Costs of Generating Electricity with Renewable Generating Technologies

For onshore wind energy, the specific overnight construction costs are in the range of 1,900 to 3,700 USD/kWe. The expense schedules reported indicate a construction period between one to two years in the majority of cases. As with all other technologies, the costs calculated and presented in this report for wind power plants are plant‑level costs.

They therefore do not include specific costs associated with the integration of wind energy or other intermittent renewable energy sources into most existing electric systems and, in particular, the need for backup power capacities to compensate for the variability and limited predictability of their production.

The levelised costs of electricity produced with onshore wind energy and solar photovoltaic technologies exhibit a very high sensitivity to the load factor variation, and to a lesser extent to the construction cost, at any discount rate.

In contrast with nuclear and thermal plants with a generic load factor of 85%, plant‑specific load factors were used for renewable energy sources. For variable renewable sources such as wind energy, the availability of the wind farm is in fact an important driving factor for the levelised cost of generating electricity.

The reported load factors of wind power plants range between 21% and 41% for onshore wind farm plants, and between 34% and 43% for offshore wind farm plants except in one case.

At a 5% discount rate, levelised generation costs for onshore wind power plants in OECD countries considered in the study range between 48 USD/MWh (United States) and 163 USD/MWh (Switzerland), and from 101 USD/MWh (United States) to 188 USD/MWh (Belgium) for offshore wind energy. The share of investment costs is 77% for onshore wind turbines and 73% for offshore wind turbines.

At a 10% discount rate, the levelised costs of wind energy electricity in OECD countries range between 70 USD/MWh (United States) and more than 234 USD/MWh (Switzerland). For offshore wind turbines the costs range from 146 USD/MWh (United States) to 261 USD/MWh (Belgium).

The share of investment costs is 87% for onshore wind turbines and 80% for offshore wind turbines. For the latter, the difficult conditions of the marine environment imply a higher share of the costs for operations and maintenance.

For solar photovoltaic plants, the load factors reported vary from 10% to 25%. At the higher load factor, the levelised costs of solar-generated electricity are reaching around 215 USD/MWh at a 5% discount rate and 333 USD/MWh at a 10% discount rate. With the lower load factors, the levelised costs of solar-generated electricity are around 600 USD/MWh.

The two reported solar thermal plants have a load factor of 32% (Eurelectric) and 24% (US Department of Energy). The levelised costs range from 136 USD/MWh to 243 USD/MWh, for 5% and 10% discount rates respectively.

The current study also contains limited data on the cost of hydroelectric power generation. Depending on the plant size and specific site, hydro is competitive in some countries; however, costs vary so widely that no general conclusions can be drawn.

This joint report by the International Energy Agency (IEA) and the OECD Nuclear Energy Agency (NEA), is the seventh in a series of studies on electricity generating costs. It presents the latest data available for a wide variety of fuels and technologies, including coal and gas (with and without carbon capture), nuclear, hydro, onshore and offshore wind, biomass, solar, wave and tidal as well as combined heat and power (CHP). It provides levelised costs of electricity (LCOE) per MWh for almost 200 plants, based on data covering 21 countries (including four major non-OECD countries), and several industrial companies and organisations.

The cost of electricity in the coming years will depend on a number of key parameters, foremost among them the costs of raising financial capital and the price of carbon. This is one of the main conclusions of Projected Costs of Generating Electricity: 2010 Edition, a new joint study by the International Energy Agency (IEA) and the OECD Nuclear Energy Agency (NEA). The report, which was presented today in Paris by IEA Executive Director Nobuo Tanaka and NEA Director-General Luis Echávarri, comprises the latest data on the costs of electricity generation for a wide variety of fuels and technologies. It stablishes a global benchmark for the costs of power supply. “In a period when many countries are looking to invest in electricity capacity while working to reduce carbon emissions, it provides an indispensable basis for any discussion about electricity generation choices,” said Mr. Echávarri. Mr. Tanaka stressed that “to bolster competitiveness of low-carbon technologies such as nuclear, renewables and CCS, we need strong government action to lower the cost of financing and a significant CO2 price signal to be internalised in power markets”.

