# Cost of electricity by source

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Cost of electricity by source

The cost of electricity generated by different sources measures the cost of generating electricity including initial capital, return on investment, as well as the costs of continuous operation, fuel, and maintenance. The price is normally measured in units of local currency per unit of electricity, for example cents-per-kilowatt-hour for small numbers, or dollars-per-megawatt-hour for larger quantities.

## Cost factors

While calculating costs, several internal cost factors have to be considered.[1] (Note the use of "costs," which is not the actual selling price, since this can be affected by a variety of factors such as subsidies on some energy and sources and taxes on others):

• Capital costs (including waste disposal and decommissioning costs for nuclear energy) - tend to be low for fossil fuel power stations; high for wind turbines, solar PV and nuclear; very high for waste to energy, wave and tidal, solar thermal.[citation needed]
• Fuel costs - high for fossil fuel and biomass sources, very low for nuclear and renewables.[citation needed]
• Factors such as the costs of waste (and associated issues) and different insurance costs are not included in the following: Works power, own use or parasitic load - i.e. the portion of generated power actually used to run the stations pumps and fans has to be allowed for.[citation needed]

To evaluate the total cost of production of electricity, the streams of costs are converted to a net present value using the time value of money. These costs are all brought together using discounted cash flow here.[2] and here.[3]

Another collection of cost calculations is shown here:,[4] here,[5] and,[6] and.[7]

BP claims renewables are on a decreasing cost curve - solar PV even more than wind turbines, while non-renewables are on an increasing cost curve[8], however the UK Energy Resource Centre found that the cost of building an offshore wind farm has doubled between 2003 and 2008.[9]

## Calculations

Levelised energy cost (LEC, also commonly abbreviated as LCOE [10]) is the price at which electricity must be generated from a specific source to break even. It is an economic assessment of the cost of the energy-generating system including all the costs over its lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital, and is very useful in calculating the costs of generation from different sources.[citation needed]

It can be defined in a single formula as:[11]

$\mathrm{LEC} = \frac{\sum_{t=1}^{n} \frac{ I_t + M_t + F_t}{\left({1+r}\right)^t} }{\sum_{t=1}^{n} \frac{E_t}{\left({1+r}\right)^{t}} }$

where

• LEC = Average lifetime levelised electricity generation cost
• It = Investment expenditures in the year t
• Mt = Operations and maintenance expenditures in the year t
• Ft = Fuel expenditures in the year t
• Et = Electricity generation in the year t
• r = Discount rate
• n = Life of the system

Typically LECs are calculated over 20 to 40 year lifetimes, and are given in the units of currency per kilowatt-hour, for example AUD/kWh or EUR/kWh or per megawatt-hour, for example AUD/MWh (as tabulated below).[citation needed]

### System boundaries

When comparing LECs for alternative systems, it is very important to define the boundaries of the 'system' and the costs that are included in it. For example, should transmissions lines and distribution systems be included in the cost? Typically only the costs of connecting the generating source into the transmission system is included as a cost of the generator. But in some cases wholesale upgrade of the Grid is needed. Careful thought has to be given to whether or not these costs should be included in the cost of power.

Should R&D, tax, and environmental impact studies be included? Should the costs of impacts on public health and environmental damage be included? Should the costs of government subsidies be included in the calculated LEC?

### Discount rate

Another key issue is the decision about the value of the discount rate r. The value that is chosen for r can often 'weigh' the decision towards one option or another, so the basis for choosing the discount must clearly be carefully evaluated. See Internal rate of return. The discount rate depends on the cost of capital, including the balance between debt-financing and equity-financing, and an assessment of the financial risk.

## US Department of Energy estimates

The tables below list the estimated cost of electricity by source for plants entering service in 2016. The tables are from a December 16, 2010 report of the Energy Information Administration (EIA) of the U.S. Department of Energy (DOE) called "Levelized Cost of New Generation Resources in the Annual Energy Outlook 2011".[12]

• Total System Levelized Cost (the rightmost column) gives the dollar cost per megawatt-hour that must be charged over time in order to pay for the total cost. Divide by 1000 to get the cost per kilowatt-hour (move the decimal point 3 places to the left).

