Recent Data Questions Traditional LCOE Estimates

This post uses 2015 information to demonstrate that wind and solar power purchase agreements (PPA) are the best indicators of the renewables’ cost and should be used when comparing them to conventional sources.

When a company plans to construct a wind or solar project, they calculate the cost of building and operation over a long period, say 20 years. The also estimate the amount of electricity to be produced, divide the two results, add a small profit, and obtain a PPA. Errors are costly; too low an estimate and the company will lose money, too high an estimate and the company may lose a competitive bid.

Economic theorists use the same kind of process to calculate levelized cost of energy (LCOE). As shown in the Table, their results tend to vary wildly.

Wind

The differences among different researchers are huge. More importantly, only the spread in Lazard data straddles the actual cost. The lower bound of the EIA data, which have been used extensively by renewable energy opponents, is twice the true cost. And the IER cost is five times the true cost. If IER is correct, companies selling wind farms are losing over 80¢ on the dollar.

Industrial  Solar

Although the PPA data base is small, the same trends are seen as for wind. The Lazard spread straddles the actual result, while the EIA is a gross overestimate.

Table of Cost/Price of Renewable Energy

(All values in $/MWh; sources listed below)

A. Wind

PPA = 22, Ref. LBL
LCOE
Source Minimum Typical Maximum
EIA (a) 43 51 59
IER 96 105 113
LAZARD 14 39 63

(a) Includes subsidy; published value omits recently-renewed subsidy.

B. Industrial Solar

PPA = 55, Ref. SERA
LCOE
Source Minimum Typical Average
EIA 89 114 176
LAZARD 41 49 57

Sources

EIA: Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2015, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm

IER: T.F. Stacy & G. S. Taylor, The Levilized Cost of Electricity from Existing Generation Resources, June 2015 http://instituteforenergyresearch.org/wp-content/uploads/2015/06/ier_lcoe_2015.pdf

LAZARD: Lazard, Levelized Cost of Energy Analysis 9.0, 17 Nov. 2015, https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf

LBL: Ryan Wiser, et al., 2014 Wind Technologies Market Report, Aug. 2015 https://emp.lbl.gov/sites/all/files/lbnl-188167_1.pdf

SERA: M. Makyhoun, et al. Utility Solar Market Snapshot, May 2015 https://www.solarelectricpower.org/media/322918/solar-market-snapshot-2014.pdf

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s