No technology triumphs overall for baseload generation – it all depends on the specific circumstances

The study shows that no technology holds a consistent economic advantage at a global level under all circumstances. Conditions prevailing domestically matter, and the competitiveness of a generating technology will depend on a number of factors, especially the cost of capital and the price of carbon. Using a common standardised measure of cost (the levelised cost of electricity (LCOE) per MWh over the lifetime of a plant) and assuming a carbon price of USD 30 per tonne of CO2, the study provides results for two real interest rates of 5% and 10%. When financing costs are low (5% case), nuclear energy followed by coal with carbon capture are the most competitive solutions. With higher financing costs (10% case), coal-fired generation followed by coal with carbon capture and gas-fired combined cycle turbines (CCGTs) are the cheapest sources of electricity. Apart from interest rates, generation costs of renewables are heavily dependent on local resources and fast technological improvement. Today, where local conditions are favourable, hydro and wind are competitive generation technologies.

Each technology has strengths and weaknesses, not always captured by the study methodology and depending on the particular circumstances:

Nuclear delivers significant amounts of very low-carbon baseload electricity at stable costs over time. Nuclear must manage, however, high amounts of capital at risk as well as the cost of decommissioning and waste disposal together with social concerns about safety and proliferation.

Coal is economically competitive in the absence of a sufficiently high carbon price. This applies in particular where coal is cheap. However, this advantage is quickly reduced as carbon costs rise.

Coal with carbon capture, based on low coal prices and estimates of carbon capture costs (but not storage), can be competitive when a CO2 price is applied. However, carbon capture has not yet been demonstrated at commercial scale for power plants. Until a number of industrial-scale demonstration plants are operating, the costs for coal with carbon capture will remain uncertain.

Gas presents three advantages: low capital costs, a lower CO2 profile in comparison with other fossil fuel technologies and a high operational flexibility. But gas-fired plants’ generating costs depend highly on gas price levels. Depending on its price relative to other fuels, notably coal, gas may not be competitive for continuous use in baseload power production. However, gas is further helped by the fact that as the marginal fuel it frequently sets the price in wholesale electricity markets. This enables gas-fired generation to hedge costs against gas price fluctuations and has made CCGTs a low risk choice in OECD countries.

On-shore wind depends on highly favourable local conditions but is competitive in individual cases in the absence of system costs. However, because wind is non-dispatchable, it cannot be strictly considered as a baseload technology.

Choices exist – governments matter

Governments play a key role when it comes to the costs of raising financial capital and the price of carbon. The cost of capital is essentially a function of the risk faced by each option for generating electricity – market risk, technology risk, construction and regulatory risk. With their high capital costs, low-carbon technologies such as nuclear, renewables and carbon capture and storage (CCS) are particularly vulnerable. Smart government action, however, can do much to reduce these risks.

The price of carbon is a decisive factor in the competition between conventional fossil-fuel and low-carbon technologies. The USD 30 per tonne carbon price included in the study reflects a reasonable assumption for the coming years. A significantly higher (or lower) carbon price would decisively tilt the current competitive balance in one direction or another.

Choices exist. In presenting these choices, Projected Costs of Generating Electricity: 2010 Edition will be an indispensable tool for decision makers, researchers and stakeholders in the years to come. Thanks to the active co-operation of OECD and non-OECD countries, industry and academia, this new edition covers more countries and technologies than any previous one. It comprises data for almost 200 power plants from 17 OECD countries as well as from Brazil, China, Russia and South Africa, and features a wide array of technologies including coal (both with and without carbon capture), natural gas, nuclear, hydro, on-shore and off-shore wind, solar, biomass, wave, tidal and combined heat and power (CHP).

Projected Costs of Generating Electricity: 2010 Edition is the seventh in a series of studies on the costs of power generation and has established itself as an unrivalled reference in this domain. The analysis was closely overseen by an international Expert Group on Electricity Generating Costs with more than 50 representatives from 19 OECD member countries, the European Commission and the International Atomic Energy Agency (IAEA). Experts from Brazil, India and Russia also participated.

For the first time, the report contains an extensive sensitivity analysis of the impact of variations in key parameters such as discount rates, fuel prices and carbon costs on LCOE. Additional issues affecting power generation choices are also examined.