🌍 LCOE levels out #200

Happy Monday!

It’s our 200th edition — thanks for opening your inbox to us for so long. Here’s to 200 more. 🎉

Last week, Lazard released its annual levelized cost of energy (LCOE) report for 2024, highlighting a leveling out of renewables cost curves as higher interest rates continue to apply pressure.

In other news, European renewables are cannibalizing power prices; UK traders are speculating on carbon credits ahead of its election; and New York made a U-turn on congestion pricing.

In deals, $218m for home energy efficiency; $210m for biocarbon and biohydrogen; and $100m for laser compression fusion.

Plus, some Sightline Climate updates: We’re taking this Friday off, so expect us back next Monday. And we’re hiring for a Product Designer and Research Lead (check out our Careers page for more).

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Leveling with levelized costs of energy

Lazard dropped its annual Levelized Cost of Energy (LCOE) report for 2024 last week, with energy wonks quickly poring over the fine print to understand the changing supply, demand, and financing currents on renewables development.

Levelizing the playing field

LCOE calculates the lifetime costs of building and operating any kind of power plant, divided by its energy production. This helps to compare different technologies (e.g., wind, solar, natural gas) with varying lifespans, project sizes, capital costs, risks, returns, and capacity factors.

It can also be a useful heuristic for investors, who can compare average market prices to the LCOE of a potential project to gauge whether a project is in the green. However, it's not the only metric that matters: It doesn't account for certain key scaling factors, such as space requirements, geographical dependencies (like geothermal heat availability), or power price cannibalization. For instance, additional wind capacity can lead to higher curtailment of existing resources, reducing their output and raising LCOE.

Lazard's 2024 report examines LCOE in the US and includes the levelized costs of storage and hydrogen. This year, it highlights how macroeconomic forces, such as interest rates and the rise of AI, impact clean energy development.

What it says

LCOE leveling out. No surprise that wind and solar have been getting cheaper, with onshore wind and solar PV costs sliding down the curve from 65% to 83%, respectively, since 2009. But zooming into the last few years, there’s not only been a leveling out, but an LCOE uptick buoyed by the Ukraine crisis and supply chain challenges. Utility-scale solar PV has almost doubled from $36/MWh to $61/MWh in the last three years.

Lower highs, higher lows. The LCOE range is tightening compared to last year. In 2024, for the first time, the lower ends of the LCOE for wind and solar rose, as shown below, from $24/MWh in 2023 to $27/MWh in 2024 for onshore wind, and from $25/MWh in 2023 to $29/MWh in 2024 for solar. Lazard attributes this rise to ongoing cost pressures like high interest rates, while the overall range has contracted, reflecting improvements in supply chain challenges from the prior year.

Focus on clean, firm, reliable power. Even though it’s gone mainstream in just the past six months, it’s a common refrain by now — increasing power demand from AI, data centers, reindustrialization, onshoring, and electrification is driving up energy demand for the first time in decades. Despite the cost-competitiveness of renewable energy technologies, a diverse mix of generation fleets and firming resources like energy storage or combined cycle gas turbines are necessary to meet growing baseload power needs.

