Levelised Cost of Energy Explained and What Comes Next?
What’s the best energy source? On my YouTube channel I make a lot of videos about renewable energy and I often talk about efficiency and ways to improve efficiency. And every time I do that, I get dozens of totally reasonable comments to the effect of: “Who cares about efficiency when the wind is literally free?”
And the commenter will suggest that the more relevant topic is the cost of the generator, or how many you can fit in a certain area, or which has the lowest maintenance costs… which is the best and ultimately which is the cheapest energy?
It isn’t very useful to compare just one of these factors without considering them all, and the standard way to combine all these important factors (and more!) is by calculating the Levelised Cost of Energy, LCOE.That is calculated using this equation and equations are maybe not that interesting, so I am going to explain it using a race car analogy.
Grid positions — Nameplate capacity
Alright, so we’re on our way to the start line. We’ve got coal, gas, solar and onshore wind ready to go and the grid positions will be determined by how much 500MW worth of power generation costs, including the equipment cost and everything else that you need to pay to transport, install and connect to the grid. 500MW worth of utility scale solar panels is the cheapest of the four at $400 million, so it gets pole position. Second is combined cycle gas, closely followed by onshore wind and coal power comes in most expensive by a really long way actually at $3 billion.