Analysis & Projections

Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants

Release Date: November 22, 2016

Addendum - Capital Cost Estimates for Additional Utility Scale Generating Plants Release Date: April 7, 2017


Introduction

The current and future projected cost and performance characteristics of new electric generating capacity are critical inputs into the development of energy projections and analyses. The construction and operating costs, along with the performance characteristics of new generating plants, play an important role in determining the mix of capacity additions that will serve future demand for electricity. These parameters also help to determine how new capacity competes against existing capacity, and the response of the electric generators to the imposition of environmental controls on conventional pollutants or any limitations on greenhouse gas emissions.

EIA commissioned an external consultant to develop up–to–date cost and performance estimates for utility–scale electric generating plants for AEO2013.1 This information allowed EIA to compare the costs of different power plant technologies on a standardized basis and was a key input enhancement to the National Energy Model System (NEMS). For the AEO2016 development, EIA commissioned the same consultant group to update the cost and performance estimates for a select set of the technologies evaluated in the original 2012 study. This paper summarizes the results of the findings and discusses how EIA used the updated information to analyze the development of new capacity in the electric power sector.

Developing updated estimates: key design considerations

The focus of the 2016 update was to gather current information on the "overnight" construction costs, operating costs, and performance characteristics for a wide range of generating technologies.2 The estimates were developed through costing exercises, using a common methodology across technologies. Comparing cost estimates developed on a similar basis using the same methodology is of particular importance to ensure modeling consistency.

Each technology is represented by a generic facility of a specific size and configuration, in a location that does not have unusual constraints or infrastructure requirements. Where possible, costs estimates were based on information on system design, configuration, and construction derived from actual or planned projects known to the consultant, using generic assumptions for labor and materials rates. When this information was not available, the project costs were estimated using a more generic technology representation and costing models that account for the current labor and materials rates necessary to complete the construction of a generic facility as well as consistent assumptions for the contractual relationship between the project owner and the construction contractor.

The specific overnight costs for each type of facility were broken down to include:

  • Civil and structural costs: allowance for site preparation, drainage, the installation of underground utilities, structural steel supply, and construction of buildings on the site
  • Mechanical equipment supply and installation: major equipment, including but not limited to, boilers, flue gas desulfurization scrubbers, cooling towers, steam turbine generators, condensers, photovoltaic modules, combustion turbines, wind turbines, and other auxiliary equipment
  • Electrical and instrumentation and control: electrical transformers, switchgear, motor control centers, switchyards, distributed control systems, and other electrical commodities
  • Project indirect costs: engineering, distributable labor and materials, craft labor overtime and incentives, scaffolding costs, construction management start up and commissioning, and fees for contingency3
  • Owners costs: development costs, preliminary feasibility and engineering studies, environmental studies and permitting, legal fees, insurance costs, property taxes during construction, and the electrical interconnection costs, including a tie-in to a nearby electrical transmission system

Non–fuel operations and maintenance (O&M) costs associated with each of the power plant technologies were evaluated as well. The O&M costs that do not vary significantly with a plant’s electricity generation are classified as fixed, including salaries for facility staff and maintenance that is scheduled on a calendar basis. The costs incurred to generate electricity are classified as variable such as the cost of consumable materials and maintenance that may be scheduled based on the number of operating hours or start–stop cycles of the plant. The heat rates4 were also evaluated for the appropriate technologies. It should be noted that all estimates provided in this report are broad in scope. A more in– depth cost assessment would require a more detailed level of engineering and design work, tailored to a specific site.

Findings

Table 1 summarizes updated cost estimates for generic utility–scale generating technologies, including four powered by coal, six by natural gas, three by solar energy, and one each by wind, biomass, uranium, and battery storage. EIA does not model all of these generating plant types, but included them in the study in order to present consistent cost and performance information for a broad range of generating technologies and to aid in the evaluation for potential inclusion of new or different technologies or technology configurations in future analyses.

The specific technologies represented in the NEMS model for AEO2016 that use the cost data from this report are identified in the last column of Table 1.

