What the Levelized Cost of Electricity Tells Us
(Why we should care about that)
The Levelized Cost of Electricity (LCOE) is a numerical value that tells us what a particular generating technology will cost over 20 years to create a unit we are all familiar with—a Kilowatt hour. It’s the same quantity that might be expressed as a 100 watt light bulb being lit for a period of 10 hours, or a 1 watt LED being lit for 1,000 hours. It’s also how utility companies count our consumption for billing purposes.
You and I care because electric power costs money. Utilities care because they nearly always need regulatory approval to build infrastructure and set the rates they charge us. The more expensive it is for them to generate their power, the more they must charge us. LCOE serves them as a planning tool for the next source of electric generation they need to build. They could buy power from somewhere else, but that arrangement might not be permanent or negotiated at a fixed price, and then where would they (and we) be?
What is it?
LCOE is simply a way to look forward for a period of common length (20 years) and determine the net present value (in today’s dollars) of all the kilowatt hours generated over that time.
This is not unlike your interest in learning what the total cost per mile might be over the next five years for a car you’d like to buy today. [Consumer Reports is now publishing such ratings.] You’d need to know the capital cost, the maintenance cost, the tires, gas and oil, the insurance, registration, anticipated miles driven, and something for repairs. Knowing the cost per mile between a Corvette and a Subaru would help you choose.
If your electric utility knows the LCOE in advance of building a generating facility, it can plan for this expense within rate development for approval by regulators. The best choice for sizing and connection to transmission lines can be proposed.
LCOE is a lot like Life Cycle Costing, and lowest overall cost over the next 20 years (in current dollars) is a strong incentive for a utility’s choice. Another generation consideration is whether the utility is heading for a fossil-fired facility, or a renewable resource facility where the cost of the resource is always free. And because of climate change and carbon concerns, fossil-fired facilities may face extra costs and regulation. LCOE measures the cost competitiveness among differing generation technologies.
In addition to the costs of various generation technologies, one other helpful thing to review whether you are a utility planner, regulator, ratepayer, or voter—is any possible cost trends among differing generation technologies.
In the historical summary below there are definite trends in the LCOEs in dollars per Megawatt hour. Fossil powered generating plants have come down, but not as quickly as nearly all renewables. In the chart below, coal is out of the running for low cost, and its heavy carbon content, signficant emissions and solid waste are problems that have fouled the environment. Despite claims from the White House since 2017, coal generation is effectively dead in the U.S. because it is too expensive compared to other options.
Combined cycle gas turbines are the cheapest non-base load fossil-based generators available. They are also called “peaker” plants. For maximum efficiency they must be sited where industrial hot water is also needed from their condensers, and like all steam plants, they require lots of water.
Nuclear generation is often celebrated as carbon-free, but is is no longer cost competitive, it has no waste disposal solution for its 200,000 year toxicity, it is a terrorist opportunity, and it takes forever to site and approve.
Ohio Governor Mike DeWine recently signed a bill that will build a nuclear plant subsidy into rates to keep an uneconomic plant operating to the end of its previously planned life. The utility is happy but the ratepayers are not. The utility made a bad bet on a poor choice for their generation and customers are performing a bailout.
Concentrating solar power (power towers struck by sunlight from computer-driven adjustable mirrors) are still very expensive. They show little promise because their desert locations have little water for their steam cycles, and their siting is limited in part because they are hundreds of miles from dense concentrations of consumers.
The cost of onshore wind and solar photovoltaic (PV) has been dropping fast in the last 10 years and this trend may continue as expansion follows. The chief complaint about these two is that they are likely intermittent, but they are predictable. They are now being combined as side-by-side generators with a connection to adjacent battery grid storage that can take most of the intermittency out of the equation.
If solar PV is placed on rooftops of individual buildings, they are more expensive than utility-built installations per unit of energy produced. But they are the closest generation to their likely point of use (no extra transmission lines needed) and they can act as mini power stations serving their neighbors. Of all the generating types available, solar PV can also demonstrate something of a dual-use capability. They can generate while shading parking lots underneath their panel arrays.
Laws and Policies-
In general terms, laws are statutes passed by representative bodies and signed by an executive branch of federal or state government. That tells us what must be done. Policies are formed to show us how that will be accomplished. In a California example, Assembly Bill 32 was passed and signed in 2006. The California Air Resources Board (CARB) writes, and implements policies to clear the air. It was one of these CARB rules that Volkswagen diesels violated for years, were caught in 2016, and caused our household to eventually ditch what we thought was a great performing, turbocharged diesel.
The United States was a signatory to the Paris Accords until President Trump took us out of a voluntary commitment that 197 worldwide nations are still committed to. Germany signed the accord, and announced in 2016 that it would no longer build any nuclear power plants.
Like many nations in Europe, Germany has placed high taxes on gasoline and diesel fuels to encourage smaller, high mileage cars, and a public transportation system far more advanced than in the U.S. They have also moved quickly to boost energy conservation in buildings.
Despite less favorable climate than the U.S. for solar reception, Germany’s LCOE on utility PV is their lowest cost option. Biogas is their highest cost, and nuclear is missing from this chart.
Other nations have decided on what they think is best for their citizens in energy policy. Can that be said of the United States? We don’t charge for the true cost of carbon in our fuels and we continue to subsidize the largest fossil fuel companies in the world.
If we applied the principle of levelizing the cost of electric generation to the growing damage of climate change due to increased carbon in the atmosphere—we might adopt policies across-the-board that dis-incentivize carbon, increase the use of renewables, and preserve more of what we hold dear.
The path understood by more of society every year is that we need to move to electricity. This shift is referred to as Beneficial Electrification, and it has the potential to take carbon out of our buildings and our surface transportation. Emissions compromise human health and raise
medical costs. They also can shorten lifetimes. With an increased share of our electric power provided by renewables, we can remove carbon and refine the green technologies that will let us compete around the world.
Renewables are all around us. They don’t need to be gathered and sent somewhere else. They are not subject to an outsider threatening to raise the price or stop the supply. Fighting over fossil resources in foreign lands could become a thing of the past (for all nations).
Geo, of course-
You shouldn’t expect a message from CaliforniaGeo to miss a chance to illustrate the largest opportunity to tap renewable thermal energy to make the most of increasingly renewable and clean green electrons. Our geo heat pump technology does more with less of them than any other HVAC system. It will remain that way because we tap the earth as the ultimate thermal battery.
In the capture and utilization of renewable resources, geothermal heat pumps are champions at extracting and depositing more thermal energy into and out of the earth (in equivalent units of electricity) than our better known counterparts. When working together from an increasingly green grid, there’s no faster way to make carbon combustion obsolete to preserve our health, our climate, and reduce what we spend for heating, cooling, and hot water in buildings.