Key takeaways

Bigger players with the advantage. 2023 saw a widening range of prices — from the impact of the Ukraine invasion on power markets, as well as fallout from the pandemic’s supply chain challenges.
- The rising LCOE trend has continued this year, tipping the scales towards larger companies. Higher overall input costs could price out smaller players, as Lazard notes, with sizable and well-capitalized companies able to leverage economies of scale and a strong balance sheet to weather the macro storm.
Tax credits powers up renewables + storage, but hydrogen still in the dark. Key IRA tax provisions like the Investment Tax Credit (ITC), Production Tax Credit (PTC), and adders (Energy Community, Domestic Content) are sizable sweeteners for levelized cost, typically slicing 20-40% off the total cost stack.
- Storage in play. Now with IRA granting ITC eligibility for storage, the ITC combined with lower battery prices means that stationary storage is off to the races. Developers are even oversizing battery capacity to offset future degradation and juice project returns.
- Hydrogen halt. Meanwhile, hydrogen project development was stymied by uncertainty around the 45V credit, which offers up to $3/kg in tax credits and could lower LCOH by about 40%, according to Lazard. But the clean energy and hourly matching requirements in the final 45V guidance released in January will likely increase LCOH due to higher renewable power development costs and lower electrolyzer utilization rates.
Unfair for nuclear? Nuclear fares poorly in Lazard’s analysis, but their methodology arguably puts nuclear at a disadvantage. Lazard caps IRR to only the first 20 years of operation, which may justly reflect the lifespan of a solar or wind farm, but many expensive nuclear power plants built today are expected to last 60+ years — so high upfront costs drive up their LCOE. Plus, Lazard uses data from Vogtle 3 and Vogtle 4 in their analysis — but Vogtle 3 was the first new US nuclear facility built in 30+ years, so its significant costs wouldn't necessarily be shared if more were being built.
All eyes on next-gen climate tech and capital stacks. While renewables remain cost-competitive with fossil fuels and IRA tax credits continue to sweeten cost structures, the rapid decrease in renewables costs has been leveling out in the past few years. Now it’s up to climate tech innovation like gridtech, long-duration energy storage, next-gen nuclear, and CCS to accelerate the transition.

Deals of the Week (6/3 - 6/9)

Late-Stage / Growth

🥩 Prolific Machines, a San Francisco, CA-based cultured meat maker, raised $55m in Series B funding from Breakthrough Energy Ventures, Conti Ventures, Darco Capital, Fonterra The Ki Tua Fund, In-Q-Tel, and others.

⚡ Octopus Energy, a London, England-based renewable energy supplier, raised Growth funding from Galvanize Climate Solutions and Lightrock.

Early-Stage

⚡ Xcimer Energy Corporation, a Denver, CO-based laser compression fusion energy developer, raised $100m in Series A funding from Breakthrough Energy Ventures, Emerson Collective, Gigascale Capital, Hedosophia, Lowercarbon Capital, and others.

☔ Understory, a Madison, WI-based climate risk analytics and insurance platform, raised $15m in Series A funding from Prelude Ventures and True Ventures.

⚡ Qargo, a London, England-based fleet management software platform, raised $13m in Series A funding from Balderton Capital.

🔋 SiTration, a Cambridge, MA-based next-gen materials extractor, raised $12m in Seed funding from 2150, Azolla Ventures, BHP Ventures, Extantia Capital, Orion Industrial Ventures, and The E14 Fund.

☔ Mitiga Solutions, a Barcelona, Spain-based climate risk and resilience platform, raised $8.7m in Series A funding from CREAS Impacto, Elaia, and Kibo Ventures.

📦 Dealt, a Paris, France-based circular economy SaaS platform, raised $6.5m in Series A funding from GO CAPITAL, Holnest, La Poste Ventures, and One Green.

🧱 ecoLocked, a Berlin, Germany-based CO2-optimized building materials maker, raised $4.3m in Seed funding from Climentum Capital, Counteract, Matterwave Ventures, SFO, Sabanci Building Solutions, and Voyagers Climate Tech Fund.

🌾 IntelliCulture, a Kitchener, Canada-based farm management software platform, raised **$3.5m** in Seed funding from Emmertech, Serra Ventures, and Tall Grass Ventures.

🌱 LogicLadder, a Gurgaon, India-based sustainability management platform, raised $2.5m in Series A funding from BIG Capital LLC, IIML - Enterprise Incubation Centre, ONGC, Rainmatter Capital, and Shell Ventures.

Other

🏠 Aira, a Stockholm, Sweden-based home energy efficiency platform, raised $218m in Debt funding from BNP Paribas.

