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Meaningless LCOEs

July 22, 2014

Proponents of renewables, such as wind and solar, frequently use Levelized Cost of Electricity (LCOE) to demonstrate that wind and solar can generate electricity as inexpensively as coal or natural gas power plants.

The unsuspecting person could easily assume this is correct, since both the Energy Information Administration (EIA) and National Renewable Energy Laboratory (NREL) publish LCOEs that support that view.

Unfortunately, LCOEs can be misleading, and those published by EIA and NREL fit that category. They can also be irrelevant.

LCOE Calculator From Open EI at NREL Web Site

LCOE Calculator From Open EI at NREL Web Site


For example, with respect to wind generated-electricity: The EIA uses a capacity factor of 35%, which is higher than the actual 32% average for all US wind farms. This results in a lower LCOE for wind. NREL uses a capacity factor of 38% which is even more incorrect.

Both EIA and NREL use a thirty year expected life for wind and solar installations, which is probably greater than will actually occur. A 25 year life for wind and solar would be more likely, and, in the case of wind, there is some indication that life could be less than 20 years.

A 30 year life results in a lower LCOE than the probable 25 year life of these installations.

There are other assumptions that also result in lower LCOEs for wind and solar, and higher LCOEs for natural gas and coal-fired power plants.

Natural gas and coal-fired power plants have lives of 40 or 60 years, so that assuming these plants have a life of 30 years results in higher LCOEs than warranted.

And the EIA goes further, by adding a charge for CO2 emissions for the LCOE of coal-fired power plants.

These obvious differences result in LCOEs that distort the truth.

Even more importantly, the LCOEs for wind and solar are incompatible with those for natural gas and coal-fired power plants. It’s like comparing peanuts with oranges.

Both wind and solar are intermittent and unreliable, so they have less value than steady, reliable generation from natural gas and coal-fired power plants.

For wind, it’s like going to the faucet to turn on the water, but only getting water one-third of the time.

Or, in the case of both water and solar, it’s like trying to ride a bicycle that only has one wheel. It doesn’t work.

Or, another analogy for solar: Having a car that can only run during daylight hours wouldn’t be very useful during the winter months, especially in Alaska.

The cheapest electricity in the world is of no use, if it isn’t available 24/7, year round.

Even if the LCOEs for wind and solar were less than those for natural gas and coal-fired power plants, they aren’t comparable.

There’s an important caveat when comparing wind and solar with natural gas and coal-fired power plants for use on islands, such as Hawaii, Tahiti and all the other small islands around the world that don’t have access to grid power from the mainland.

Proponents of wind and solar use Hawaii and other islands as examples for supporting wind and solar in the rest of the United States.

Few small islands have natural gas, oil or coal as naturally occurring resources, and must import expensive fossil fuels to run power plants, frequently diesel generators.

LCOEs are irrelevant in these situations, where wind and solar can displace very expensive oil, coal or natural gas imports. Using wind and solar on these islands is purely a matter of which combination of wind, solar and fossil fuel generators can most effectively reduce the importing of very expensive oil, diesel fuel or LNG.

Interjecting how islands make use of wind and solar into a discussion of power generation in the United Sates, other than Hawaii, is a distortion of the facts.

As described above, LCOEs can be manipulated to distort the economics.

Most importantly, comparing LCOEs of wind and solar with those of natural gas combined cycle (NGCC) and coal-fired power plants is meaningless, because only NGCC and coal-fired power plants, ignoring nuclear for the moment, can produce electricity 24/7, year round.

LCOEs can be useful, but not to compare wind and solar with NGCC and coal-fired power plants.

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4 Comments leave one →
  1. July 22, 2014 12:53 pm

    True enough. Well said without diving into too many details.

    I personally prefer an argument that applies LCOE more appropriately between intermittents (wind) and dispatchables (natural gas or petroleum products) in isolated small markets such as Tahiti and Hawaii. For instance, if the levelized cost of wind (with the right capacity factor and lifespan applied to all sources) is lower than the variable costs of operating the dispatchable unit(s), then there is an economic case to be made for having both. But care must still be taken to reallocate the fixed cost obligations of the dispatchable unit across the remaining annual units of generation to arrive at an accurate cost savings picture. As long as an analyst looks at all the costs and keeps the consumer’s interests front and center, they won’t likely wander too far from reality.

    One might look at the report “The Hidden Costs of Wind Electricity” released by the American Tradition Institute in December 2012. The reasoning and methodology there is quite sound and complete in this regard.

    • July 22, 2014 1:23 pm

      Thanks for your comment, and additional information.


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