These calculations reflect an adjustment to account for the high level of carbon dioxide produced by coal plants. From the EIA report:

## References

1. ^ http://www.ukerc.ac.uk/Downloads/PDF/07/0706_TPA_A_Review_of_Electricity.pdf A REVIEW OF ELECTRICITY UNIT COST ESTIMATES Working Paper, December 2006 - Updated May 2007
2. ^ http://www.claverton-energy.com/killer-wind-graphs.html
4. ^ a b http://www.claverton-energy.com/?dl_id=384
5. ^ a b http://www.claverton-energy.com/?dl_id=385
6. ^ http://www.claverton-energy.com/killer-wind-graphs.html Relative / comparative costs of wind energy, nuclear energy, hydro power, coal power, natural gas, geothermal energy, and biomass
7. ^ "NUREG-1350 Vol. 18: NRC Information Digest 2006-2007" (PDF). Nuclear Regulatory Commission. 2006. Retrieved 2007-01-22.
8. ^ The Path to Grid Parity (Graphic)
9. ^ BBC News - Paying for wind we don't use: How effective is wind?
10. ^ Review of Solar Levelized Cost
11. ^ Nuclear Energy Agency/International Energy Agency/Organization for Economic Cooperation and Development Projected Costs of Generating Electricity (2005 Update)
12. ^ a b c Levelized Cost of New Generation Resources in the Annual Energy Outlook 2011. Released December 16, 2010. Report of the US Energy Information Administration (EIA) of the U.S. Department of Energy (DOE).
13. ^ Annual Energy Outlook 2011. U.S. Energy Information Administration (EIA) of the U.S. Department of Energy (DOE)].
14. ^ Assumptions to the Annual Energy Outlook 2011. U.S. Energy Information Administration of the U.S. Department of Energy.
15. ^ Appendix A: Handling of Federal and Selected State Legislation and Regulation in the Annual Energy Outlook. US Energy Information Administration of the U.S. Department of Energy.
16. ^ Powering the Nation Update 2010 retrieved 2010 Nov 9
17. ^ Mott MacDonald study released by DECC in June 2010
18. ^ http://www.energy.ca.gov/2007publications/CEC-200-2007-011/CEC-200-2007-011-SD.PDF
19. ^ Graham, P. The heat is on: the future of energy in Australia CSIRO, 2006
20. ^ a b c Switkowski, Z. Uranium Mining, Processing and Nuclear Energy Review UMPNER taskforce, Australian Government, 2006
21. ^ Johnston, Eric, "Son's quest for sun, wind has nuclear interests wary", Japan Times, 12 July 2011, p. 3.
22. ^ Bird, Winifred, "Powering Japan's future", Japan Times, 24 July 2011, p. 7.
23. ^ Johnston, Eric, "Current nuclear debate to set nation's course for decades", Japan Times, 23 September 2011, p. 1.
24. ^ http://www.claverton-energy.com/?dl_id=131
25. ^ http://www.claverton-energy.com/talk-by-dr-gregor-czisch-at-the-5th-claverton-energy-conference-house-of-commons-june-19th-2009.html Claverton Energy Group conference, House of Commons, 19 June 2009
26. ^ Nuclear power's real chain reaction: spiraling costs. By Damian Carrington. 22 July 2011. The Guardian.
27. ^ Publications: Vienna Convention on Civil Liability for Nuclear Damage. International Atomic Energy Agency.
28. ^ Nuclear Power Expensive, Uninsurable. 3 June 2011. By Paul Gipe. Solar Today magazine.
29. ^ Versicherungswissenschaft belegt: AKW sind nicht versicherbar – adäquate Haftpflichtprämien würden Atomstrom unwirtschaftlich machen | BEE – Bundesverband Erneuerbare Energie e.V.. English translation of report summary here.
30. ^ Berechnung einer risikoadäquaten Versicherungsprämie zur Deckung der Haftp ichtrisiken, die aus dem Betrieb von Kernkraftwerken resultieren (10 MB). 1 April 2011. Versicherungsforen Leipzig.
31. ^ Reports and articles - Energy Fair. Section starting with "Researchers calculate horrendous liability costs for nuclear power (Der Spiegel, 2011-05-11)."
32. ^ Why the UK must choose renewables over nuclear: an answer to Monbiot. By Jonathon Porritt. 26 July 2011. The Guardian.
33. ^ Monbiot is "Part of the Problem": Jonathan Porritt on the Folly of Nuclear Power. By Sami Grover. 27 July 2011. TreeHugger.

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