⚡ Aymium, a Gwinn, MI-based biocarbon and biohydrogen producer, raised $210m in Project Finance funding from Copenhagen Infrastructure Partners, ECP ForeStar, Hokuriku Electric, Japan Green Investment Corporation for Carbon Neutrality, and Nippon Steel Trading.

⚡ HydrogenPro, a Porsgrunn, Norway-based hydrogen electrolyzers developer, raised $5.1m in Grant funding from Export and Investment Fund of Denmark.

🛵 Gogoro, a Taoyuan, Taiwan-based electric scooters and battery swapping platform, raised $50m in Post-IPO equity funding from Gold Sino Assets Limited.

⚡ Energy Park, a Harpenden, England-based smart EV charging solutions platform, raised $45m in PE Expansion funding from Zouk Capital.

🐄 eFishery, a Bandung, Indonesia-based aquaculture technology company, raised $30m in Debt funding from HSBC.

New Funds

Creandum, a Stockholm, Sweden-based investment firm, held a final close of their $543m fund that invests in early-stage companies.

Pollination, a London, UK-based investment firm, held a final close for their $150m fund that invests in early-stage companies working on climate and nature-based solutions.

Can’t get enough deals? See full listings and deal analytics on Sightline Climate

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In the News

Europe’s power markets have been experiencing frequent negative electricity prices due to an oversupply from productive solar and wind sources. This trend of power price cannibalization, where building renewables creates conditions that disincentive more development, raises concerns among investors about how much more renewable power can be built into the $800bn market.

Traders placed heavy bets on a rise in UK carbon credit prices, anticipating stricter climate policies from a potential incoming Labour government. The benchmark price for UK carbon allowances has increased by 9% since the election was called.

The majority of EU countries pushed to dilute new rules designed to prevent greenwashing, amid mounting political pressure to ease the bloc's climate legislation. This move comes as the EU prepares for elections, with the Green Deal's stringent measures becoming a contentious campaign issue.

The US DOE announced a National Definition for Zero Emissions Buildings as energy efficient, free of onsite emissions from energy use, and powered solely from clean energy. Elsewhere in DOE, the Office of Fusion Energy Sciences intensified its support for fusion research with an additional $180m in funding.

A new IEA report showed global investment in clean energy is projected to reach $2 trillion in 2024, nearly double that of fossil fuels. While improved supply chains and reduced technology costs are driving this positive development, new clean energy projects must still overcome high financing costs, especially in emerging and developing economies.

New York took a U-turn on congestion pricing: NY Gov. Kathy Hochul decided to halt congestion pricing, missing an opportunity to reduce emissions and support public transit. The plan, which was set to charge $15 a day for cars entering Manhattan, faced opposition due to concerns over its impact on low-income drivers and political considerations in suburban districts.

A signal of advanced geothermal progress, Massachusetts launched the first utility-operated underground thermal energy network in the US, to shift from gas utilities to clean heat in a pilot project in Framingham, MA. The $14m project, which uses geothermal wells to supply heat to buildings, will serve as a critical test for scaling similar initiatives nationwide.

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Opportunities & Events

📅 London Tech Week: Register to attend London Tech Week on June 10-12th to engage with innovators, investors, and tech companies.

📅 Climate Tech Summit UK: Register to attend the 2024 Climate Tech Conference on June 12-13th to network with hundreds of delegates and climate tech professionals.

📅 Hack Summit: Register to attend the Hack Summit from June 13-14th in Switzerland for two days of networking and deal-making with climate founders, funders, and LPs.

📅 London Climate Action Week: London’s own climate week will be June 22-30th with 200+ in-person and virtual events and 45,000+ attendees. If you’re in town, shoot us a note!

💡 Environmental Tech Lab: Apply to participate in the 2024 Environmental Tech Lab Data Management or Resilience cohort by August 1 for an opportunity to engage with and discuss innovative solutions with the NYC Department of Environmental Protection (DEP).