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| Fig. 1: Wind Turbine Power Plant. (Source: Wikimedia Commons) |
A power plant is an industrial facility that is used to generate electrical power (see pictured in Fig. 1). A generator is a machine that creates three-phase electrical power from mechanical power. The energy source upon which a generator relies on can vary greatly. Example energy sources can include fossil fuels (coal, oil, etc), renewable sources (wind, solar, etc), or nuclear powers. Most power stations have one or more generators. In the United States alone, there are 11,070 utility-scale electric power plants and a total of 23,417 electric generators. [1]
The cost of constructing and maintaining even a single power plant involves a lot of resources. As there is a complex assortment of capital needed to construct and maintain a power plant, it can be difficult to calculate the exact cost. This process includes determining the civil and structural costs; mechanical equipment supply and installation costs; electrical and instrumentation and control costs; indirect project costs; and owners costs. [2] There are also non- fuel operations and maintenance costs, but these can be evaluated as either fixed or dependent on the power plants energy generation. [2] We will explore tools that can help us compare the cost of power plants with different generating technologies.
LCOE stands for Levelized Cost of Energy. LCOE represents the average revenue per unit of electricity generated required to cover the costs of building and operating a generating plant during an assumed financial life and duty cycle. [3] The factors that go into the calculation of LCOE include capital costs; fixed operations and maintenance costs; variable costs that include operation and management costs and fuel costs; financing costs; and an assumed utilization rate for each plant type. [3] LCOE is an important tool of measurement because it allows for the comparison of different generating technologies.
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| Table 1: Estimated LCOE for New Resources By Plant Type from U.S. EIA. [3] |
| LCOE | = | Total Life Cycle Cost Total Lifetime Energy Production |
However, it is important to keep in mind that the LCOE does not capture all of the factors that contribute to actual investment decisions, so it would be misleading to use it as the only tool for comparison amongst different generating technologies. [3] Another drawback to LCOE is that it has been shown to be not as accurate for calculating the costs of plants using intermittent renewable resources like wind and solar. [3]
In conclusion, there is a complex assortment of both fixed and variable resources that go into determining the cost of a power plant. LCOE is a tool that allows us to estimate the average revenue per unit of electricity generated required to cover the cost of a power plant. The LCOE should not be the sole tool used to make an economic comparison of different generating technologies because it does not capture all of the factors that contribute to actual investment decisions.
© Sowmya Patapati. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] "Electric Power Annual 2020," U.S. Energy Information Administration, October 2021.
[2] "Capital Cost and Performance Characteristic Estimates for Utility Scale Electric Power Generating Technologies," U.S. Energy Information Administration, February 2020.
[3] "Levelized Costs of New Generation Resources in the Annual Energy Outlook 2021," U.S. Energy Information Administration, February 2021.
