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Annual Energy Outlook 2021

Release date: February 3, 2021   |  Next release date:  January 2022   |  AEO Narrative

Levelized Costs of New Generation Resources in the Annual Energy Outlook 2021

Release date: February 8, 2021


This paper presents average values of levelized costs for electric generating technologies entering service in 2023, 2026,[1] and 2040 as represented in the National Energy Modeling System (NEMS) for the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2021 (AEO2021) Reference case. Levelized cost of electricity (LCOE) is the estimate of the revenue required to build and operate a generator over a specified cost recovery period, and levelized avoided cost of electricity (LACE) is the revenue available to that generator during the same period. Beginning with the AEO2021, EIA includes estimates for the levelized cost of storage (LCOS) in addition to LCOE and LACE. All three values estimate the factors contributing to the capacity expansion decisions we modeled, which also consider policy, technology, and geographic characteristics that are not easily captured in a single metric.

The build decisions in the real world and as modeled in AEO2021, however, are more complex than a simple LACE-to-LCOE or LACE-to-LCOS comparison presented in the paper because they include factors such as policy and non-economic drivers. Nevertheless, the value-cost ratio (the ratio of LACE-to-LCOE or LACE-to-LCOS) provides a more intuitive framework for understanding economic competitiveness between generation technologies in the capacity expansion decisions than is possible using either LCOE, LCOS, or LACE metric individually.

The costs for electric generating facilities entering service in 2026 are presented in the body of the report, and those for 2023[2] and 2040 are included in Appendices A and B, respectively. Both a capacity-weighted average based on projected capacity additions and a simple average (unweighted) of the regional values across the 25 U.S. supply regions of the NEMS Electricity Market Module (EMM)[3] are provided, together with the range of regional values.


Footnotes

[1] Given the long lead-time and licensing requirements for some technologies, the first feasible year that all technologies are available is 2026.

[2] Appendix A shows LCOE, LCOS, and LACE for the subset of technologies available to be built in 2023.

[3]The map of EMM regions is available at https://www.eia.gov/outlooks/aeo/pdf/nerc_map.pdf.