Reviewing Electricity Production Cost Assessments

Renewable & Sustainable Energy Reviews, Forthcoming

27 Pages Posted: 1 Oct 2013

See all articles by Simon Larsson

Simon Larsson

Uppsala University - Department of Earth Sciences

Dean Fantazzini

Moscow School of Economics, Moscow State University; National Research University Higher School of Economics

Simon Davidsson

Uppsala University - Department of Earth Sciences

Sven Kullander

The Royal Swedish Academy of Sciences

Mikael Höök

Uppsala University, Department of Earth Sciences - Global Energy Systems

Date Written: September 30, 2013

Abstract

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.

Keywords: Electricity generation costs, levelized costs, energy market analysis, cost comparisons, policy implications

JEL Classification: Q40, Q41, Q42, L94

Suggested Citation

Larsson, Simon and Fantazzini, Dean and Davidsson, Simon and Kullander, Sven and Höök, Mikael, Reviewing Electricity Production Cost Assessments (September 30, 2013). Renewable & Sustainable Energy Reviews, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2333470

Simon Larsson

Uppsala University - Department of Earth Sciences ( email )

Olofsgatan 10B, 753 12
Uppsala
Sweden

Dean Fantazzini (Contact Author)

Moscow School of Economics, Moscow State University ( email )

GSP-2, Leninskie Gory
Moscow, 119992
Russia
+7 495 5105256 (Phone)
+7 495 5105267 (Fax)

HOME PAGE: https://sites.google.com/site/deanfantazzini/

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

HOME PAGE: http://www.hse.ru/org/persons/11532644

Simon Davidsson

Uppsala University - Department of Earth Sciences ( email )

Olofsgatan 10B, 753 12
Uppsala
Sweden

HOME PAGE: http://www.geo.uu.se

Sven Kullander

The Royal Swedish Academy of Sciences ( email )

United States

Mikael Höök

Uppsala University, Department of Earth Sciences - Global Energy Systems ( email )

Olofsgatan 10B, 753 12
Uppsala
Sweden

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