EIA Levelized Costs Can be Misleading

The levelized cost of electricity (LCOE) has become a tool used by advocates of wind and solar to mislead the public, with the U.S. Energy Information Administration (EIA) inflating the cost of electricity from coal.

The EIA assigns a cost for CO2 for coal, but not for any other method of generating electricity.

LCOE is supposed to compare the costs of investment, operation and maintenance, for differing types of power generation, and then express the answer as cost per kWh.

It’s possible, though not entirely accurate, to use LCOE to compare projects of the same type, for example PV solar with a second PV solar project, but LCOE cannot accurately compare projects of different systems, such as comparing PV solar and CSP solar, or PV solar and natural gas, etc. – especially if extra costs are added to one, but not the other methods for generating electricity.

The Wall Street Journal, in its recent special report on the wind and solar industries, was slipshod in the way it presented the information.

To fully explain why LCOE is not a valid comparison between different systems, such as CSP and coal, it’s necessary to start with the initial investment.

TABLE 1

Method

Investment Cost per Kilowatt

Natural Gas Combined Cycle $1,100 /KW
Traditional Coal $2,000 /KW
Wind, Land-Based $2,000/KW
Solar PV $2,400/KW
Ultra Supercritical Coal $2,800 /KW
Solar Concentrating, without thermal storage $4,500/KW
Nuclear $5,000 /KW
Wind, Off-Shore $5,000/KW
Integrated Gasification Combined Cycle $5,500 /KW
Solar Concentrating, with 6 hours thermal storage $8,000/KW

As can be seen, the initial cost of construction is lowest for natural gas combined cycle (NGCC) power plants and highest for concentrating solar power plants (CSP).

An important distinction between power plants when calculating the LCOE is that the capacity factor varies dramatically between different types of power plants.

Capacity factor measures the amount of electricity actually produced over the period of a year, compared with what could theoretically have been produced based on the nameplate rating of the unit.

The capacity factors for coal and NGCC is approximately 85%.

The capacity factor for nuclear is approximately 90%.

The capacity factor for land-based wind is approximately 30%, while for offshore wind it’s 39%.

The capacity factors for PV solar and CSP solar, without thermal storage, are approximately 16% and 25% respectively. With 6 hours of thermal storage, CSP capacity factor is increased to approximately 45%, according to a report by the CSP industry1.

These affect the LCOE by reducing the amount of electricity produced by each system when calculating the levalized cost of electricity.

The capacity factor explains why wind and solar, that have no fuel costs, cannot compete with coal, natural gas or nuclear.

Another way of viewing the disparity in costs is to adjust the investment cost for the amount of electricity each dollar of investment actually produces.

This can be done by adjusting the cost per KW by the respective capacity factors, as seen in Table 2. It is a shorthand way to see how capacity factor affects the LCOE.

TABLE 2

Method

Adjusted Investment Cost per Kilowatt

Natural Gas Combined Cycle $1,300 /KW
Traditional Coal $2,400 /KW
Wind, Land-Based $6,700/KW
Solar PV $15,000/KW
Ultra Supercritical Coal $3,300 /KW
Solar Concentrating, without thermal storage $18,000/KW
Nuclear $6,100 /KW
Wind, Off-Shore $12,800/KW
Integrated Gasification Combined Cycle $5,900 /KW
Solar Concentrating, with 6 hours thermal storage $17,800/KW

The LCOE for wind and solar do not include the cost of installing and maintaining gas turbine backup for when the wind stops blowing or the sun stops shining.

The Energy Information Agency in its calculations of LCOE makes some assumptions and also adds a cost for coal that doesn’t actually exist.

Some of the EIA’s2 assumptions for capacity factors are incorrect. The capacity factor used by the EIA for wind is 34% for both land-based and offshore wind. This is an obvious error as wind speeds offshore are consistently higher than for land-based installations. Table 2 reflects the differences and uses 30% and 39% respectively for land-based and offshore wind.

The most egregious action taken by the EIA is to assign a cost of $15 per ton of CO2 for coal-fired power plants. This inflates the LCOE for coal and allows advocates of wind and solar to claim that wind and solar is competitive with coal.

This is especially egregious since the EIA didn’t assign a similar CO2 cost for NGCC power plants, thereby demonstrating a bias against coal.

In its special report on wind and solar the Wall Street Journal did not explain that the EIA LCOEs were inflated for coal.

LCOE is not a valid method for comparing the cost of electricity produced by different type systems. The fact remains, wind and solar are more costly than electricity produced from fossil fuels and from nuclear.

Notes:

  1. There are different types of CSP systems. There are tower, parabolic trough and dish concentrating solar power systems. Similarly, with PV solar some systems track the sun, others do not. The above investment cost reflects averages drawn from multiple sources.

   A report published by advocates of CSP contains information on various solar systems and is available here,
http://www.csptoday.com/global-tracker/documents/8OctoberPVvsCSPAFinancialComparison.pdf

2. The EIA report on LCOE is available at http://www.eia.gov/oiaf/aeo/electricity_generation.html

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