable electricity, which itself has declined in costs as we just discussed, Why have those increased? It's because the cost of electrolyzers, so that's the machines that you use to split water into hydrogen oxygen, have gone up in our latest surveys. Now, why did the costs of electrolyzers go up so significantly? Part of it has to do with the fact that there was inflation and costs just went up across the board. But most of this increase has to do with the fact that when we were sending out surveys to companies just how we gather these costs. We're sending out surveys to companies. Until say twenty twenty two, people weren't really building any big electoralizer projects, and so all the costs we were getting were quite theoretical, and now people started building these big projects, and these projects started running over in costs quite significantly. So an example being the famous neon project in Saudi Arabia, which is currently the biggest electoralizer project under construction, ran over from an expected five billion dollars to over eight billion dollars eight point four billion dollars I believe in cost. And that's not the only project where this happened. And that has to do with the fact that people realize we're not just building the electoralizer, we have to buy all this other equipment, all these things. We were not anticipating that we need to invest into it, we need to consider now. And that's led to an increase in the price of electrolyzers and the cost of electoralizers. In turn the cost of green hydrogen. So if you then fire a gas plant with hydrogen with that hydrogen visa, that hydrogen is going to be more expensive. That electricity from that hygroen is also going to be more expensive. So long starch, that's what happened. I'd add one final point there, which means there's other ways to make hydrogen clean hydrogen, not gray from fossil fuels. You can make hydrogen from fossil fuels and capture the carbon that you release as a result. It's called blue hydrogen, and that would be cheaper to use in power than green hydrogen, certainly at the moment, but probably not cheaper than just using good old carbon capture and storage on a gas fired part.

Give me a number martin these hydrogen fired plant costs. How much did it go up by?

Give me a number martin these hydrogen fired plant costs. How much did it go up by?

So overall the levelized cost of a hydrogen fired power plant went top sixty four percent in this new publication.

So overall the levelized cost of a hydrogen fired power plant went top sixty four percent in this new publication.

Okay, so then let's talk about that blue hydrogen. And I think this actually fits really well into this geopolitical landscape that everybody is talking about at the moment, which has to do with the United States and whether or not the Inflation Reduction Act will continue in its current form. I think we know within a degree of certainty that it will not continue in its current form. What the future looks like is another conversation. So with the US exporting natural gas so invariably having a lot of this LNG available to them, and hydrogen green hydrogen specifically being a part of the Inflation Reduction Act, and one of the parts of the clean energy economy that really benefited from it. What opportunity do you see presented for blue hydrogen in the US, And you know, are all of the forces kind of aligning to see this industry take off? How do you see the hydrogen story unfolding? And really the underlying question, which is a few steps removed, is do we expect to see this lcoe for hydrogen, specifically on blue to come down in the future and are we expecting that curve to essentially have these dramatic declines that we've seen in other industries over time.

Okay, so then let's talk about that blue hydrogen. And I think this actually fits really well into this geopolitical landscape that everybody is talking about at the moment, which has to do with the United States and whether or not the Inflation Reduction Act will continue in its current form. I think we know within a degree of certainty that it will not continue in its current form. What the future looks like is another conversation. So with the US exporting natural gas so invariably having a lot of this LNG available to them, and hydrogen green hydrogen specifically being a part of the Inflation Reduction Act, and one of the parts of the clean energy economy that really benefited from it. What opportunity do you see presented for blue hydrogen in the US, And you know, are all of the forces kind of aligning to see this industry take off? How do you see the hydrogen story unfolding? And really the underlying question, which is a few steps removed, is do we expect to see this lcoe for hydrogen, specifically on blue to come down in the future and are we expecting that curve to essentially have these dramatic declines that we've seen in other industries over time.

