It is time to replace LCOE

You can listen to my USAEE podcast on why we need to stop using generic LCOE numbers. LCOE-based conclusions, especially when they are used to claim that any technology is cheaper than others across wide geographies (countries, continents), are technically indefensible. LCOE is of dubious value for long-term planning to meet growing electricity demand or even to reduce emissions at lowest system cost. It is useless in real-time system operations to balance demand and supply instantaneously while maintaining reliability. It does not capture regional differences of its inputs (especially capacity factor), specifics of each power system, or value of different operational characteristics to the system reliability.

It is time to replace it. To build on its current prominence, today's generic LCOE can be augmented by the costs of system integration to get a system LCOE, which is still imperfect but a more accurate representation of overall system costs. For policy discussions, we need to add costs of externalities and subsidies. Only then, we have a useful metric, albeit still imperfect, on which we can base discussions about a least-cost portfolio approach to transitioning electric power systems to achieve environmental and consumer goals. The least-cost portfolio will be a mix of generation assets, T&D infrastructure and demand response.

The talk is based on Net Social Cost of Electricity, a report I published in 2019. The USAEE membership may be necessary to listen to the podcast but a pdf of its text, amplified by graphics and references, can be found here.

Source for picture: UK National Infrastructure Commission as published in Carbon Brief.