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The cost of electricity (typically cents/kWh, Euro/kWh, Euro or $/MWh) generated by different sources is a calculation of the cost of generating electricity at the point of connection to a load or electricity grid. It includes the initial capital, discount rate, as well as the costs of continuous operation, fuel, and maintenance. This type of calculation assists policy makers, researchers and others to guide discussions and decision making.
While calculating costs, several internal cost factors have to be considered. (Note the use of "costs," which is not the actual selling price, since this can be affected by a variety of factors such as subsidies and taxes):
To evaluate the total cost of production of electricity, the streams of costs are converted to a net present value using the time value of money. These costs are all brought together using discounted cash flow. The marginal cost of production at very low levels of output should be relatively low. Small amount of wind due to nature would result in very low levels of output. However, the wind turbine is the initial investment of producing wind energy; therefore, once the turbine has been built, not much money will be invested into producing wind energy other than maintenance. Having a very low level of output means the turbines have already been built, but since wind is free, to produce an extra unit of energy solely depends on nature, which in this case, wind is free. Therefore, the marginal cost would be relatively low due to the fact that wind, the energy source is free and the maintenance of the turbines would be relatively low. Wind power normally has a low marginal cost (zero fuel costs) and therefore enters near the bottom of the supply curve. This shifts the supply curve to the right, resulting in a lower power price, depending on the price elasticity of the power demand. In general, the price of power is expected to be lower during periods with high wind than in periods with low wind. As mentioned above, there may be congestions in power transmission, especially during periods with high wind power generation. Thus, if the available transmission capacity cannot cope with the required power export, the supply area is separated from the rest of the power market and constitutes its own pricing area. With an excess supply of power in this area, conventional power plants have to reduce their production, since it is generally not possible to limit the power production of wind. In most cases, this will lead to a lower power price in this sub-market.
Levelized Energy Cost (LEC, also known as Levelised Cost of Energy, abbreviated as LCOE) is the price at which electricity must be generated from a specific source to break even over the lifetime of the project. It is an economic assessment of the cost of the energy-generating system including all the costs over its lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital, and is very useful in calculating the costs of generation from different sources.
It can be defined in a single formula as:
Typically LECs are calculated over 20 to 40 year lifetimes, and are given in the units of currency per kilowatt-hour, for example AUD/kWh or EUR/kWh or per megawatt-hour, for example AUD/MWh (as tabulated below). However, care should be taken in comparing different LCOE studies and the sources of the information as the LCOE for a given energy source is highly dependent on the assumptions, financing terms and technological deployment analyzed. In particular, assumption of Capacity factor has significant impact on the calculation of LCOE. For example, Solar PV may have a Capacity Factor as low as 10% depending on location. Thus, a key requirement for the analysis is a clear statement of the applicability of the analysis based on justified assumptions.
When comparing LECs for alternative systems, it is very important to define the boundaries of the 'system' and the costs that are included in it. For example, should transmissions lines and distribution systems be included in the cost? Typically only the costs of connecting the generating source into the transmission system is included as a cost of the generator. But in some cases wholesale upgrade of the Grid is needed. Careful thought has to be given to whether or not these costs should be included in the cost of power.
Should R&D, tax, and environmental impact studies be included? Should the costs of impacts on public health and environmental damage be included? Should the costs of government subsidies be included in the calculated LEC?
Another key issue is the decision about the value of the discount rate . The value that is chosen for can often 'weigh' the decision towards one option or another, so the basis for choosing the discount must clearly be carefully evaluated. See internal rate of return. A UK government study in 2011 concluded that the appropriate discount rate to analyse UK government programs was not the actual cost of capital, but 3.5%.
A more telling economic assessment might be the marginal cost of electricity. This value would serve the purpose of comparing the added cost of increasing electricity generation by one unit from different sources of electricity generation (see Merit Order).
The US Energy Information Administration has cautioned that levelized costs of non-dispatchable sources such as wind or solar should be compared to the avoided energy cost rather than the levelized cost of dispatchable sources such as fossil fuels or geothermal. This is because introduction of fluctuating power sources may or may not avoid capital and maintenance costs of backup dispatchable sources.
The tables below list the estimated cost of electricity by source for plants entering service in 2018. The tables are from a January 2013 report of the Energy Information Administration (EIA) of the U.S. Department of Energy (DOE) called "Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013".
