Distorting the Levelized Cost of Electricity

Distorting the Levelized Cost of Electricity

The levelized cost of electricity was, for decades, an honest method for comparing the cost of electricity generated by different methods.

With the advent of wind and solar generation, there has been a continuing effort to demonstrate they are competitive with coal, natural gas and nuclear power plants. 

Because the cost of electricity, based on LCOE calculations, for wind and solar were always higher than the cost of electricity from coal, natural gas combined cycle (NGCC) and nuclear power plants, efforts were made to adjust the LCOEs so that wind and solar would seem to be competitive.

It should be noted that the media would seize and promote any LCOE number, no matter how contrived, purporting to show that wind and solar were competitive with traditional methods for generating electricity.

An early attempt at “adjusting” LCOEs was done by Lazard. 

A previous PowerForUSA article, Misleading Costs for Wind and Solar, showed how Lazard used contrived capacity factors (CF) to calculate LCOEs favorable to wind and solar.

The media, even the Wall Street Journal, fixated on these manufactured LCOEs to report that wind and solar were competitive with traditional methods for generating electricity. 

Few, if any, reporters looked into how these LCOEs were calculated.

We now have history repeating itself.

Cover IEA & NEA Report

The International Energy Agency (IEA) and the Nuclear Energy Agency (NEA) published a joint report on December 9, 2020, showing that LCOEs for wind and solar were competitive with traditional methods for generating electricity.

In its conclusion, the report said: 

“Renewable energy costs have continued to decrease in recent years and their costs are now competitive, in LCOE terms, with dispatchable fossil fuel-based electricity generation in many countries.”

But the truth is buried in the report, where it said:

“With the assumed moderate emission costs of USD 30/tCO2, their costs are now competitive…

In other words, wind and solar are competitive if fossil fuel power plants are penalized by using a $30 per ton charge for CO2 emissions.

The IEA and NEA report is misleading in at least two respects. 

  • First, its stated conclusion omits the fact that fossil fuel power plants are penalized by including a charge of $30/ton of CO2 in the LCOE calculation.
  • Second, the tables in the report omit references that LCOEs for NGCC and coal-fired power plants include a $30 charge for CO2 emissions.

The end result is that reporters, and the media in general, can report that wind and solar are competitive with fossil fuel power plants … which is patently misleading.

Even so, none of the purported lower cost calculations ever account for the fact that wind and solar require backup or storage, which adds to their costs. These real costs are never included in LCOE calculations.

It could be concluded that the IEA and NEA are intentionally misleading the public by burying the facts deep in their report, and omitting them from the report’s conclusion.

The truth remains: Wind and solar are more expensive than coal-fired and natural gas power plants for generating electricity.

They are also unreliable and can’t provide electricity when the wind doesn’t blow or the sun doesn’t shine. Freezing temperatures and snow can result in blackouts.

. . .

Related Article: Meaningless LCOEs

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6 Replies to “Distorting the Levelized Cost of Electricity”

  1. Isn’t it frustrating that people ignore the obvious. Including those who must know better. I was at Chicago Board of Trade which was so disappointed they didn’t get to trade the mythical $30/ton CO2.

    Thanks.

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