Understanding Full System Costs
Rethinking how we measure electricity costs to better capture the full system requirements of a reliable, affordable, and carbon-neutral power system.
the problem
Traditional power system planning often relies on simplified technology-level cost metrics such as the Levelized Cost of Electricity (LCOE). While useful for comparing the cost of electricity production at an individual plant, LCOE does not capture the wider costs and system requirements associated with integrating different technologies into the electricity system.
This can lead to misleading comparisons and, ultimately, suboptimal investment and policy decisions. Technologies contribute different capabilities to the power system, while also creating different requirements for flexibility, transmission, storage, balancing and other forms of system integration.
The challenge is therefore to move beyond technology-level cost metrics and develop a more comprehensive understanding of what electricity actually costs at the system level.
the APPROACH
The study reviews existing electricity cost metrics, ranging from the widely used LCOE to the Levelized Full System Cost of Electricity (LFSCOE), and examines their strengths and limitations in representing the costs of a modern power system.
Building on this analysis, we introduce the System Cost-Based Optimised Electricity (SCBOE) approach, which considers the complementary roles of different power-system assets and the system capabilities required to deliver reliable and affordable electricity.
The approach uses cost-optimisation modelling to move from evaluating technologies in isolation towards understanding how technologies work together as part of an integrated electricity system. This provides a more comprehensive basis for assessing technology choices and informing future power-system planning.
the oUTCOME
The study demonstrates that no single technology-level cost metric fully captures the economics of a modern electricity system. LCOE can provide useful information about plant-level costs, but it does not adequately account for the interactions between technologies or the system capabilities required to maintain reliability and resilience.
The analysis highlights the importance of evaluating electricity technologies based on their contribution to the overall system, rather than their isolated generation costs.
The proposed SCBOE approach provides a framework for incorporating these interactions into power-system planning, helping stakeholders better understand the trade-offs between different technology portfolios and supporting the development of affordable, reliable and carbon-neutral electricity systems.
deliverables
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