No tax credits or incentives are incorporated in the tables. From the EIA report (emphasis added):
All generating types are assumed to have the same 30-year cost recovery period, regardless of the expected lifetime of the plant. From the EIA report:
|U.S. Average Levelized Cost for Plants Entering Service in 2018|
|Advanced Coal with CCS||85||88.4||8.8||37.2||1.2||135.5|
|Natural Gas Fired|
|NG: Conventional Combined Cycle||87||15.8||1.7||48.4||1.2||67.1|
|NG: Advanced Combined Cycle||87||17.4||2.0||45.0||1.2||65.6|
|NG: Advanced CC with CCS||87||34.0||4.1||54.1||1.2||93.4|
|NG: Conventional Combustion Turbine||30||44.2||2.7||80.0||3.4||130.3|
|NG: Advanced Combustion Turbine||30||30.4||2.6||68.2||3.4||104.6|
|Wind - Offshore1||37||193.4||22.4||0.0||5.7||221.5|
|Plant Type||Range for Total System Levelized Costs|
|Advanced Coal with CCS||129.6||140.7||162.4|
|Natural Gas Fired|
|Conventional Combined Cycle||61.8||68.6||88.1|
|Advanced Combined Cycle||58.9||65.5||83.3|
|Advanced CC with CCS||82.8||92.8||110.9|
|Conventional Combustion Turbine||94.6||132.0||164.1|
|Advanced Combustion Turbine||80.4||105.3||133.0|
OpenEI, sponsored jointly by the US DOE and the National Renewable Energy Laboratory, has compiled a historical cost-of-generation database covering a wide variety of generation sources. Because the data is open source it may be subject to frequent revision.
|Plant Type||Levelized Cost of|
|Natural Gas Combined Cycle||70||50||10||1.68||0.88||0.51||45.60||13.71||5.50||8.09||2.86||1.29||93||84.6||40|
|Natural Gas Combustion Turbine||110||70||60||8.09||5.74||3.20||14.52||10.53||5.26||29.90||3.57||2.67||92||80||10|
|Coal, pulverized, scrubbed||120||50||10||8.40||1.92||0.56||33.60||27.50||13.08||5.90||3.70||1.62||93||84.6||80|
|Coal, pulverized, unscrubbed||40||40||40||5.01||4.45||3.94||84.6|
|Coal, integrated gasification|
In March 2010, a new report on UK levelised generation costs was published by Parsons Brinckerhoff. It puts a range on each cost due to various uncertainties. Combined cycle gas turbines without CO2 capture are not directly comparable to the other low carbon emission generation technologies in the PB study. The assumptions used in this study are given in the report.
|Technology||Cost range (£/MWh)|
|New nuclear||80–105. 92.50 guaranteed from 2023|
|Natural gas turbines with CO2 capture||60–130|
|Coal with CO2 capture||100–155|
|Natural gas turbine, no CO2 capture||55–110|
Divide the above figures by 10 to obtain the price in pence per kilowatt-hour.
The International Agency for the Energy and EDF have estimated for 2011 the following costs. For the nuclear power they include the costs due to new safety investments to upgrade the French nuclear plant after the Fukushima Daiichi nuclear disaster; the cost for those investments is estimated at 4 €/MWh. Concerning the solar power the estimate at 293 €/MWh is for a large plant capable to produce in the range of 50-100 GWh/year located in a favorable location (such as in Southern Europe). For a small household plant capable to produce typically around 3 MWh/year the cost is according to the location between 400 and 700 €/MWh. Currently solar power is by far the most expensive renewable source to produce electricity, although increasing efficiency and longer lifespan of photovoltaic panels together with reduced production costs could make this source of energy more competitive.
|Natural gas turbines without CO2 capture||61|
|█ Conventional oil||█ Unconventional oil||█ Biofuels||█ Coal||█ Nuclear||█ Wind|
|Colored vertical lines indicate various historical oil prices. From left to right:|
|— 1990s average||— January 2009||— 1979 peak||— 2008 peak|
A draft report of LECs used by the California Energy Commission is available. From this report, the price per MWh for a municipal energy source is shown here:
Note that the above figures incorporate tax breaks for the various forms of power plants. Subsidies range from 0% (for Coal) to 14% (for nuclear) to over 100% (for solar).