Table 2 compares the updated overnight cost estimates to those developed for the 2013 report. To facilitate comparisons, the costs are expressed in 2016 dollars.5Notable changes include:

  • Ultra Supercritical Coal (USC) with and without carbon capture and storage (USC/CCS). USC with carbon capture and storage was added for this study to help meet EPA’s 111b new source performance standard for carbon emissions. While USC without carbon capture cannot be built under current regulations, inclusion of this technology maintains the capability to analyze policy alternatives that may exclude 111b requirements.
  • Conventional Natural Gas Combined Cycle (NGCC) and Advanced Natural Gas Combined Cycle (ANGCC): The updated overnight capital cost for conventional and advanced NGCC plants remained level relative to the cost in the 2013 study. The capacity of the NGCC unit increased from 400 MW in the 2013 study to 429 MW, while the capacity of the ANGCC unit increased from 620 MW to 702 MW for ANGCC to reflect trends toward larger installations for this technology.
  • Onshore Wind: Overnight costs for onshore wind decreased by approximately 25 percent relative to the 2013 study, primarily due to lower wind turbine prices. EIA adjusted regional cost factors for wind plants from those reported in this report for inclusion in AEO 2016 [Table 8.2]. The regional factors in this report primarily account for regional variation in labor and materials costs, but subsequent evaluation of the regional variation in wind plant costs found that other factors, such as typical plant size, may account for a larger share of the observed regional differences in cost for the wind plants.
  • Solar Photovoltaic: The overnight capital costs for solar photovoltaic technologies decreased by 67 percent for the 20 MW fixed tilt photovoltaic systems from the costs presented in the 2013 study. Solar photovoltaic single–axis tracking systems were introduced in this report (including both a 20 MW and 150 MW system configurations). There is not a significant difference in Capital costs between fixed–tilt and single–axis–tracking systems. The overall decreases in costs can be attributed to a decline in the component costs and the construction cost savings for the balance of plant systems.

As previously noted, costs are developed using a consistent methodology that includes a broad project scope and includes indirect and owners costs. The cost figures will not necessarily match those derived in other studies that employ different approaches to cost estimation.

EIA's analysis of technology choice in the electric power sector

EIA's modeling employs a net present value (NPV) capital budgeting methodology to evaluate different investment options for new power plants. Estimates of the overnight capital cost, fixed and variable operations and maintenance costs, and plant heat rates for generic generating technologies serve as a starting point for developing the total cost of new generating capacity. However, other parameters also play a key role in determining the total capital costs. Because several of these factors are dynamic, the realized overall capital cost for given technologies can vary based on a variety of circumstances. Five of the most notable parameters are:

  • Financing: EIA determines the cost of capital required to build new power plants by calculating a weighted average cost of capital using a mix of macro–economic parameters determined through EIA's modeling and an assumed capital structure for the electric power industry.
  • Lead Time: The amount of time needed to build a given type of power plant varies by technology. Projects with longer lead times increase financing costs. Each year of construction represents a year of additional interest charges before the plant is placed in service and starts generating revenue. Furthermore, plants with front–weighted construction and development profiles will incur higher interest charges during construction than plants where most of the construction expenditures occur at the end of the development cycle.
  • Inflation of material and construction costs: The projected relationship between the rate of inflation for the overall economy and key drivers of plant costs, such as materials and construction, are important elements impacting overall plant costs. A projected economy–wide inflation rate that exceeds the projected inflation rate for materials and construction costs results in a projected decline in real (inflation–adjusted) capital costs and vice versa.
  • Resource Supply: Technologies such as wind, geothermal, or hydroelectric must be sited in suitable locations to take advantage of the particular resource. In order to capture the site specific costs associated with these technologies, EIA develops upward sloping supply curves for each of these technologies. These curves assume that the lowest–cost, most–favorable resources will be developed first, and when only higher–cost, less–favorable sites remain, development costs will increase and/or project performance will decrease.
  • Learning by doing: The overnight capital costs developed for the report serve as an input to EIA's long term modeling and represent the cost of construction for a project that could begin as early as 2015. However, these costs are assumed to decrease over time in real terms as equipment manufacturers, power plant owners, and construction firms gain more experience with certain technologies. The rate at which these costs decline is often referred to as the learning rate.

EIA determines learning rates at the power plant component level, not for the power plant technology itself because some technologies share the same component types. It is assumed that the knowledge and experienced gained through the manufacture and installation of a given component in one type of power plant can be carried over to the same component in another type of plant. As an example, the experience gained through the construction of natural gas combustion turbine plants can be leveraged to influence the overall cost of building a Natural Gas Combined Cycle unit, which in part, includes the components of a combustion turbine natural gas plant. Other technologies, such as nuclear power and pulverized coal (PC) plants without CCS, do not share component systems, and their learning rates are determined solely as a function of the amount of capacity built over time.