So blue hydrogen, so that's the hydrogen made from fossil fuels the conventional way, the way we make it today from natural gas, and then the carbon that's released, the CO two that's released being captured at maybe sixty to ninety percent or so of that CO two can be captured. Now, you were asking me about the US data, which I think is the right market to be asking about when it comes to blue because Europe, which is where we are all sitting right now, has a very strong bias towards green. So European Union wants to be using green hydrogen. It's legislated at target for the use of green hydrogen, and there are some discussions about potentially changing that, but that has not happened at this moment and will probably not happen in the next couple of months for sure. So that leaves really one place where this blue hydrogen is a big focus, which is the US. Now, why would anybody this is the question, why would anybody want to use blue hydrogen in the first place? In the US people use gray hydrogen today. Now, what's hydrogen used for in the first place. It's not for power generation? Why would you want to burn the hydrogen? It's very expensive to make. You might as well burn the gas from which you make it without making the hygien in the first place, to save money. So hydrogen is used for fertilizers, for production of ammonia, which is then used to make fertilizers, also used for oliver fining. Unless you have a user out there that's willing to pay for this additional cost of capturing the carbon and getting that blue hydrogen, which you don't right now in the US there's no such incentive, then domestic use of blue hygien is never going to happen, which is exactly what we're seeing. Not really many companies interested in using blue hydrogen domestically. There are, of course, some exceptions, but unbalance, that's the story. So the question for the US is who is going to buy this blue hygien outside of the US. And that's where we get to places like Japan and Korea, and that's where we tie this back to this question of l COOE levelized costs of electricity, because Japan, Korea, these East Asian countries, they want to generate electricity using ammonia co fired with coal in coal power plants. This ammonia, which is NH three chemically, so that's nitrogen and three hydrogens, is made using hydrogen, could be made using blue hydrogen. If you burn it, you reduce the emission. But as we've established, that is a very expensive thing to do, even before you converted to ammonia, and now you've got this additional step of converting it to ammonia. So the question is when will the Japanese and the Koreans, as we keep saying in pretty much all of our publications, when will they realize that this is economic madness and stop doing it. And in Korea, the signs are that that's actually already happening. First auction they had on our generation there was a disaster and bing F subscribers can take a look at that report that we published at the end of last year that reacted to this, to the results of this auction in Japan. The auctions will start happening this year, and we'll need to see what kind of prices we'll end up seeing, but it's surely going to be very, very expensive, more expensive than what we're showing for hydrogen. So that's the question for the US exporterers. Who's going to buy this blue hydrogen and without any domestic incentives and with the economics being relatively poor or without the incentives for using clean hydrogen in the first place. In much of the world, you may have task credits you does for blue, but it could still be a hard sell.

So blue hydrogen, so that's the hydrogen made from fossil fuels the conventional way, the way we make it today from natural gas, and then the carbon that's released, the CO two that's released being captured at maybe sixty to ninety percent or so of that CO two can be captured. Now, you were asking me about the US data, which I think is the right market to be asking about when it comes to blue because Europe, which is where we are all sitting right now, has a very strong bias towards green. So European Union wants to be using green hydrogen. It's legislated at target for the use of green hydrogen, and there are some discussions about potentially changing that, but that has not happened at this moment and will probably not happen in the next couple of months for sure. So that leaves really one place where this blue hydrogen is a big focus, which is the US. Now, why would anybody this is the question, why would anybody want to use blue hydrogen in the first place? In the US people use gray hydrogen today. Now, what's hydrogen used for in the first place. It's not for power generation? Why would you want to burn the hydrogen? It's very expensive to make. You might as well burn the gas from which you make it without making the hygien in the first place, to save money. So hydrogen is used for fertilizers, for production of ammonia, which is then used to make fertilizers, also used for oliver fining. Unless you have a user out there that's willing to pay for this additional cost of capturing the carbon and getting that blue hydrogen, which you don't right now in the US there's no such incentive, then domestic use of blue hygien is never going to happen, which is exactly what we're seeing. Not really many companies interested in using blue hydrogen domestically. There are, of course, some exceptions, but unbalance, that's the story. So the question for the US is who is going to buy this blue hygien outside of the US. And that's where we get to places like Japan and Korea, and that's where we tie this back to this question of l COOE levelized costs of electricity, because Japan, Korea, these East Asian countries, they want to generate electricity using ammonia co fired with coal in coal power plants. This ammonia, which is NH three chemically, so that's nitrogen and three hydrogens, is made using hydrogen, could be made using blue hydrogen. If you burn it, you reduce the emission. But as we've established, that is a very expensive thing to do, even before you converted to ammonia, and now you've got this additional step of converting it to ammonia. So the question is when will the Japanese and the Koreans, as we keep saying in pretty much all of our publications, when will they realize that this is economic madness and stop doing it. And in Korea, the signs are that that's actually already happening. First auction they had on our generation there was a disaster and bing F subscribers can take a look at that report that we published at the end of last year that reacted to this, to the results of this auction in Japan. The auctions will start happening this year, and we'll need to see what kind of prices we'll end up seeing, but it's surely going to be very, very expensive, more expensive than what we're showing for hydrogen. So that's the question for the US exporterers. Who's going to buy this blue hydrogen and without any domestic incentives and with the economics being relatively poor or without the incentives for using clean hydrogen in the first place. In much of the world, you may have task credits you does for blue, but it could still be a hard sell.