The following table gives a selection of LECs from two major government reports from Australia. Note that these LECs do not include any cost for the greenhouse gas emissions (such as under carbon tax or emissions trading scenarios) associated with the different technologies.
|Nuclear (to COTS plan)||40–70|
|Nuclear (to suit site; typical)||75–105|
|Coal: IGCC + CCS||53–98|
|Coal: supercritical pulverized + CCS||64–106|
|Open-cycle Gas Turbine||101|
|Hot fractured rocks||89|
|Gas: combined cycle||37–54|
|Gas: combined cycle + CCS||53–93|
|Small Hydro power||55|
|Wind power: high capacity factor||63|
In 1997 the Trade Association for Wind Turbines (Wirtschaftsverband Windkraftwerke e.V. –WVW) ordered a study into the costs of electricity production in newly constructed conventional power plants from the Rheinisch-Westfälischen Institute for Economic Research –RWI). The RWI predicted costs of electricity production per kWh for the basic load for the year 2010 as follows:
|Fuel||Cost per kilowatt hour in euro cents.|
|Nuclear Power||10.7 €ct – 12.4 €ct|
|Brown Coal (Lignite)||8.8 €ct – 9.7 €ct|
|Black Coal (Bituminous)||10.4 €ct – 10.7 €ct|
|Natural gas||11.8 €ct – 10.6 €ct.|
The part of a base load represents approx. 64% of the electricity production in total. The costs of electricity production for the mid-load and peak load are considerably higher. There is a mean value for the costs of electricity production for all kinds of conventional electricity production and load profiles in 2010 which is 10.9 €ct to 11.4 €ct per kWh. The RWI calculated this on the assumption that the costs of energy production would depend on the price development of crude oil and that the price of crude oil would be approx. 23 US$ per barrel in 2010. In fact the crude oil price is about 80 US$ in the beginning of 2010. This means that the effective costs of conventional electricity production still need to be higher than estimated by the RWI in the past.
The WVW takes the legislative feed-in-tariff as basis for the costs of electricity production out of renewable energies because renewable power plants are economically feasible under the German law (German Renewable Energy Sources Act-EEG).
The following figures arise for the costs of electricity production in newly constructed power plants in 2010:
|Energy source||Costs of electricity production in euros per megawatt hour|
|Nuclear Energy||107.0 – 124.0|
|Brown Coal||88.0 – 97.0|
|Black Coal||104.0 – 107.0|
|Domestic Gas||106.0 – 118.0|
|Wind Energy Onshore||49.7 – 96.1|
|Wind Energy Offshore||35.0 – 150.0|
|Hydropower||34.7 – 126.7|
|Biomass||77.1 – 115.5|
|Solar Electricity||284.3 – 391.4|
A 2010 study by the Japanese government (pre-Fukushima disaster), called the Energy White Paper, concluded the cost for kilowatt hour was ¥49 for solar, ¥10 to ¥14 for wind, and ¥5 or ¥6 for nuclear power. Masayoshi Son, an advocate for renewable energy, however, has pointed out that the government estimates for nuclear power did not include the costs for reprocessing the fuel or disaster insurance liability. Son estimated that if these costs were included, the cost of nuclear power was about the same as wind power.
The raw costs developed from the above analysis are only part of the picture in planning and costing a large modern power grid. Other considerations are the temporal load profile, i.e. how load varies second to second, minute to minute, hour to hour, month to month. To meet the varying load, generally a mix of plant options is needed, and the overall cost of providing this load is then important. Wind power has poor capacity contribution, so during windless periods, some form of back up must be provided. All other forms of power generation also require back up, though to a lesser extent. To meet peak demand on a system, which only persist for a few hours per year, it is often worth using very cheap to build, but very expensive to operate plant - for example some large grids also use load shedding coupled with diesel generators  at peak or extreme conditions - the very high kWh production cost being justified by not having to build other more expensive capacity and a reduction in the otherwise continuous and inefficient use of spinning reserve (see Operating reserve).
In the case of wind energy, the additional costs in terms of increased back up and grid interconnection to allow for diversity of weather and load may be substantial. This is because wind stops blowing frequently even in large areas at once and for prolonged periods of time. Some wind advocates have argued that in the pan-European case back up costs are quite low, resulting in overall wind energy costs about the same as present day power. However, such claims are generally considered too optimistic, except possibly for some marginal increases that, in particular circumstances, may take advantage of the existing infrastructure.