Technologies and their components are represented in the NEMS model at various stages of maturity. EIA classifies technologies into three such stages: mature, evolutionary, and revolutionary. The initial learning rate is evaluated for each technology. The technology classification determines how the rate of cost reduction changes as each technology progresses through the learning function. Generally, overnight costs for technologies and associated components decline at a specified rate based on a doubling of new capacity. The cost decline is fastest for revolutionary technologies and slower for evolutionary and mature technologies.6

The capacity additions used to influence learning are primarily developed from NEMS results. However, external capacity additions from international projects are also included for some technologies, to account for additional learning from such projects. For power plant technologies with multiple components, the capacity additions are weighted by the contribution of each component to the overall plant construction cost.7

Table 3 classifies the status of each technology and component as modeled in AEO2016.

The NEMS model also assumes that efficiency for all fossil–fueled plants improves as a result of learning by doing. The power plant heat rates provided by the consultant are intended to represent the characteristics of a plant that starts construction in 2015 referred to as "first–of–a–kind." NEMS assumes that the heat rate for all fossil fueled technologies declines over time to a level referred to as an "nth–of– a–kind" heat rate.8 The magnitude of heat rate improvement depends on the current state of the technology, with revolutionary technologies seeing a more significant decline in heat rate than mature technologies. Heat rate improvements are independent of capacity expansion. Fixed and variable O&M are not assumed to achieve learning–related savings. The performance of wind plants, as measured by capacity factor, is also assumed to improve as a result of learning by doing.9

Impact of location on power plant capital costs

The estimates provided in this report are representative of a generic facility located in a region without any special issues that would alter its cost. However, the cost of building power plants in different regions of the United States can vary significantly. The report includes location–based cost adjustment tables for each technology in 64 metropolitan areas. These adjustments were made to reflect the impact of remote location costs, costs associated with seismic design that may vary by region, and labor wage and productivity differences by region. In order to reflect these costs in EIa's modeling, these adjustments were aggregated to represent the 22 Electricity Market Module regions. EIA also assumes that the development of certain technologies is not feasible in given regions for geographic, logistical, or regulatory reasons. The regional cost adjustments and development restrictions are summarized in Table 4.

Subsequent peer review of these results indicated that the regional factors used for wind plants do not adequately reflect observed regional variation of wind plant costs, which appear to be substantially determined by factors other than those considered above. In particular, EIA found a significant regional variation in typical plant size that generally correlated with regional variation in installation costs. Therefore, EIA does not use the regional factors included in this report for its analysis of wind technologies. Regional factors used for AEO2016 and related analyses can be found in Table 8.2 of the AEO2016 Assumptions document, and are also shown in Table 4.

Summary

The estimates provided by the consultant for this report are key inputs for EIA electric market projections, but they are not the sole driver of electric generation capacity expansion decisions. The evolution of the electricity mix in each of the 22 regions modeled in AEO2016 is sensitive to many factors, including the projected evolution of capital costs over the modeling horizon, projected fuel costs, whether wholesale power markets are regulated or competitive, the existing generation mix, additional costs associated with environmental control requirements, and future electricity demand.

Users interested in additional details regarding these updated cost estimates should review the consultant study prepared by Leidos Engineering, LLC in Appendix B.

see full report report


see addendum


Footnotes

1 U.S. Energy Information Administration, Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants 2013.

2 The term “overnight” refers to the cost of the project as if no interest were incurred during its construction.

3 Fees for contingency include contractor overhead costs, fees, profit, and construction.

4 Heat Rate is a measure of generating station thermal efficiency commonly stated as Btu per kilowatthour.

5 U.S. Energy Information Administration, Annual Energy Outlook 2016, Table 20, GDP chain-type price index.

6 U.S. Energy Information Administration, Electricity Market Module Assumptions Document, Table 8.3.

7 U.S. Energy Information Administration, Electricity Market Module Assumptions Document, Table 8.4.

8 U.S. Energy Information Administration, AEO2016 Cost and Performance Characteristics of New Central Station Electricity Generating Technologies, Table 8.2.

9 U.S. Energy Information Administration, Renewable Fuels Module