Reviewing electricity production cost assessments

Larsson, Simon and Fantazzini, Dean and Davidsson, Simon and Kullander, Sven and Hook, Mikael (2013): Reviewing electricity production cost assessments. Forthcoming in: Renewable & Sustainable Energy Reviews

Abstract

A thorough review of twelve recent studies of production costs from different power generating technologies was conducted and a wide range in cost estimates was found. The reviewed studies show differences in their methodologies and assumptions, making the stated cost figures not directly comparable and unsuitable to be generalized to represent the costs for entire technologies. Moreover, current levelized costs of electricity methodologies focus only on the producer's costs, while additional costs viewed from a consumer perspective and on external costs with impact on society should be included if these results are to be used for planning. Although this type of electricity production cost assessments can be useful, the habit of generalizing electricity production cost figures for entire technologies is problematic. Cost escalations tend to occur rapidly with time, the impact of economies of scale is significant, costs are in many cases site-specific, and country-specific circumstances affect production costs. Assumptions on the cost-influencing factors such as discount rates, fuel prices and heat credits fluctuate considerably and have a significant impact on production cost results. Electricity production costs assessments similar to the studies reviewed in this work disregard many important cost factors, making them inadequate for decision and policy making, and should only be used to provide rough ballpark estimates with respect to a given system boundary. Caution when using electricity production cost estimates are recommended, and further studies investigating cost under different circumstances, both for producers and society as a whole are called for. Also, policy makers should be aware of the potentially widely different results coming from electricity production cost estimates under different assumptions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Electricity generation costs, levelized costs, energy market analysis, cost comparisons, policy implications
• Subjects: L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q00 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q20 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q30 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy

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