In this report, the authors analyze publicly available data to estimate the average levelized cost of electricity from existing generation resources (LCOE-Existing), as compared to the levelized cost of electricity from new generation resources (LCOE-New) that might replace them. The additional information provided by LCOE-Existing presents a more complete picture of the generation choices available to the electric utility industry, policymakers, regulators and consumers.
What is the levelized cost of electricity? The Energy Information Administration (EIA) defines it as “the cost (in real dollars) of building and operating a generating plant over an assumed financial life and duty cycle.” But EIA’s Annual Energy Outlook and similar LCOE reports focus only on new generation resources, while ignoring the cost of electricity from existing generation resources. If the economic lives of all generation resources matched their assumed financial lives, and no resource ever closed before the end of its economic life, then EIA’s approach would provide enough information to compare the costs of the available options.
Contrary to that assumption, the economic lives of existing generation resources exceed EIA’s assumed 30-year financial life. And environmental regulations on conventional generators—combined with the wholesale price suppression effect of mandates and subsidies for wind and solar resources and persistent low fuel prices for natural gas—have indeed forced existing coal and nuclear plants to close early. About 70 gigawatts of coal and nuclear generation capacity that could have been called upon on demand have retired since 2011.
The report has two principal findings:
First: that, on average, continuing to operate existing natural gas, coal, nuclear and hydroelectric resources is far less costly than building and operating new plants to replace them. Existing coal-fired power plants, for example, can generate electricity at an average LCOE of $41 per megawatt-hour, whereas the authors project the LCOE of a new coal plant operating at a similar duty cycle to be $71 per MWh. Similarly, the authors estimate existing combined- cycle (CC) gas power plants can generate electricity at an average LCOE of $36 per MWh, whereas the authors project the LCOE of a new CC gas plant to be $50 per MWh.
Second: is a calculation of the costs that non-dispatchable wind and solar generation resources impose on the dispatchable generation resources which are required to remain in service but are forced to generate less in combination with them. Non-dispatchable means that the level of output from wind and solar resources depends on factors beyond our control and cannot be relied upon to follow load fluctuations nor consistently perform during peak loads. Wind and solar resources increase the LCOE of dispatchable resources they cannot replace by reducing their utilization rates without reducing their fixed costs, resulting in a levelized fixed cost increase.