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Reviewing electricity production cost assessments

  • Larsson, Simon
  • Fantazzini, Dean
  • Davidsson, Simon
  • Kullander, Sven
  • Hook, Mikael

A thorough review of twelve recent studies of production costs from different power generating technologies was conducted and a wide range in cost estimates was found. The reviewed studies show differences in their methodologies and assumptions, making the stated cost figures not directly comparable and unsuitable to be generalized to represent the costs for entire technologies. Moreover, current levelized costs of electricity methodologies focus only on the producer's costs, while additional costs viewed from a consumer perspective and on external costs with impact on society should be included if these results are to be used for planning. Although this type of electricity production cost assessments can be useful, the habit of generalizing electricity production cost figures for entire technologies is problematic. Cost escalations tend to occur rapidly with time, the impact of economies of scale is significant, costs are in many cases site-specific, and country-specific circumstances affect production costs. Assumptions on the cost-influencing factors such as discount rates, fuel prices and heat credits fluctuate considerably and have a significant impact on production cost results. Electricity production costs assessments similar to the studies reviewed in this work disregard many important cost factors, making them inadequate for decision and policy making, and should only be used to provide rough ballpark estimates with respect to a given system boundary. Caution when using electricity production cost estimates are recommended, and further studies investigating cost under different circumstances, both for producers and society as a whole are called for. Also, policy makers should be aware of the potentially widely different results coming from electricity production cost estimates under different assumptions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50306.

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Date of creation: Sep 2013
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Handle: RePEc:pra:mprapa:50306
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  1. Nicholson, Martin & Biegler, Tom & Brook, Barry W., 2011. "How carbon pricing changes the relative competitiveness of low-carbon baseload generating technologies," Energy, Elsevier, vol. 36(1), pages 305-313.
  2. Freeman III, A. Myrick, 1996. "Estimating the environmental costs of electricity: an overview and review of the issues," Resource and Energy Economics, Elsevier, vol. 18(4), pages 347-362, December.
  3. Joan Canton & �sa Johannesson Lind�n, 2010. "Support schemes for renewable electricity in the EU," European Economy - Economic Papers 408, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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