The cost in the UK of connecting new offshore wind in transmission terms, has been consistently put by Grid/DECC/Ofgem at £15billion by 2020. This £15b cost does not include the cost of any new connections to Europe - interconnectors, or a supergrid, as advocated by some. The £15b cost is the cost of connecting offshore wind farms by cables typically less than 12 km in length, to the UK's nearest suitable onshore connection point. There are total forecast onshore transmission costs of connecting various new UK generators by 2020, as incurred from 2010, of £4.7 billion, by comparison.
When a new plant is being added to a power system or grid, the effects are quite complex - for example, when wind energy is added to a grid, it has a marginal cost associated with production of about £20/MWh (most incurred as lumpy but running-related maintenance - gearbox and bearing failures, for instance, and the cost of associated downtime), and therefore will always offer cheaper power than fossil plant - this will tend to force the marginally most expensive plant off the system. A mid range fossil plant, if added, will only force off those plants that are marginally more expensive. Hence very complex modelling of whose systems is required to determine the likely costs in practice of a range of power generating plant options, or the effect of adding a given plant.
With the development of markets, it is extremely difficult for would-be investors to estimate the likely impacts and cost benefit of an investment in a new plant, hence in free market electricity systems, there tends to be an incipient shortage of capacity, due to the difficulties of investors accurately estimating returns, and the need to second guess what competitors might do.
The Institution of Engineers and Shipbuilders in Scotland commissioned a former Director of Operations of the British National Grid, Colin Gibson, to produce a report on generation levelised costs that for the first time would include some of the transmission costs as well as the generation costs. This was published in December 2011 and is available on the internet :. The institution seeks to encourage debate of the issue, and has taken the unusual step among compilers of such studies of publishing a spreadsheet showing its data available on the internet :
|Technology||Nuclear||Coal||Gas||Onshore Wind||Offshore Wind||Solar|
|Backup costs (adequacy)||0.00||0.00||0.04||0.04||0.00||0.00||5.61||6.14||2.10||6.85||0.00||10.45|
|Grid reinforcement & extension||0.00||0.00||0.00||0.00||0.00||0.00||2.20||2.20||1.18||1.18||2.77||2.77|
|Total Grid-level System Costs||1.72||1.67||1.07||1.07||0.51||0.51||16.30||19.84||20.51||28.26||14.82||28.27|
Typically pricing of electricity from various energy sources may not include all external costs - that is, the costs indirectly borne by society as a whole as a consequence of using that energy source. These may include enabling costs, environmental impacts or beyond-insurance accident effects.
The US Energy Information Administration predicts that coal and gas are set to be continually used to deliver the majority of the world's electricity, this is expected to result in the evacuation of millions of homes in low lying areas, and an annual cost of hundreds of billions of dollars' worth of property damage.
Furthermore, with the ongoing process of whole nations being slowly plunged underwater, due to fossil fuel use, massive international climate litigation lawsuits against fossil fuel users are currently beginning in the International Court of Justice.
An EU funded research study known as ExternE, or Externalities of Energy, undertaken over the period of 1995 to 2005 found that the cost of producing electricity from coal or oil would double over its present value, and the cost of electricity production from gas would increase by 30% if external costs such as damage to the environment and to human health, from the particulate matter, nitrogen oxides, chromium VI, river water alkalinity, mercury poisoning and arsenic emissions produced by these sources, were taken into account. It was estimated in the study that these external, downstream, fossil fuel costs amount up to 1%-2% of the EU’s entire Gross Domestic Product (GDP), and this was before the external cost of global warming from these sources was even included. 
Nuclear power has largely worked under an insurance framework that limits or structures accident liabilities in accordance with the Paris convention on nuclear third-party liability, the Brussels supplementary convention, and the Vienna convention on civil liability for nuclear damage and in the U.S. the Price-Anderson Act. It is often argued that this potential shortfall in liability represents an external cost not included in the cost of nuclear electricity.
However these beyond-insurance costs for worst case scenarios are not unusual to nuclear power, as hydroelectric power plants are similarly not fully insured against a catastrophic event such as the Banqiao Dam disaster, where 11 million people lost their homes and from 30,000 to 200,000 people died, or large dam failures in general. As private insurers base dam insurance premiums on limited scenarios, major disaster insurance in this sector is likewise provided by the state. Also of note is that more modern reactors than those of the Fukushima Daiichi Nuclear Power Plant vintage, such as the proven Onagawa nuclear plant design, demonstrated that it can survive 13 meter high tsunamis and safely shut down without incident, despite being the closest nuclear plant to the epicenter of the 2011 earthquake and tsunami.
