‹ Analysis & Projections

Annual Energy Outlook 2012

Release Date: June 25, 2012   |  Next Early Release Date: December 5, 2012  |   Report Number: DOE/EIA-0383(2012)

Levelized Cost of New Generation Resources in the Annual Energy Outlook 2012

Release date: July 12, 2012

This paper presents average levelized costs for generating technologies that are brought on line in 20171 as represented in the National Energy Modeling System (NEMS) for the Annual Energy Outlook 2012 (AEO2012) reference case.2

Levelized cost is often cited as a convenient summary measure of the overall competiveness of different generating technologies. It represents the per-kilowatthour cost (in real dollars) of building and operating a generating plant over an assumed financial life and duty cycle. Key inputs to calculating levelized costs include overnight capital costs, fuel costs, fixed and variable operations and maintenance (O&M) costs, financing costs, and an assumed utilization rate for each plant type.3 The importance of the factors varies among the technologies. For technologies such as solar and wind generation that have no fuel costs and relatively small O&M costs, the levelized cost changes in rough proportion to the estimated overnight capital cost of generation capacity. For technologies with significant fuel cost, both fuel cost and overnight cost estimates significantly affect the levelized cost. The availability of various incentives, including state or federal tax credits, can also impact the calculation of levelized cost. The values shown in the tables below do not incorporate any such incentives4 As with any projection, there is uncertainty about all of these factors and their values can vary regionally and across time as technologies evolve.

It is important to note that, while levelized costs are a convenient summary measure of the overall competiveness of different generating technologies, actual plant investment decisions are affected by the specific technological and regional characteristics of a project, which involve numerous other considerations. The projected utilization rate, which depends on the load shape and the existing resource mix in an area where additional capacity is needed, is one such factor. The existing resource mix in a region can directly affect the economic viability of a new investment through its effect on the economics surrounding the displacement of existing resources. For example, a wind resource that would primarily displace existing natural gas generation will usually have a different value than one that would displace existing coal generation.

A related factor is the capacity value, which depends on both the existing capacity mix and load characteristics in a region. Since load must be balanced on a continuous basis, units whose output can be varied to follow demand (dispatchable technologies) generally have more value to a system than less flexible units (non-dispatchable technologies) or those whose operation is tied to the availability of an intermittent resource. The levelized costs for dispatchable and nondispatchable technologies are listed separately in Tables 1 and 2, because caution should be used when comparing them to one another.

Policy-related factors, such as investment or production tax credits for specified generation sources, can also impact investment decisions. Finally, although levelized cost calculations are generally made using an assumed set of capital and operating costs, the inherent uncertainty about future fuel prices and future policies, may cause plant owners or investors who finance plants to place a value on portfolio diversification. While EIA considers all of these factors in its analysis of technology choice in the electricity sector, these concepts are not well represented in the context of levelized cost figures.

The levelized cost shown for each utility-scale generation technology in the tables below are calculated based on a 30-year cost recovery period, using a real after tax weighted average cost of capital (WACC) of 6.8 percent. However, in the AEO2012 reference case a 3-percentage point increase in the cost of capital is added when evaluating investments in greenhouse gas (GHG) intensive technologies like coal-fired power and coal-to-liquids (CTL) plants without carbon control and sequestration (CCS). While the 3-percentage point adjustment is somewhat arbitrary, in levelized cost terms its impact is similar to that of an emissions fee of $15 per metric ton of carbon dioxide (CO2) when investing in a new coal plant without CCS, similar to the costs used by utilities and regulators in their resource planning. The adjustment should not be seen as an increase in the actual cost of financing, but rather as representing the implicit hurdle being added to GHG-intensive projects to account for the possibility they may eventually have to purchase allowances or invest in other GHG emission-reducing projects that offset their emissions. As a result, the levelized capital costs of coal-fired plants without CCS are higher than would otherwise be expected.

Some technologies, notably solar photovoltaic (PV), are used in both utility-scale plants and distributed end-use residential and commercial applications. As noted above, the levelized cost calculations presented in the tables apply only to utility-scale use of those technologies.

In the tables below, the levelized cost for each technology is evaluated based on the capacity factor indicated, which generally corresponds to the high end of its likely utilization range. Simple combustion turbines (conventional or advanced technology) that are typically used for peak load duty cycles are evaluated at a 30-percent capacity factor. The duty cycle for intermittent renewable resources, wind and solar, is not operator controlled, but dependent on the weather or solar cycle (that is, sunrise/sunset) and so will not necessarily correspond to operator dispatched duty cycles. As a result, their levelized costs are not directly comparable to those for other technologies (even where the average annual capacity factor may be similar) and therefore are shown in separate sections within the table. The capacity factors shown for solar, wind, and hydroelectric resources are simple averages of the capacity factor for the marginal site in each region. These capacity factors can vary significantly by region and can represent resources that may or may not get built in EIA capacity projections. These capacity factors should not be interpreted as representing EIA's estimate or projection of the gross generating potential of resources actually projected to be built.