So as a fundamental premis, a country needs to ultimately care about carbon emissions for hard to abate in order for this to have a place, because the costs are extremely high when comparatively on an l COE basis and will continue to be because energy is made from energy. In that circumstance, with the exception of fertilizer, can you just point out really quickly whether or not that future still sits on the ammonia side, or is there enough competition from other sources a fertilizer that it is going to continue to have a difficult road when it comes to competition even there.

So as a fundamental premis, a country needs to ultimately care about carbon emissions for hard to abate in order for this to have a place, because the costs are extremely high when comparatively on an l COE basis and will continue to be because energy is made from energy. In that circumstance, with the exception of fertilizer, can you just point out really quickly whether or not that future still sits on the ammonia side, or is there enough competition from other sources a fertilizer that it is going to continue to have a difficult road when it comes to competition even there.

Yeah, So if you want to decarbonize fertilizers, now there's so many different kinds of fertilizers because plants need different chemicals. So famously they need NP and K, so that's nitrogen, phosphorus and potassium. The fertilizers that you make using a hydrogen and ammonia are the N fertilizers as a nitrogen based fertilizer, So the goal here actually is not to feed the plant with hydrogen. It is to feed it with nitrogen, and the hydrogen is the carrier of that nitrogen and you cannot really get away from that. So if you want people to eat, then you will need to continue making fertilizers. And today those N fertilizers, nitrogen based fertilizers are made from gray ammonia, so from ammonia made with natural gas, and you could reduce the emissions of that ammonia and the production of those fertilizers therefore by swapping the source of hydrogen from gray to blue or to green. Now, the important point to note is that even if you do that, you're actually only reducing your emissions from agriculture by a relatively small ten twenty thirty percent, And most of the emissions happen after the fertilizer has been applied to the field, and then you've got plenty of emissions of nitrous oxide from there, which is a very very strong greenhouse gas. So agriculture the organization is going to be very very difficult. But if you're going to do it, one part of the answer needs to be clean hydrogen.

Yeah, So if you want to decarbonize fertilizers, now there's so many different kinds of fertilizers because plants need different chemicals. So famously they need NP and K, so that's nitrogen, phosphorus and potassium. The fertilizers that you make using a hydrogen and ammonia are the N fertilizers as a nitrogen based fertilizer, So the goal here actually is not to feed the plant with hydrogen. It is to feed it with nitrogen, and the hydrogen is the carrier of that nitrogen and you cannot really get away from that. So if you want people to eat, then you will need to continue making fertilizers. And today those N fertilizers, nitrogen based fertilizers are made from gray ammonia, so from ammonia made with natural gas, and you could reduce the emissions of that ammonia and the production of those fertilizers therefore by swapping the source of hydrogen from gray to blue or to green. Now, the important point to note is that even if you do that, you're actually only reducing your emissions from agriculture by a relatively small ten twenty thirty percent, And most of the emissions happen after the fertilizer has been applied to the field, and then you've got plenty of emissions of nitrous oxide from there, which is a very very strong greenhouse gas. So agriculture the organization is going to be very very difficult. But if you're going to do it, one part of the answer needs to be clean hydrogen.

