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 and 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.
Cost metrics
Levelized cost of electricity
The levelized cost of electricity (LCOE) is a metric that attempts to compare the costs of different methods of electricity generation irrespective of dispatchability. Though LCOE is often presented as the minimum constant price at which electricity must be sold to break even over the lifetime of the project, such a cost analysis requires assumptions about the value of various non-financial costs (environmental impacts, local availability, others), and is therefore controversial. Roughly calculated, LCOE is the net present value of all costs over the lifetime of the asset divided by an appropriately discounted total of the energy output from the asset over that lifetime.Nuclear Energy Agency/International Energy Agency/Organization for Economic Cooperation and Development Projected Costs of Generating Electricity (2005 Update) 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 greatly by location. Levelized full system costs of electricity include the cost of grid balancing.
Levelized avoided cost of electricity
The metric levelized avoided cost of energy (LACE) addresses some of the shortcomings of LCOE by considering the economic value that the source provides to the grid. The economic value takes into account the dispatchability of a resource, as well as the existing energy mix in a region.
In 2014, the US Energy Information Administration recommendedUS Energy Information Administration, Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2014, April 2014. that levelized costs of non-dispatchable sources such as wind or solar be compared to the "levelized avoided cost of energy" (LACE) rather than to the LCOE of dispatchable sources such as fossil fuels or geothermal. LACE is the total discounted avoided costs divided by the total discounted lifetime output. The EIA hypothesized that fluctuating power sources might not avoid capital and maintenance costs of backup dispatchable sources. The ratio of LACE to LCOE is referred to as the value-cost ratio. When LACE (value) is greater than LCOE (cost), then value-cost ratio is greater than 1, and the project is considered economically feasible.EIA 2021 Levelized Costs of New Generation Resources in the Annual Energy Outlook 2021
Value-adjusted levelized cost of electricity The value-adjusted levelized cost of electricity (VALCOE) is a metric devised by the International Energy Agency which includes both the cost of the electricity and the value to the electricity system. For example, the same amount of electricity is more valuable at a time of peak demand.
Capture rate The capture rate is the volume-weighted average market price (or capture price) that a source receives divided by the time-weighted average price for electricity over a period. For example, a dammed hydro plant might only generate when prices are high and so have a capture rate of 200%, whereas a source that is not dispatchable, such as a wind farm without batteries, would typically have a capture rate under 100%.
Typically, the more of a single type of renewable that is built in a pricing area (such as Great Britain) the lower the capture rate will become for that type. For example, if many wind farms generate a lot at the same time the price at that time will go down. There can be curtailment if grid connectivity is lacking across the pricing area – for example from wind power in Scotland to consumers in England – resulting in the capture rate not reflecting the true cost. Levelized cost of storage The levelized cost of storage (LCOS) is analogous to LCOE, but applied to energy storage technologies such as batteries. Regardless of technology, storage is but a secondary source of electricity dependent on a primary source of generation. Thus, a true cost accounting demands that the costs of both primary and secondary sources be included when the cost of storage is compared to the cost of generating electricity in real time to meet demand.
A cost factor unique to storage are losses that occur due to inherent inefficiencies of storing electricity, as well as increased emissions if any component of the primary source is less than 100% carbon-free. In the US, a comprehensive 2015 study found that net system emissions resulting from storage operation are nontrivial when compared to the emissions from electricity generation [in real time to meet demand], ranging from 104 to 407 kg/MWh of delivered energy depending on location, storage operation mode, and assumptions regarding carbon intensity.
Cost factors While calculating costs, several internal cost factors have to be considered.A Review of Electricity Unit Cost Estimates Working Paper, December 2006 – Updated May 2007 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:
Capital costs tend to be low for gas and oil power stations; moderate for onshore wind turbines and solar PV (photovoltaics); higher for coal plants and higher still for waste-to-energy, wave and tidal, solar thermal, offshore wind and nuclear. Fuel costs – high for fossil fuel and biomass sources, low for nuclear, and zero for many renewables. Fuel costs can vary somewhat unpredictably over the life of the generating equipment, due to political and other factors.
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.