Photovoltaic prices have fallen from $76.67/Watt in 1977 to an estimated $0.74/Watt in 2013, for crystalline silicon solar cells. This is seen as evidence supporting Swanson's law, an observation similar to the famous Moore's Law that states that solar cell prices fall 20% for every doubling of industry capacity.
As of 2011, the price of PV modules per MW has fallen by 60% since the summer of 2008, according to Bloomberg New Energy Finance estimates, putting solar power for the first time on a competitive footing with the retail price of electricity in a number of sunny countries; an alternative and consistent price decline figure of 75% from 2007 to 2012 has also been published, though it is unclear whether these figures are specific to the United States or generally global. The levelised cost of electricity (LCOE) from PV is competitive with conventional electricity sources in an expanding list of geographic regions, particularly when the time of generation is included, as electricity is worth more during the day than at night. There has been fierce competition in the supply chain, and further improvements in the levelised cost of energy for solar lie ahead, posing a growing threat to the dominance of fossil fuel generation sources in the next few years. As time progresses, renewable energy technologies generally get cheaper, while fossil fuels generally get more expensive:
The less solar power costs, the more favorably it compares to conventional power, and the more attractive it becomes to utilities and energy users around the globe. Utility-scale solar power can now be delivered in California at prices well below $100/MWh ($0.10/kWh) less than most other peak generators, even those running on low-cost natural gas. Lower solar module costs also stimulate demand from consumer markets where the cost of solar compares very favorably to retail electric rates.
As of 2011, the cost of PV has fallen well below that of nuclear power and is set to fall further. The average retail price of solar cells as monitored by the Solarbuzz group fell from $3.50/watt to $2.43/watt over the course of 2011.
For large-scale installations, prices below $1.00/watt were achieved. A module price of 0.60 Euro/watt (0.78 $/watt) was published for a large scale 5-year deal in April 2012.
In some locations, PV has reached grid parity, which is usually defined as PV production costs at or below retail electricity prices (though often still above the power station prices for coal or gas-fired generation without their distribution and other costs). Photovoltaic power is also generated during a time of day that is close to peak demand (precedes it) in electricity systems with high use of air conditioning. More generally, it is now evident that, given a carbon price of $50/ton, which would raise the price of coal-fired power by 5c/kWh, solar PV will be cost-competitive in most locations. The declining price of PV has been reflected in rapidly growing installations, totaling about 23 GW in 2011. Although some consolidation is likely in 2012, due to support cuts in the large markets of Germany and Italy, strong growth seems likely to continue for the rest of the decade. Already, by one estimate, total investment in renewables for 2011 exceeded investment in carbon-based electricity generation.
In the case of self consumption, payback time is calculated based on how much electricity is not brought from the grid. Additionally, using PV solar power to charge DC batteries, as used in Plug-in Hybrid Electric Vehicles and Electric Vehicles, leads to greater efficiencies. Traditionally, DC generated electricity from solar PV must be converted to AC for buildings, at an average 10% loss during the conversion. An additional efficiency loss occurs in the transition back to DC for battery driven devices and vehicles, and using various interest rates and energy price changes were calculated to find present values that range from $2,057.13 to $8,213.64 (analysis from 2009). 
For example in Germany with electricity prices of 0.25 euro/KWh and Insolation of 900 KWh/KW one KWp will save 225 euro per year and with installation cost of 1700 euro/KWp means that the system will pay back in less than 7 years.
Calculations often do not include wider system costs associated with each type of plant, such as long distance transmission connections to grids, or balancing and reserve costs. Calculations do not include externalities such as health damage by coal plants, nor the effect of CO2 emissions on the climate change, ocean acidification and eutrophication, ocean current shifts. Decommissioning costs of nuclear plants are usually not included (The USA is an exceptio, because the cost of decommissioning is included in the price of electricity, per the Nuclear Waste Policy Act), is therefore not full cost accounting. These types of items can be explicitly added as necessary depending on the purpose of the calculation. It has little relation to actual price of power, but assists policy makers and others to guide discussions and decision making.
These are not minor factors but very significantly affect all responsible power decisions: