HomeIndustry SectorsFuture EnergyCost of low-carbon generation increasingly lower than fossil fuel

Cost of low-carbon generation increasingly lower than fossil fuel

The levelised costs of low-carbon generation of electricity are falling and increasingly below the cost of conventional fossil fuel generation.

This is the finding of the IEA’s 2020 Projected Costs of Generating Electricity. This is the ninth report in the series on the levelised costs of electricity, jointly prepared every five years by the OECD Nuclear Energy Agency (NEA) and the International Energy Agency (IEA).

The report analyses data from 243 plants in 24 countries. It presents the plant-level costs of generating energy for baseload electricity generated from fossil fuel, nuclear energy and range of renewable technologies such as wind, solar, hydro and biofuels.

Despite difference in regional, national and local conditions, the report finds that low-carbon generation is overall becoming increasingly cost competitive. Renewable energy costs have continued to decrease in recent years. The cost of wind and solar PV are now competitive with fossil fuel-based electricity in many countries.

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Electricity from nuclear power plants is also expected to have lower costs in the near future. This is because cost reductions stemming from lessons learn from a first-of-a-kind project in several OECD countries proved new nuclear power will remain the dispatchable low-carbon technology with the lowest expected cost in 2025.

The report also finds that prolonging the operation of existing nuclear power plants, known as long-term operations, is the most cost-effective source of low carbon electricity.

Hydroelectric power can provide similar contribution at comparable costs. However, generating hydroelectric power remains highly dependent on the natural endowment of individual countries.

True cost of low carbon electricity is a nuanced affair

NEA director general William D Magwood, commented: “As has been demonstrated by the ongoing COVID-19 pandemic, access to electricity is key to advanced societies. Reliable and cost-effective electricity is the source of economic growth in both developed and developing countries that face the need to bring more people out of poverty, to provide healthcare and to educate future generations.”

As in previous editions, the report uses the levelised cost of energy (LCOE) methodology as a well-established and widely-used metric in policy making and modelling.

However, for the first time, the report also presents a complementary metric in the value-adjusted LCOE measure in order to account of the increasing importance of system consideration within the context of the growing share of variable renewable energy technologies.

Costs associated with storage, fuel cells and the long-term operation of nuclear power plants are also included in the analysis for the first time.

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The report also includes five boundary chapters. These are free-standing articles contributed by experts in the respective area that discuss different aspects of current and future electricity systems. Also included in the report for the first time is an online Levelised Cost of Electricity Calculator.

Calculating the real price tag of electricity

This Levilised Cost of Electricity Calculator allows for easy download of all data tables in the report. This empowers the user to examine the impact of changing select variables such as the discount rate, fuel prices of cost of carbon.

These improvements should make the Projected Costs of Generating Electricity report’s information easier to access and help users explore the sensitivity of results to certain key variables.

IEA executive director Fatih Birol said: “The electricity sector is essential for the functioning of modern societies, as the COVID-19 crises has highlighted yet again, and also has a crucial role to play in reducing global emissions.”

Magwood pointed out that all countries have the right and responsibility to do what they think is right for their citizens. “But, decarbonisation commitments made as post of the post-COVID-19 economic recovery must be approached with a full understanding of the costs and impacts of various technologies in the electricity system as a whole. From an economic and sustainable standpoint, it is crucial to have the right balance of variable renewables and dispatchable resources, such as nuclear and hydro, in order to enable a resilient long-term energy infrastructure.”

Theresa Smith
Theresa Smith is a content producer for Clarion Events Africa.

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