Table 1. Estimated Levelized Cost of New Generation Resources, 2017 
    U.S. Average Levelized Costs (2010 $/megawatthour) for Plants Entering Service in 2017
Plant Type Capacity Factor (%) Levelized Capital Cost Fixed O&M Variable O&M (including fuel) Transmission Investment Total System Levelized Cost
Dispatchable Technologies
Conventional Coal 85 64.9 4.0 27.5 1.2 97.7
Advanced Coal 85 74.1 6.6 29.1 1.2 110.9
Advanced Coal with CCS 85 91.8 9.3 36.4 1.2 138.8
Natural Gas-fired
Conventional Combined Cycle 87 17.2 1.9 45.8 1.2 66.1
Advanced Combined Cycle 87 17.5 1.9 42.4 1.2 63.1
Advanced CC with CCS 87 34.3 4.0 50.6 1.2 90.1
Conventional Combustion Turbine 30 45.3 2.7 76.4 3.6 127.9
Advanced Combustion Turbine 30 31.0 2.6 64.7 3.6 101.8
Advanced Nuclear 90 87.5 11.3 11.6 1.1 111.4
Geothermal 91 75.1 11.9 9.6 1.5 98.2
Biomass 83 56.0 13.8 44.3 1.3 115.4
Non-Dispatchable Technologies
Wind 33 82.5 9.8 0.0 3.8 96.0
Solar PV1 25 140.7 7.7 0.0 4.3 152.7
Solar Thermal 20 195.6 40.1 0.0 6.3 242.0
Hydro2 53 76.9 4.0 6.0 2.1 88.9
1Costs are expressed in terms of net AC power available to the grid for the installed capacity.
2As modeled, hydro is assumed to have seasonal storage so that it can be dispatched within a season, but overall operation is limited by resources available by site and season.
Note: These results do not include targeted tax credits such as the production or investment tax credit available for some technologies, which could significantly affect the levelized cost estimate. For example,new solar thermal and PV plants are eligible to receive a 30-percent investment tax credit on capital expenditures if placed in service before the end of 2016, and 10 percent thereafter. New wind, geothermal, biomass, hydroelectric, and landfill gas plants are eligible to receive either: (1) a $22 per MWh ($11 per MWh for technologies other than wind, geothermal and closed-loop biomass) inflation-adjusted production tax credit over the plant's first ten years of service or (2) a 30-percent investment tax credit, if placed in service before the end of 2013 (or 2012, for wind only).
Source: U.S. Energy Information Administration, Annual Energy Outlook 2012, June 2012, DOE/EIA-0383(2012).

As mentioned above, the costs shown in Table 1 are national averages. However, there is significant local variation in costs based on local labor markets and the cost and availability of fuel or energy resources such as windy sites (Table 2). For example, levelized wind costs for incremental capacity coming on line in 2017 range from $77/MWh in the region with the best available resources in 2017 to $112/MWh in regions where the best sites have been claimed by 2017. Costs shown for wind may include additional costs associated with transmission upgrades needed to access remote resources, as well as other factors that markets may or may not internalize into the market price for wind power.

Table 2. Regional Variation in Levelized cost of New Generation Resources, 2017 
  Range for Total System Levelized Costs (2010 $/megawatthour) for Plants Entering Service in 2017
Plant Type Minimum Average Maximum
Dispatchable Technologies
Conventional Coal 90.5 97.7 114.3
Advanced Coal 102.5 110.9 124.0
Advanced Coal with CCS 127.7 138.8 158.2
Natural Gas-fired
Conventional Combined Cycle 59.5 66.1 81.0
Advanced Combined Cycle 56.8 63.1 76.4
Advanced CC with CCS 80.1 90.1 108.5
Conventional Combustion Turbine 91.9 127.9 152.4
Advanced Combustion Turbine 77.7 101.8 122.6
Advanced Nuclear 107.2 111.4 118.7
Geothermal 84.0 98.2 112.0
Biomass 97.8 115.4 136.7
Non-Dispatchable Technologies
Wind 77.0 96.0 112.2
Solar PV1 119.0 152.7 238.8
Solar Thermal 176.1 242.0 386.2
Hydro2 57.8 88.9 147.6
1Costs are expressed in terms of net AC power available to the grid for the installed capacity.
2As modeled, hydro is assumed to have seasonal storage so that it can be dispatched within a season, but overall operation is limited by resources available by site and season.
Source: U.S. Energy Information Administration, Annual Energy Outlook 2012, June 2012, DOE/EIA-0383(2012).

 


Footnotes

12017 is shown because the long lead time needed for some technologies means that the plant could not be brought on line prior to 2017 unless it was already under construction.

2 The full report is available at http://www.eia.gov/forecasts/aeo/pdf/0383(2012).pdf.

3 The specific assumptions for each of these factors are given in the Assumptions to the Annual Energy Outlook, available at http://www.eia.gov/forecasts/aeo/assumptions/index.html.

4 These results do not include targeted tax credits such as the production or investment tax credit available for some technologies. Costs are estimated using tax depreciation schedules consistent with current law, which vary by technology.