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2015 Edition of Projected Costs of Generating Electricity Summary

Core Content

The Projected Costs of Generating Electricity – 2015 Edition is the eighth report in a series examining the levelised cost of electricity (LCOE) for various generating technologies. The report provides a comprehensive analysis of electricity generation costs, focusing on fossil fuel, nuclear, and renewable technologies, and aims to support policymakers in making informed decisions about the future of the power sector.

Main Objectives

• To evaluate the relative cost of electricity generation using different technologies.
• To provide insights into the cost drivers for each technology.
• To highlight the impact of market structure, policy environment, and resource availability on generation costs.
• To assess the role of LCOE in the context of liberalised power markets and increasing renewable energy penetration.

Key Technologies and Their Costs

The report analyses the following technologies:

Fossil Fuel Technologies

• Natural gas (CCGT and OCGT): Costs vary significantly based on fuel prices and discount rates.
• Coal: Costs are influenced by fuel prices, efficiency, and capital requirements.
• Nuclear: Capital-intensive with costs rising sharply with higher discount rates.

Renewable Technologies

• Solar PV: Includes residential, commercial, and large-scale ground-mounted.
• Wind: Onshore and offshore.
• Hydro, geothermal, biomass, and biogas: Also included in the analysis.
• Emerging technologies: Such as high-efficiency low-emission coal (IGCC and A-USC), carbon capture and storage (CCS), fuel cells (FC), enhanced geothermal systems (EGS), floating and deep offshore wind, solar thermal (CSP), bioenergy, ocean energy, and electricity storage.

Main Findings

• LCOE is a useful metric for comparing generation technologies due to its simplicity and comparability.

• Renewable technologies have seen significant cost reductions over the years, especially solar PV, due to improved technologies and governmental support.

• Nuclear energy remains competitive with other baseload technologies, despite persistent claims to the contrary.

• No single technology is the cheapest under all conditions. Costs depend on:

  • Market structure
  • Policy environment
  • Resource endowments
  • Discount rates
  • Fuel prices
  • Carbon pricing

• LCOE calculations use a discounted cash flow (DCF) method and include three discount rates (3%, 7%, and 10%) to reflect different economic scenarios.

• Regional variations in costs are significant, especially for renewable technologies, and are influenced by:

  • Local resource availability
  • Labour costs
  • Regulatory frameworks
  • Fuel prices

• Sensitivity analysis is conducted to assess the impact of various parameters such as discount rates, fuel costs, carbon prices, and capacity factors on LCOE.

Structure of the Report

The report is divided into three main parts:

Part I: Methodology and Data

• Chapter 1: Introduction and context.
• Chapter 2: Methodology, conventions, and key assumptions.
• Chapter 3: Technology overview and detailed cost data.
• Chapter 4: Country-by-country comparison of LCOE and capacity factor impact.
• Chapter 5: Historical LCOE data from 1981 to 2015.

Part II: Statistical and Sensitivity Analysis

• Chapter 6: Statistical analysis of key technologies.
• Chapter 7: Sensitivity analysis of LCOE based on multiple variables.

Part III: Boundary Issues

• Chapter 8: Financing issues and the cost of capital.
• Chapter 9: Emerging generating technologies.
• Chapter 10: System cost and system value of electricity generation.
• Chapter 11: The future of the LCOE methodology and its limitations in the presence of variable renewable energy (VRE).

Data and Methodology

• The report uses data from 181 plants in 22 countries (including 3 non-OECD countries).
• LCOE is calculated at the plant level (busbar), excluding transmission and distribution costs.
• Three discount rates (3%, 7%, and 10%) are used to reflect different economic contexts.
• The EGC Expert Group provides data, methodological guidance, and reviews successive drafts.
• The IEA and NEA collaborate for the first time in this edition to address the limitations of LCOE in markets with high VRE penetration.

Additional Insights

• LCOE is not the only metric of interest. The report introduces alternative metrics, such as generation-weighted average cost, to provide a more nuanced understanding.

• System cost and system value are considered beyond LCOE, especially in liberalised markets with high variable renewable energy (VRE) shares.

• Emerging technologies are highlighted, including:

  • High-efficiency, low-emission coal
  • Carbon capture and storage
  • Fuel cells
  • Enhanced geothermal systems
  • Floating and deep offshore wind
  • Solar thermal (CSP) with storage
  • Bioenergy and ocean energy
  • Electricity storage

• Key factors influencing LCOE:

  • Discount rate
  • Fuel cost
  • Carbon price
  • Capacity factor
  • Lifetime of the plant
  • Construction lead time
  • Cost of capital

Conclusion

The 2015 Edition reaffirms the importance of LCOE as a tool for comparing generation technologies, while also highlighting its limitations in the context of liberalised markets and high VRE penetration. It provides detailed cost data for a wide range of technologies, country-specific insights, and forward-looking analysis of emerging technologies. The report is a valuable resource for policymakers, industry stakeholders, and researchers aiming to understand the economic and environmental implications of different electricity generation options.