So I'm going to ask you a chicken in an egg question. So, harkening back to another flagship report we have that also was a podcast, so check it out, Energy Transition Investment Trends, we also saw in that that there was a real decline in the amount of investment in hydrogen. So something that was very buzzy is now looking like that investment community is starting to cool on the opportunity there. And the question is is it due to the poor l coees or is it the other way around. Are the lcoes more impacted by the decline and investment. Is it chicken or is it egg et t versus l COOE.

So I'm going to ask you a chicken in an egg question. So, harkening back to another flagship report we have that also was a podcast, so check it out, Energy Transition Investment Trends, we also saw in that that there was a real decline in the amount of investment in hydrogen. So something that was very buzzy is now looking like that investment community is starting to cool on the opportunity there. And the question is is it due to the poor l coees or is it the other way around. Are the lcoes more impacted by the decline and investment. Is it chicken or is it egg et t versus l COOE.

So I think data what you're saying is not LCOE, which is a levelized cost of electricity. About what you mean is LCOH levelized cost of hydrogen, because it's that hydrogen cost that matters, rather than the cost of the electricity made from that hydrogen, which is which which is a relatively niche use of the hydrogen. But the investment in hydrogen that we track has followen to about twenty four billion dollars in twenty twenty four from about forty seven billion dollars in twenty twenty three, So that's literally having in just a year. And in the end, it comes down to costs being high and therefore demand being low, and government incentives not being sufficient either bridge the gap between the high cost that it costs to make this green hydroen and the cost needed at which somebody would actually be willing to use it, or some harder incentives, some sticks like quotas, which we are starting to see emerge in places like Europe, but they're not coming into effect until twenty thirty. So why would you be investing now if you've got another five years to go. So that's the problem with hygien It's too expensive. There's therefore not enough demand, and the demand is not being incentivized sufficiently by governments, which in some cases it probably even shouldn't be. So I'm not saying it should be incentivized. I'm just saying it's not being incentivized, and therefore we're seeing a hydrogen falling.

So I think data what you're saying is not LCOE, which is a levelized cost of electricity. About what you mean is LCOH levelized cost of hydrogen, because it's that hydrogen cost that matters, rather than the cost of the electricity made from that hydrogen, which is which which is a relatively niche use of the hydrogen. But the investment in hydrogen that we track has followen to about twenty four billion dollars in twenty twenty four from about forty seven billion dollars in twenty twenty three, So that's literally having in just a year. And in the end, it comes down to costs being high and therefore demand being low, and government incentives not being sufficient either bridge the gap between the high cost that it costs to make this green hydroen and the cost needed at which somebody would actually be willing to use it, or some harder incentives, some sticks like quotas, which we are starting to see emerge in places like Europe, but they're not coming into effect until twenty thirty. So why would you be investing now if you've got another five years to go. So that's the problem with hygien It's too expensive. There's therefore not enough demand, and the demand is not being incentivized sufficiently by governments, which in some cases it probably even shouldn't be. So I'm not saying it should be incentivized. I'm just saying it's not being incentivized, and therefore we're seeing a hydrogen falling.

So let's soom weigh out and let's go to other parts of the world. There's one in Poticular where there have certainly been a number of government incentives when it comes to renewables, and we can talk about hydrogen as well. So we've talked about the US, let's talk about l coees in China. Are they an outlier too or are the coast dramatically cheaper? Because China is a manufacturer for many parts of the world for some of these technologies, it is essentially setting the standard all over the world.

