Cost metrics and calculations
– Levelized cost: Costs of renewable energy sources have declined, with solar panels being the most notable example.
– Levelized cost of energy (LCOE): Measures the average net present cost of electricity generation over the lifetime of a plant.
– Decline in costs: Renewable energy costs have significantly decreased, with 62% of total renewable power generation in 2020 being cheaper than the cheapest fossil fuel option.
– Learning curves: As deployment increases, renewables benefit from learning curves and economies of scale.
– Government decisions: Cost calculations help governments make decisions regarding energy policy.
– LCOE: Metric used to compare the costs of different electricity generation methods consistently.
– Controversial analysis: LCOE requires assumptions about non-financial costs and is often presented as the minimum price to break even over the project’s lifetime.
– Calculation: LCOE is the net present value of all costs divided by the discounted total energy output.
– Non-financial costs: LCOE analysis considers environmental impacts, local availability, and other factors.
– Varying costs: LCOE varies depending on the method of electricity generation and location.
– LCOS: Similar to LCOE, but applied to energy storage technologies like batteries.
Levelized cost of storage
– LCOS: Similar to LCOE, but applied to energy storage technologies like batteries.
– Primary and secondary sources: Storage depends on a primary source of generation and incurs losses and potential emissions.
– Storage operation emissions: Net system CO2 emissions resulting from storage operation range from 104 to 407kg/MWh depending on location and assumptions.
– Inefficiencies: Losses occur due to inherent inefficiencies of storing electricity.
– Carbon intensity: If the primary source is not 100% carbon-free, storage can increase CO2 emissions.
Levelized avoided cost of electricity
– LACE: Considers the economic value that a source provides to the grid, accounting for dispatchability and the existing energy mix.
– Comparison: Non-dispatchable sources like wind or solar should be compared to LACE instead of LCOE.
– Value-cost ratio: When LACE is greater than LCOE, the project is considered economically feasible.
– EIA recommendation: The US Energy Information Administration recommended using LACE for comparing non-dispatchable sources.
– Economic value: LACE reflects the avoided costs from other sources divided by the annual output of the non-dispatchable source.
Value-adjusted levelized cost of electricity
– VALCOE: Metric devised by the International Energy Agency, considering both the cost of electricity and its value to the electricity system.
– Time-dependent value: Electricity is more valuable during peak demand periods.
– Limitations: VALCOE does not account for future changes in the electricity system.
– Peak demand: VALCOE recognizes the higher value of electricity during peak demand periods.
– Future considerations: VALCOE does not consider potential changes in the electricity system, such as increased solar power.
Operations and maintenance (O&M) costs and comparability of different power sources
– O&M costs include marginal costs of fuel, maintenance, operation, waste storage, and decommissioning for an electricity generation facility.
– Fuel costs tend to be highest for oil-fired generation, followed by coal, gas, biomass, and uranium.
– The cost balance between capital and running costs tilts in favor of lower operating expenses for renewables and nuclear, and in the other direction for fossil fuels.
– Sovereign debt in high-income countries usually has lower interest rates, making nuclear and renewable power significantly cheaper with state investment or guarantees.
– Short-term fluctuations in fuel prices can have significant effects on the cost of energy generation in natural gas and oil-fired power plants.
– Capacity factors can vary greatly between different sources of power.
– Wind and solar applications can have capacity factors as low as 10-20% and as high as 50% for offshore wind.
– Nuclear power plants have capacity factors above 90%.
– Peaking power plants have particularly low capacity factors but sell electricity at high prices when supply does not meet demand.
– The average capacity factor of all commercial nuclear power plants in the world in 2020 was 80.3%.
– Factors affecting cost: State involvement or guarantees, rural electrification, fuel price fluctuations, carbon taxes or CO2 pricing, and local wages. Source: https://en.wikipedia.org/wiki/Cost_of_electricity_by_source
Different methods of electricity generation can incur a variety of different costs, which can be divided into three general categories: 1) wholesale costs, or all costs paid by utilities associated with acquiring and distributing electricity to consumers, 2) retail costs paid by consumers, and 3) external costs, or externalities, imposed on society.
Wholesale costs include initial capital, operations & maintenance (O&M), transmission, and costs of decommissioning. Depending on the local regulatory environment, some or all wholesale costs may be passed through to consumers. These are costs per unit of energy, typically represented as dollars/megawatt hour (wholesale). The calculations also assist governments in making decisions regarding energy policy.
On average the levelized cost of electricity from utility scale solar power and onshore wind power is less than from coal and gas-fired power stations, but this varies a lot depending on location.
