THE LEVELIZED COST OF ELECTRICITY FROM EXISTING GENERATION SOURCES

Contributed by Robert Lyman, Energy Economist @August 2016

In July 2016 the U.S.-based Institute for Energy Research (IER) released a study prepared by Thomas Stacy and George Taylor of the levelized cost of existing and new electricity generation sources in the United States. This is a summary of that study.

The value of studies that examine the levelized cost of electricity is, in large part, because they allow utilities and policy makers to compare on a consistent basis, in terms of dollars per megawatt hour ($/MWh), the costs of building and operating different types of generation equipment, over the lifetime of that equipment. Thus, one can compare a natural gas generating plant with relatively low capital costs but higher and varying fuel costs to a wind or solar plant with relatively high capital costs but lower operating costs. Most existing American work in this area uses the results of analysis performed by the Energy Information Administration (EIA). The EIA, however, compares only the projected costs of new generation that will come into operation within the next few years.

The absence of information in the EIA’s analysis about the costs of electricity from existing generation sources means that policy makers and lawmakers sometimes make decisions about replacing that capacity without a clear understanding of the costs of doing so.

The data used in the IER study on the fuel costs of current generation and on the capacity factors at which they operate are drawn from reports submitted by utilities to U.S. federal government agencies. The following table compares the levelized cost of electricity (LCOE), in U.S. 2013 dollars per megawatt-hour, from different generation sources.

* This column shows the LCOE of new generation sources at actual 2015 capacity factors and fuel costs.

** This column shows the LCOE of new generation sources at the EIA-assumed capacity factors and fuel costs.

The IER study notes that the LCOE figures shown for wind and solar generation do not include others costs of $25 to $50 per MWh for transmission and subsidies, which also are not considered by EIA in its calculation of LCOE. Further, the EIA makes no distinction between the 20-25 year expected lifespans of wind and solar facilities vs. the 50+ year lifespans of most other technologies.

A number of key points emerge from this analysis:

• On average, each resource category’s existing power plants have lower fixed costs and similar variable costs compared to the most likely replacements.
• The fleet average costs of electricity from existing power plants is less than the fleet average cost of electricity from new power plants of the same type.
• Existing conventional coal plants, providing dispatchable full-time capable resources, cost U.S.$39.90 per MWh, 58% lower than comparable new coal plants, 63% lower than new wind generation at 2015 fuel costs and capacity factors and 72% lower than new PV solar generation at 2015 fuel costs and capacity factors.
• Using 2015 actual capacity figures for EIA “best case” capacity factors has a considerable impact on the costs of different sources.

The reason the costs of generation from existing sources is so important is that U.S. government mandates, regulations, and subsidies, like those in Canada, are driving the construction of new generation sources. The IER, in a separate paper, identified more than 110 gigawatts of coal and nuclear generation capacity set to close as a direct result of U.S. federal regulation. With little or slow growth in electricity demand, most existing coal, natural gas, nuclear and hydroelectric generation resources could continue producing electricity for decades at far lower cost than could any potential new generation resources.

The IER study can be read here:

http://instituteforenergyresearch.org/wp-content/uploads/2016/07/IER_LCOE_2016-2.pdf