So let's soom weigh out and let's go to other parts of the world. There's one in Poticular where there have certainly been a number of government incentives when it comes to renewables, and we can talk about hydrogen as well. So we've talked about the US, let's talk about l coees in China. Are they an outlier too or are the coast dramatically cheaper? Because China is a manufacturer for many parts of the world for some of these technologies, it is essentially setting the standard all over the world.

Yeah, China is really one of the big stories here, and so the country the market is really reaping the rewards of its clean tech manufacturing capabilities. It's dominance there as well as its access to coal. So we estimated that the market can produce a megal hour of electricity from those technologies at the cost that's around eleven to sixty four percent lower than the rest of the world, so really quite a quite large divergence from the rest of the world. If we look, for example, there are some notable examples here. So first we have standalone storage projects, so we estimated an LCE of around seventy three dollars per megwalt hour project in China, and the next cheapest market is Australia at one hundred and thirty one dollars per meg what hour, so that's around eighty percent more. And then if we look outside of China, on average costs are double. And again if we look at offshore wind so their costs around fifty nine dollars per meg what hour. We know that the sector has really struggled over the last few years outside of the China, and so the next closest market in terms of the LCUE is Denmark and there we estimate an LCUE of around ninety eight dollars per meg what hour, so around two thirds more. And then on average and off your wind farm outside of China, the cost there are triple those found inside the market, there are a few pockets where China is not the cheapest. So when it comes to solar and it comes to coal, India is in fact the cheapest. So they have strong domestic module manufacturing capabilities, and also, of course the country has slightly better solar yields, has access to low cost labor, and then on the coal front, has access to cheaper coal prices.

Yeah, China is really one of the big stories here, and so the country the market is really reaping the rewards of its clean tech manufacturing capabilities. It's dominance there as well as its access to coal. So we estimated that the market can produce a megal hour of electricity from those technologies at the cost that's around eleven to sixty four percent lower than the rest of the world, so really quite a quite large divergence from the rest of the world. If we look, for example, there are some notable examples here. So first we have standalone storage projects, so we estimated an LCE of around seventy three dollars per megwalt hour project in China, and the next cheapest market is Australia at one hundred and thirty one dollars per meg what hour, so that's around eighty percent more. And then if we look outside of China, on average costs are double. And again if we look at offshore wind so their costs around fifty nine dollars per meg what hour. We know that the sector has really struggled over the last few years outside of the China, and so the next closest market in terms of the LCUE is Denmark and there we estimate an LCUE of around ninety eight dollars per meg what hour, so around two thirds more. And then on average and off your wind farm outside of China, the cost there are triple those found inside the market, there are a few pockets where China is not the cheapest. So when it comes to solar and it comes to coal, India is in fact the cheapest. So they have strong domestic module manufacturing capabilities, and also, of course the country has slightly better solar yields, has access to low cost labor, and then on the coal front, has access to cheaper coal prices.

I would actually add on to what Amar was saying. China has very cheap renewables. It also has very cheap electrolyzers, so that's as I said earlier, the machines that make hydrogen by splitting water using electricity, which in turn means that our levelized cost of hydrogen analysis shows China is the cheapest place to make green hydrogen from renewables in the world today, which does give it opportunities to potentially export that hydrogen, most likely in the form of ammonia, because that's easier to export by ship than hydrogen itself into parts of the world where that's needed, and most likely that's going to be Europe where I've talked about those quotas coming in in twenty thirty and we have seen Chinese companies and I've seen actually quite a couple trying to get certified in order to be able to export this ammonia and this hydrogen out of China into the EU so that it can meet the quote does that the EU has created, which means China could become a important supplier of green hydrogen green p ammonia to Europe if Europe does not put on any kind of trade barriers on that hydroend ammonia, which so far it hasn't done that. But no, the kind of world we live in, you can never be quite sure what will happen in five years.

I would actually add on to what Amar was saying. China has very cheap renewables. It also has very cheap electrolyzers, so that's as I said earlier, the machines that make hydrogen by splitting water using electricity, which in turn means that our levelized cost of hydrogen analysis shows China is the cheapest place to make green hydrogen from renewables in the world today, which does give it opportunities to potentially export that hydrogen, most likely in the form of ammonia, because that's easier to export by ship than hydrogen itself into parts of the world where that's needed, and most likely that's going to be Europe where I've talked about those quotas coming in in twenty thirty and we have seen Chinese companies and I've seen actually quite a couple trying to get certified in order to be able to export this ammonia and this hydrogen out of China into the EU so that it can meet the quote does that the EU has created, which means China could become a important supplier of green hydrogen green p ammonia to Europe if Europe does not put on any kind of trade barriers on that hydroend ammonia, which so far it hasn't done that. But no, the kind of world we live in, you can never be quite sure what will happen in five years.

Yeah, And I think that speaks to a wider point as well, going back to the LCUVS that yes, China is reaping the rewards of low cost manufacturing within the country, but it is also benefiting other countries as well, like we've seen with soda and if you see with wind where manufacturing is regionalized, that's where you see higher costs outside of the country.

Yeah, And I think that speaks to a wider point as well, going back to the LCUVS that yes, China is reaping the rewards of low cost manufacturing within the country, but it is also benefiting other countries as well, like we've seen with soda and if you see with wind where manufacturing is regionalized, that's where you see higher costs outside of the country.

You know, tariffs are a really big buzzword, and I would argue that we don't know what's coming in the next couple of months as opposed to the next five years. If we're really thinking about it, but that will certainly have an impact on what next year is l coos look like depending upon the region, So we may have a very different region by regions to tell if we're sitting in this room having the same conversation in a year's time, Well, let's pivot to another technology that has been popping up again and again, but actually one that has been a part of the energy mix for a very long time, So that's nuclear. At our recent summit in San Francisco, so in February, we had a lot of people together talking about servers, so data centers specifically so data centers and increased energy demand due to a number of factors, but certainly AI is playing into this need for more data centers, and in that conversation some of these big tech companies, we're discussing how really adding capacity is extremely important, and yes, there will be more renewable energy capacity, but nuclear and then even some of the smaller location specific technologies like geothermal are starting to be discussed in a more concrete way. And the underlying question on this one is nuclear doesn't have great LCS, and we can go into that, but does it even matter if energy demand is going up? Pretty quickly, and this is your opportunity to essentially defend l COE s and why this exercise is or is not important to do in the future.

You know, tariffs are a really big buzzword, and I would argue that we don't know what's coming in the next couple of months as opposed to the next five years. If we're really thinking about it, but that will certainly have an impact on what next year is l coos look like depending upon the region, So we may have a very different region by regions to tell if we're sitting in this room having the same conversation in a year's time, Well, let's pivot to another technology that has been popping up again and again, but actually one that has been a part of the energy mix for a very long time, So that's nuclear. At our recent summit in San Francisco, so in February, we had a lot of people together talking about servers, so data centers specifically so data centers and increased energy demand due to a number of factors, but certainly AI is playing into this need for more data centers, and in that conversation some of these big tech companies, we're discussing how really adding capacity is extremely important, and yes, there will be more renewable energy capacity, but nuclear and then even some of the smaller location specific technologies like geothermal are starting to be discussed in a more concrete way. And the underlying question on this one is nuclear doesn't have great LCS, and we can go into that, but does it even matter if energy demand is going up? Pretty quickly, and this is your opportunity to essentially defend l COE s and why this exercise is or is not important to do in the future.

