These deficiencies include:
Matching production to demand - dispatchability:[ii] LCOE does not account for the ability of a given generation technology to ramp up or down quickly to allow easy “load following” or balancing of power generation with changing demand.
Matching production to demand - availability:[ii]LCOE does not account for variability in electricity production (usually due to lack of wind, sunshine, or river flow), which may result in a mismatch with demand.
Cost of storage:Intermittent power generation, such as wind and solar, are intended to rely on storage to be effective since they are not always available when needed, and the cost of storage is not included in LCOE of these intermittent sources.[iii]
Cost of backup:When intermittent power sources (wind, solar) are incapable of meeting demand, dispatchable backup power generation (often gas-fired) is required to cover the deficit, the cost of which is not included in LCOE of these intermittent sources.[ii] In fact, a 2016 study sponsored by the National Bureau of Economic Research [iv], found that in a study of 26 OECD countries over the years 1990-2013, each MW of installed wind/solar power generation required 1.14 MW of “fast-reacting fossil” generation plants, the cost of which is absent from LCOE evaluation of wind/solar.
Cost of transmission/connecting to the grid: Distributed (wind, solar) or remote (wind, solar, hydro) generation can only service areas of high demand (large populations) through significant investment in transmission, and that cost is not included in LCOE.
LCOE is not meaningful in terms of the cost to humanity/environment of greenhouse gas emissions.[ii]
Again, these deficiencies severely limit the value of LCOE in comparisons of different power generation technologies. The arbitrary choice of “input” in LCOE calculations can even call into the question the value of LCOE where the same technology is considered. The following is a graph from an analysis by the Breakthrough Institute of LCOE evaluations of utility-scale solar photovoltaic (PV):[v]
The graph shows that the LCOE evaluation by Lazard, an investment banker to large institutions, is rather lower than evaluations by the International Energy Agency (IEA), the US Energy Information Administration (EIA) and the 5th Assessment of the Intergovernmental Panel on Climate Change; the analysis cites “real costs” in the $110-$142 range in Germany, which has among the world’s cheapest solar PV.
Nevertheless, LCOE is often referenced by environmentalists and others (policy makers, for example), when discussing a preferred electricity source. Efforts to correct LCOE include considering Levelized Cost of Storage (LCOS)[i], Levelized Avoided Cost of Electricity (LACE)[i], Present Value of Cost of Energy (PVOCE; without which gas-fired plants are favored over wind/solar).[vi] These efforts, however, are still of limited value when considering the cost of electricity to the consumer and the cost to society, vis-à-vis greenhouse gas emissions, of various power generation technologies.
Regarding the cost consumers actually pay for electricity, that information is “out there”. For example, the household cost of electricity in September 2021 in Germany was 0.35$US/kWh, and in France 0.20$US/kWh.[vii] It is worth noting that Germany’s breakout of power production technologies credits the country with 50.5% “renewables” (wind/solar/hydro and biomass), but the remainder includes 37.3% fossil fuel powered plants.[viii] By contrast, France’s 2020 power was made up of 52% nuclear power, 37% “renewables”, and 10% fossil fuel.[ix] Similarly, residents in Massachusetts paid an average of 0.25$US/kWh [x], in February 2022, while in 2021, residents of Ontario, Canada, paid an average of 0.13$US/kWh.[xi] In 2019, Ontario obtained 59% of its power from nuclear plants, 24% from hydro, and less than 10% from other renewables[xii], whereas Massachusetts’ current “fuel mix” is 68% gas, 22% nuclear, 10% renewables.[xiii]
These cost figures, while not direct comparisons of electricity from different generation technologies, suggest that reliance on wind/solar does not result in low-cost power, nor can these technologies be relied on to decarbonize power production.
[i] “Levelized Costs of New Generation Resources in the Annual Energy Outlook 2022”, Independent Statistics & Analysis, U.S. Energy Information Administration, March 2022.
[ii] https://en.wikipedia.org/wiki/Levelized_cost_of_electricity, and references therein.
[iv] “Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?”, NBER Working Paper 22454; http://www.nber.org/papers/w22454.