Capital costs For power generation capacity capital costs are often expressed as overnight cost per kilowatt. Estimated costs in 2022 were:
+ Cost per kW Type US EIA US NREL $/MWh CF Coal power $4,074 $3,075–5,542 Coal with 90% carbon capture $6,495–6,625 simple cycle natural gas $922–2,630 Combined-cycle $1,062–1,201 Combined-cycle with 90% carbon capture $2,736–2,845 Internal combustion engine $2,018 Turbine, aeroderivative $1,294 Turbine, industrial $785 Nuclear $6,695–7,547 $7,442–7,989 $81–82 94% Wind power $1,718 $1,462 $27–75 18–48% Wind, offshore $4,833–6,041 $3,285–5,908 $67–146 29–52% Distributed generation (wind) $1,731–2,079 $2,275–5,803 $32–219 11–52% Solar thermal/concentrated $7,895 $6,505 $76–97 49–63% Solar photovoltaic $1,327 $1,333–2,743 $31–146 12–30% Solar PV with storage $1,748 $2,044 $53–81 20–31% Battery storage $1,316 $988–4,774 8–42% Fuel cells $6,639–7,224 Pumped-storage hydroelectricity $1,999–5,505 Hydropower, conventional $3,083 $2,574–16,283 $60–366 31–66% Biomass $4,524 $4,416 $144 64% Geothermal power $3,076 $6,753–46,223 $55–396 80–90%
Real life costs can diverge significantly from those estimates. Olkiluoto block 3, which achieved first criticality in late 2021 had an overnight cost to the construction consortium (the utility paid a fixed price agreed to when the deal was signed of only 3.2 billion euros) of and a net electricity capacity of 1.6 GW or per kW of capacity. Meanwhile Darlington Nuclear Generating Station in Canada had an overnight cost of for a net electric capacity of 3512 MW or per kW of capacity."Final and Total Capital Costs of the Darlington Nuclear Generating Station" , Ontario Power Generation, 27 April 2004.
The oft cited figure of – which works out to per kW of capacity – includes interest (a particularly high cost in this case as the utility had to borrow at market rates and had to absorb the cost of delays in construction) and is thus not an "overnight cost". Furthermore, there is the issue of comparability of different sources of power, as capacity factors can be as low as 10–20% for some wind and solar applications reaching into the 50% range for offshore wind and finally above 90% for the most reliable nuclear power plants.
The average capacity factor of all commercial nuclear power plants in the world in 2020 was 80.3% (83.1% the prior year) but this includes outdated Generation II nuclear power plants and countries like France which run their nuclear power plants load following which reduces the capacity factor. Peaking power plants have particularly low capacity factors but make up for it by selling electricity at the highest possible price when supply does not meet demand otherwise.
The first German Offshore Wind Park Alpha Ventus Offshore Wind Farm with a nameplate capacity of 60 MW cost , after an initial estimate of . In 2012, it produced 268 GWh of electricity, achieving a capacity factor of just over 50%. If the overnight cost is calculated for the nameplate capacity, it works out to per kW whereas if one takes into account the capacity factor, the figure needs to be roughly doubled.
Geothermal power is unique among renewables in that it usually has a low above-ground impact and is capable of baseload power generation as well as combined heat and power. However, depending on the plant and conditions underground naturally occurring radioactive materials such as radon may be released into the air. This partially offsets relatively high costs per capacity which were cited as for the 45 MW first phase of Þeistareykir Geothermal Power Station and a total of for the 90 MW combined two first phases. This gives a cost per kW of capacity of if only the first phase is considered and if the cost estimates for both phases together hold. The source also calls this power plant uniquely cost effective for geothermal power and the unique geology of Iceland makes the country one of the largest producers of geothermal power worldwide and by far the largest per capita or relative to all energy consumed.
Block 5 of Irsching Power Station in Southern Germany uses natural gas as fuel in a combined cycle, converting 1,750 megawatts of thermal energy to 847 net MW of usable electricity. It cost to build. This works out to some per kW of capacity. However, due to the uneconomical prospect of operating it as a peaking power plant, the owners, soon after opening the plant in 2010, wanted to shut down the plant.
The LCOE of floating wind power increases with the distance from shore.
The Lieberose Photovoltaic Park – one of the largest in Germany – had a nameplate capacity at opening of 52.79 megawatt and cost some to build or per kW. With a yearly output of some 52 GWh (equivalent to just over 5.9 MW) it has a capacity factor just over 11%. The figure was again cited when the solar park was sold in 2010.
The world's largest solar farm to date (2022) in Rajasthan, India – Bhadla Solar Park – has a total nameplate capacity of 2255 MW and cost a total of 98.5 billion Indian rupees to build. This works out to roughly 43681 rupees () per kW.