So I think with a nuclear we can go down two routes. We can go down the LCUE route, and we can also go down the route of what is practical and pragmatic, so on the on the route with the latter. So the last few nuclear projects across Europe across the US have experienced both costs over run, so that speaks to LCUE, but they've also experienced project delays. And so if you have demand grown rapidly from data centers, meeting that demand, it's no good if your power plant is going to be built in ten, fourteen, seventeen years from now, that demand really needs to be met in the next few years. So that's one reason outside of LUs why nuclear might not hold so much promise. And then if we speak in terms of in LCUE terms, if we talk through the economics, we estimate in the US a new nuclear rector would cost four hundred and forty five dollars per megal hour. We often get questions around this is one of the highest estimates that we've seen what's going on here, and we're quite confident in our numbers. We're using real project data here, and we looked at a study from MIT from the Advanced Nuclear Program, and that report outlined a number of cost reductions and improvements to construction that would also reduce the lead times. So when we factored those in, and we also factored in citing nuclear on retiring coal plants, so it could benefit from the existing infrastructure that was available. So we're talking grid connections here. As an example, we saw that the LCUE came down to around two hundred and thirty dollars per megal hour, and that is still triple that of a combined cycle gas turbine plant, and it's around fifty to eighty percent more than a solar or wind farm with storage located on site. So really on an LCUE basis, on a cost economic basis, maybe doesn't make so much sense.

So I think with a nuclear we can go down two routes. We can go down the LCUE route, and we can also go down the route of what is practical and pragmatic, so on the on the route with the latter. So the last few nuclear projects across Europe across the US have experienced both costs over run, so that speaks to LCUE, but they've also experienced project delays. And so if you have demand grown rapidly from data centers, meeting that demand, it's no good if your power plant is going to be built in ten, fourteen, seventeen years from now, that demand really needs to be met in the next few years. So that's one reason outside of LUs why nuclear might not hold so much promise. And then if we speak in terms of in LCUE terms, if we talk through the economics, we estimate in the US a new nuclear rector would cost four hundred and forty five dollars per megal hour. We often get questions around this is one of the highest estimates that we've seen what's going on here, and we're quite confident in our numbers. We're using real project data here, and we looked at a study from MIT from the Advanced Nuclear Program, and that report outlined a number of cost reductions and improvements to construction that would also reduce the lead times. So when we factored those in, and we also factored in citing nuclear on retiring coal plants, so it could benefit from the existing infrastructure that was available. So we're talking grid connections here. As an example, we saw that the LCUE came down to around two hundred and thirty dollars per megal hour, and that is still triple that of a combined cycle gas turbine plant, and it's around fifty to eighty percent more than a solar or wind farm with storage located on site. So really on an LCUE basis, on a cost economic basis, maybe doesn't make so much sense.

So, Amar, you just very tactfully discussed the nuclear issue, but you didn't get to my defense of l coees. So Martin, Amar, tell me why do they still have a place in our conversation and our consideration as we think about the energy future.

So, Amar, you just very tactfully discussed the nuclear issue, but you didn't get to my defense of l coees. So Martin, Amar, tell me why do they still have a place in our conversation and our consideration as we think about the energy future.

Well, I did make a post the other day on LinkedIn, which gathered some quite a lot of responses when it comes to hydrogen and l COOE, which is lots of people in like I was saying earlier in Asia, I want to talk about burning ammonia in co fired power plants. But what Amar's report LCOE report has found that even in places like Japan, we've actually reached what the l COOE team, what a MARS team calls tipping point two, which is one tipping point after tipping point one. What does tipping point two mean? And what does tipping point one mean? So tipping point one means what the l COE of a technology, say solar, gets below the LCOE of a fossil technology like coal, which has happened a while ago. But tipping point two means it's actually cheaper to build a new solar plant, new wind plant then to continue running an existing coal plant or gas plant. And that's where, according to the research that AMAR has published, we got in Japan in twenty twenty four. So why would Japan want to continue running its coal plants and make them even more expensive by adding ammonia into them instead of just building renewables which have reached this tipping point too, and are cheaper to build than to continue running those existing coal plants. So to me, that was a really really interesting finding from Amar's report. And I know there's lots of caveats there. The question around is the electricity from the solar firmed up with batteries, is that firm enough? Is that really comparable to the ammonia with coal. There's lots of lots of good arguments why we're still not there fully, but clearly this is showing a trend, and it's showing that we're getting to a world where building new solo new wind with batteries is going to be cheaper than running existing fossil assets, and making those assets even more expensive by adding ammonia or hydrogen is just economic suicide.

