New IEAGHG report: Beyond LCOE: Value of technologies in different generation and grid scenarios

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By Keith Burnard

29 September 2020

Since its introduction, the levelised cost of electricity (LCOE) has become ubiquitous in the evaluation and comparison of power generation technologies. While it is a readily accessible metric, it focuses exclusively on the cost of electricity produced from a given asset, or set of assets, and neglects to address the provision of ancillary services that are vital for the reliable operation of an electricity grid. This simplification was entirely appropriate for the electricity system of the 20th century, dominated at it was by fossil fuels and nuclear technologies, but it falls well short as a metric to compare technologies in a system to provide net-zero emissions by the mid-21st century.

This study aims to explore the potential for an alternative concept to LCOE that balances completeness and ease of use. The successful concept should offer a transparent, intuitive and comprehensive approach with which to compare the evolving impact of technologies within an electricity system – rather than simply providing direct technology-technology comparison. Various concepts have been proposed as alternatives to LCOE and, while many of them are excellent, no one method has emerged as a clear preference to LCOE; they variously suffer from computational complexity, large data requirements or lack of transparency.

Of all the services that each technology provides to the system, modelling undertaken for this study indicated that the provision of firm capacity (MW) and energy (MWh) services were the most crucial. An existing concept that assesses the capacity and the energy services of different technologies is the screening curve. However, while this concept represents a well-established method to compare thermal generation technologies, in its current form it is not suitable for the evaluation of intermittent renewables and storage technologies.

However, it is shown that this limitation can be overcome by incorporating the effective capacity factors of the technologies in the curve, which reflects the capacity and energy services provided by intermittent renewables. Storage technologies can also be incorporated in the approach by limiting their maximum hours of discharge to the curtailed hours of the electricity source (to represent the time the technology needs to charge) and to the maximum hours of operation (which corresponds to the time needed to charge and discharge).

Applying these rules allows the screening curve approach to be used to evaluate the capacity and energy value of dispatchable and non-dispatchable power generation technologies, as well as energy storage technologies. This is an accessible approach to evaluate the impact of arbitrary levels of all power generation technologies on the total system cost. The proposed concept can also be used to estimate the level of economic deployment of technologies considered and to determine the optimal role the technologies can play.

This study proposes the modified screening curve concept as an alternative concept to LCOE, which shows that intermittent renewables have significant value by providing energy/fuel savings for the electricity system, with CCUS, as a low-carbon, dispatchable technology, having critical value by supplying capacity for security of supply. 

To request a copy of the report, please email tom.billcliff@ieaghg.org referencing report number 2020-11.

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