Projected Costs of Generating Electricity 2020 Edition

23 March 2021

Peter Rio 6.jpg

Peter Fraser

Head, Gas, Coal & Power Markets Division

International Energy Agency

In December the IEA released the 9th edition of our joint study with the OECD NEA, Projected Costs of Generating Electricity. The study, through its Expert Group, has estimated the costs of electricity generation for 243 plants in 24 countries, with a proposed in-service date of 2025.

The study finds that in 21 of 24 countries surveyed, low-carbon generation options are the cheapest, assuming a USD 30 per tonne cost of carbon. The remarkable fall of solar PV costs, and the continued decline of the cost of wind, has made this possible. Extending the life of nuclear power plants is the cheapest low carbon option of all – as we had previously found in our 2019 report “Nuclear Power in a Clean Energy System”.

Which low carbon generation technology is the cheapest depends on the region. On-shore wind power is the cheapest in more countries than any other, but for the first time, solar PV is the lowest cost option in India– even cheaper than coal which is a remarkable change from a few years ago. New nuclear too finds itself the lowest cost option according to data submitted by Japan, Korea and Russia.

Every edition of this report – including this one - has used the Levelised Cost of Energy (LCOE) methodology, the most commonly used metric to assess cost competitiveness of power generation technologies. Its key strength is that it compresses all the direct technology costs into a single metric that is accessible for many.

But the world’s power systems are changing .To compare a wider set of technologies, that operate differently, it is critical to consider also the value side of the equation – what is the value that the particular generating technology will provide to a particular power system. For example, generation that is dispatchable to provide capacity and ancillary services has additional value that needs to be recognized in the comparison.

This report also provides the value-adjusted LCOE metric developed by the IEA for the IEA World Energy Outlook that adjusts the LCOE to reflect the contributions of different technologies to the capacity and flexibility services they provide. Additional value leads to a downward adjustment of the LCOE. In this report these adjustments are made for all technologies based on analyses of power systems of Europe, US, China and India. In practice these value adjustments are most favourable to the most flexible resources such as gas fired generation and less favourable to non dispatchable resources. For 2025, the adjustments are relatively modest, around USD 5-10 per MWh. But as power systems evolve into systems with higher shares of variable renewables these adjustments will become more important.

The report’s data are in digital format with all the tables available for download as spreadsheets and an online LCOE calculator that allows the user to calculate LCOE by varying some key parameters (discount rate, fuel prices, cost of carbon). For traditionalists, the book will still be available. All can be found online at the IEA or NEA websites.