Introduction

Whatever approach is taken to moving to a lower carbon economy, we must consider the relative costs of generating electricity from clean sources. This in turn involves looking at the relative costs of sequestering carbon using various technologies, and this is examined in the next article. All costs in this article are is 2008 US dollars and cents.

1. Energy Costs Without a Price on Carbon

Before calculating the impact of a carbon price, we must first compare the existing cost structutres. The cost of electricity generated by different sources measures the cost of generating electricity including initial capital, return on investment, as well as the costs of continuous operation, fuel, and maintenance.The table below lists the estimated cost of electricity by source for plants entering service in 2016. The table is from a January 12, 2010 report of the U.S. Department of Energy (DOE). The last column gives the levelised cost in $ per megawatthour of electricity. Levelized costs represent the present value of the total cost of building and operating a generating plant over its financial life. To convert these costs to cents per kilowatthour, divide by 10. For example, the levelised cost of electicity generated from conventional coal technology is 10.04 cents per kWh.

2. Energy Costs With a Price on Carbon

While fossil fuels are currently somewhat cheaper than other sources of electricity, we are living in a false reality in which the market fails to factor in the cost of abatement of CO2. A price on carbon is needed to factor in environmental protection. When this is done, the resuly is a healthy market in which renewable energy soutces are able to compete.

To calculate the full cost of electicity generation at various carbon prices, I have started with the levelised costs (LEC) for various sources from the above table. Then I have searched for the best estimates of emissions of CO2 for each kilowatthour generated. These estimates come form a survey of 103 independent analyses performed by Benjamin K. Savacool. Finally, emissions are multilpied by the carbon price to determine what figure needs to be added to the LEC.

The table below lists, for various sources of electricity, the LEC in cents per kWh, emissions in grams of CO2 per kWh, and the total cost of generation for carbon prices of $20, $40, $60, $80 and $100 per tonne of CO2.

Conclusion

Nuclear, geothermal, biomass and hydro energy have similar cost structures. With a carbon price of $20 per tonne, they can compete with coal at around 12 cents per kWh. If nuclear power is left out of the mix, solar thermal and solar PV will probably have to fill the gap. To enable these sources to compete with coal requires a carbon price of at least $100 per tonne, which is also the estimated cost of carbon capture and storage.

Home | Back to Top | Full Screen