Up to Twice as Expensive: A Key Resource for the Energy Transition Is Becoming Sharply More Expensive

The cost of building combined-cycle gas-fired plants will rise substantially, and the decision to build a combined-cycle gas power plant is currently at its most expensive in the past decade, according to a new analysis by Lazard examining the cost of electricity generation from individual sources. In the case of combined-cycle gas plants, this represents a major shift in the trend: plants being completed now remain relatively favourable in terms of capital costs, but building new facilities will become more expensive.  

Investment bank Lazard has for several years published an analysis comparing the cost of electricity generation from the main generating technologies in the US market. However, this cost overview is also valuable for Europe. The bank primarily compares technologies using their current levelized cost of energy (LCOE), but also indicates other valuable information on the capital intensity of individual technologies, including the costs that can be expected in the coming years.

Regarding future developments, the bank specifically commented on capital costs per unit of installed capacity for combined-cycle gas power plants. According to the bank, current electricity generation costs at modern combined-cycle gas turbine (CCGT) plants are so far only slightly higher than last year. However, in this assessment the bank considers only facilities commissioned now (or in the past 12 months). It therefore reports only a modest year-on-year increase.

By contrast, a significant shift is expected over the next few years. The market is facing a shortage of turbines, rising input prices and longer delivery times. These factors could raise the cost of electricity generated by combined-cycle gas plants as early as the next few years (the bank refers to plants commissioned after 2028).

While capital costs for plants currently being commissioned are estimated at between $1,200 and $1,600 per kW, an illustrative scenario indicates that capital costs for projects planned only after 2028 could climb to $2,400 to $2,600. This represents an almost twofold increase.

Although combined-cycle gas power plants are becoming more expensive, they remain cheaper than nuclear plants. For comparison, South Korean company KHNP plans to build a new nuclear unit in the Czech Republic with capital costs of approximately EUR 8,000 per installed kilowatt. In the US, these costs are even higher: according to Lazard's analysis, they range from $9,000 to $14,000 per kilowatt, as shown by calculated data from the construction of the Vogtle plant.

However, capital costs are only one component contributing to the total price of electricity generated by a power plant. A genuine comparison of different technologies must also include other items, especially fuel, maintenance and operating costs. Fuel costs in particular are substantially lower at nuclear power plants, as was evident due to high natural gas prices during 2021-2023. Only the sum of all these components, calculated per unit of electricity generated, enables a fair comparison of different technologies.

Combined-cycle gas capacity is also set to grow in the Czech Republic

Combined-cycle gas power plants are also set to expand domestically, helping to ensure sufficient electricity generation capacity in the period before the completion of new nuclear units at the Dukovany nuclear power plant site. Under the schedule, the units are not due to be built before 2036, but given the reality of nuclear power plant construction (and construction speeds in the Czech Republic generally), this will very likely happen later.

By contrast, a number of stable baseload sources are set to be phased out. The largest operators of coal-fired power plants have long warned that their operation will cease to be economically viable within just a few years.

It is specifically to support the construction of gas-fired capacity and ensure the economics of coal-fired power plants that an amendment to the Energy Act known as Lex Gas is being introduced. The amendment has passed through the legislative process in the Senate, which returned it to the Chamber of Deputies with proposed amendments.

As reported by Ekonomický deník, new large gas-fired combined heat and power plants are also to be built in the Czech Republic, for example in Opatovice, Komořany (both operated within the Energetický a průmyslový holding, a.s. (EPH) group), Mělník (operated by the ČEZ Group) and Třebovice (operated by Veolia Energie ČR). To ensure an economic return, these plants are expected to receive operating support from the state, which they secured in auctions organised by the Ministry of Industry and Trade.