Well, I did make a post the other day on LinkedIn, which gathered some quite a lot of responses when it comes to hydrogen and l COOE, which is lots of people in like I was saying earlier in Asia, I want to talk about burning ammonia in co fired power plants. But what Amar's report LCOE report has found that even in places like Japan, we've actually reached what the l COOE team, what a MARS team calls tipping point two, which is one tipping point after tipping point one. What does tipping point two mean? And what does tipping point one mean? So tipping point one means what the l COE of a technology, say solar, gets below the LCOE of a fossil technology like coal, which has happened a while ago. But tipping point two means it's actually cheaper to build a new solar plant, new wind plant then to continue running an existing coal plant or gas plant. And that's where, according to the research that AMAR has published, we got in Japan in twenty twenty four. So why would Japan want to continue running its coal plants and make them even more expensive by adding ammonia into them instead of just building renewables which have reached this tipping point too, and are cheaper to build than to continue running those existing coal plants. So to me, that was a really really interesting finding from Amar's report. And I know there's lots of caveats there. The question around is the electricity from the solar firmed up with batteries, is that firm enough? Is that really comparable to the ammonia with coal. There's lots of lots of good arguments why we're still not there fully, but clearly this is showing a trend, and it's showing that we're getting to a world where building new solo new wind with batteries is going to be cheaper than running existing fossil assets, and making those assets even more expensive by adding ammonia or hydrogen is just economic suicide.

Yeah, I think, just to kind of bring up those caveats, you know, we do think about this very carefully, and we understand there's a lot of nuance. The lcuiesometric does miss as a metric that does summarize a bunch of cost items a bunch of makes a bunch of assumptions. Then, and so as I was saying before, this is why we take those individual cost components and we plug them into our power models to look at what this looks like on an hourly basis to meet demand for every hour of the year out twenty fifty. And so if we take our new Energy Outlook, which is another one of our flagship reports that I have the chance to work on, when we look at what an economics led transition looks like for the power sector, we see by twenty fifty renewables meet as much as seventy percent of all demand, and wind and so alone commander of fifty nine percent share. So that makes them kind of the true work courses of the transition to cleaner electricity supply under our economics lit scenario.

Yeah, I think, just to kind of bring up those caveats, you know, we do think about this very carefully, and we understand there's a lot of nuance. The lcuiesometric does miss as a metric that does summarize a bunch of cost items a bunch of makes a bunch of assumptions. Then, and so as I was saying before, this is why we take those individual cost components and we plug them into our power models to look at what this looks like on an hourly basis to meet demand for every hour of the year out twenty fifty. And so if we take our new Energy Outlook, which is another one of our flagship reports that I have the chance to work on, when we look at what an economics led transition looks like for the power sector, we see by twenty fifty renewables meet as much as seventy percent of all demand, and wind and so alone commander of fifty nine percent share. So that makes them kind of the true work courses of the transition to cleaner electricity supply under our economics lit scenario.

You certainly gave me a lot to think about. A lot of great data points here and really interesting themes. For a report that's been running for sixteen years. To have so many really thought provoking original findings this year, I think is really great. Somar Martin, thank you very much for joining today.

You certainly gave me a lot to think about. A lot of great data points here and really interesting themes. For a report that's been running for sixteen years. To have so many really thought provoking original findings this year, I think is really great. Somar Martin, thank you very much for joining today.

Thanks for having me, Dana, Thanks data.

Thanks for having me, Dana, Thanks data.

Today's episode of Switched On was produced by Cam Gray with production assistants from Kamala Shelling. Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment ad vice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg ANNIAF should not be considered as information sufficient upon which to base an investment decision. Neither m Burg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.

Today's episode of Switched On was produced by Cam Gray with production assistants from Kamala Shelling. Bloomberg NIF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment ad vice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg ANNIAF should not be considered as information sufficient upon which to base an investment decision. Neither m Burg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.