Opinion

EIA Uses Two Simplified Metrics to Show Future Power Plants’ Relative Economics


selected levelized costs of electricity and levelized avoided costs of electricity, as explained in the article text


EIA's long-term outlook for the electric power sector considers both the cost to build and operate power plants as well as the value those plants provide to the grid. A supplemental report to EIA's Annual Energy Outlook 2018(AEO2018) describes two simple measures of cost and value to show how certain technologies can be compared to determine the most economically attractive technologies, and in turn, the types of power plants most likely to be built.

EIA calculates two measures that, when used together, largely explain the economic competitiveness of electricity generating technologies.

The levelized cost of electricity (LCOE) represents the installed capital costs and ongoing operating costs of a power plant, converted to a level stream of payments over the plant's assumed financial lifetime. Installed capital costs include construction costs, financing costs, tax credits, and other plant-related subsidies or taxes. Ongoing costs include the cost of the generating fuel (for power plants that consume fuel), expected maintenance costs, and other related taxes or subsidies based on the operation of the plant.

The levelized avoided cost of electricity (LACE) represents that power plant's value to the grid. A generator's avoided cost reflects the costs that would be incurred to provide the electricity displaced by a new generation project as an estimate of the revenue available to the plant. As with LCOE, these revenues are converted to a level stream of payments over the plant's assumed financial lifetime.

Power plants are considered economically attractive when their projected LACE (value) exceeds their projected LCOE (cost). Both LCOE and LACE are levelized over the expected electricity generation during the lifetime of the plant, resulting in values presented in dollars per megawatthour. These values range across geography, as resource availability, fuel costs, and other factors often differ by market. LCOE and LACE values also change over time as technology improves, tax credits and other taxes or subsidies expire, and fuel costs change.

The relative difference between LCOE and LACE is a better indicator of economic competitiveness than either metric alone. A comparison of only LCOE across technology types fails to capture the differences in value provided by different types of generators to the grid.

Some power plants can be dispatched, while some—such as those powered by the wind or solar—operate only when resources are available. Some power plants provide electricity during parts of the day or year when power prices are higher, while others may produce electricity during times of relatively low power prices.

utility-scale electric generating capacity additions, as explained in the article text
Source: U.S. Energy Information Administration, Annual Energy Outlook 2018

In AEO2018, most of the capacity additions through 2050 come from three technologies: solar photovoltaic (PV), onshore wind, and natural gas combined cycle, which together make up 77% of all projected capacity additions from 2018 through 2050.

LCOE and LACE reduce economic competition to a few easily understood factors such as generic technology costs and primary revenue streams under standardized operating assumptions. The decision to build new capacity in the real world, and as modeled in the Annual Energy Outlook, depend on these factors as well as other considerations.

Factors such as inherent uncertainty about future fuel prices, compliance with regulations and policies, inter-regional electricity trade, site- or region-specific operational considerations, and maintaining system reliability may lead developers to prioritize portfolio diversification or otherwise build plants that do not meet this simplified economic test.

difference between LCOE and LACE, as explained in the article text

Solar PV's economic competitiveness is relatively high through 2022 as federal tax credits reduce PV's LCOE. As those tax credits are phased out, technology costs are expected to have declined to the point where solar PV remains economically competitive in most parts of the country. Because solar PV provides electricity during the middle of the day, when electricity prices are relatively high, solar PV's value to the grid (i.e., LACE) tends to be higher than other technologies.

difference between LCOE and LACE, as explained in the article text

Onshore wind also sees higher economic competiveness in the earlier part of the projection, prior to the expiration of federal tax credits in 2020. Over time, wind remains competitive in the Plains states, where wind resources are highest. Wind's LACE is relatively low in most areas, as wind output tends to be highest at times when power prices are low.

difference between LCOE and LACE, as explained in the article text

Natural gas combined-cycle generators' overall LCOE increases over time as natural gas prices increase, diminishing its economic competiveness. Natural gas combined-cycle generation may remain competitive in regions with low natural gas prices or in regions where installing more economically attractive technologies is not feasible.

More information about LCOE, LACE, and economic competitiveness of electricity generating technologies is available in EIA's Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2018 report.

Principal contributor: Manussawee Sukunta



New service from OilVoice
Trip Shepherd is for companies who need to track their staff in areas of risk.
It's free to use, so we invite you to try it.

Visit source site

https://eia.gov/todayinenergy/detail.php?id=35552&...

EIAEnergy Information Administration EIAUnited StatesUSEnergynatural gas

More items from oilvoice


Cyber Security Experts Unite to Protect Europe’s Critical Industries

CS4CA Summit Returns to London this October Staying abreast of fast-paced industry developments is crucial for cyber security professionals. And while one can learn a lot from publications and social media, it's hard to beat the value of insights gained first-hand from peers. This is why 150+ IT ...

OilVoice Press - OilVoice


Posted 6 months agoPress > cybereurope

Africa E&P Summit

The organisers of the Africa E&P Summit are bringing together Africa's leading exploration companies and governments, just one of the many reasons why you should be attending frontier's event that they are organising and hosting in London at the IET: Savoy Place, 22-23 May. Over 200 key senior exec ...

OilVoice Press - OilVoice


Posted 10 months agoPress > Africasummitoil summit +2

Equinor Deepens in Offshore Wind in Poland

Equinor has exercised an option to acquire a 50 % interest in the offshore wind development project Bałtyk I in Poland from Polenergia. This transaction is a follow-up of the agreement between the two companies which came into force in May 2018 , by which Equinor acquired a 50 % inter ...

OilVoice Press - OilVoice


Posted 1 year agoPress > EquinorEquinor EnergyPoland +2

Nigeria has highest capex on crude and natural gas projects in sub-Saharan Africa Over Next Seven Years, says GlobalData

Nigeria accounts for more than 34% of the proposed capital expenditure (capex) on planned and announced crude and natural gas projects in the sub-Saharan Africa over the period 2018–2025, according to GlobalData , a leading data and analytics company. The company's report: ‘H2 2018 Production ...

OilVoice Press - OilVoice


Posted 1 year agoOpinion > GlobalDataNigeriaCrude +5

CNOOC Signs Strategic Cooperation Agreements with 9 International Oil Companies

HONG KONG, Dec. 18, 2018 /PRNewswire/ -- CNOOC Limited (the "Company", SEHK: 00883, NYSE: CEO, TSX: CNU) announced today that its parent company, China National Offshore Oil Corporation (CNOOC), has signed Strategic Cooperation Agreements with 9 international oil companies including: Chevron, Conoco ...

OilVoice Press - OilVoice


Posted 1 year agoPress > CNOOCChina National Offshore Oil CorporationChevron +11
All posts from oilvoice