Vilhelm Carlström writes on the Nordic Business Insider website about a new calculator developed by the Danish Energy Agency to compare average costs of various energy sources. In the newest update of the calculator, which applies to facilities commencing production in 2020, the price of offshore wind has been slashed by 30%, onshore wind by 25% and solar by 40%.
Danish Energy Agency’s new estimate slashes price of renewable energy by 30% – bringing offshore wind on par with nuclear
Denmark has long the global leader on wind power in terms of per capita energy production, and has shown that transitioning to low carbon energy sources simply is not to be regarded as an economic burden. In the past thirty years, Denmark has reduced carbon dioxide emissions by 30%, and even reduced energy consumption by 7%, while GDP grew 55%, according to the Danish Energy Agency.
To guide the country’s energy strategy the agency has developed a calculator to compare the average costs of various energy sources based on input data and estimates for different future scenarios. The calculator is sophisticated in that it factors in lifetime costs beyond those associated with construction and production – like the socioeconomic costs of different emissions – to create a more economically correct comparison between energy alternatives, the Levelized Cost of Energy (LCoE).
In the newest update of the calculator, which applies to facilities commencing production in 2020, the price of offshore wind has been slashed by 30%, onshore wind by 25% and solar by 40%. Behind the new estimates is a significant reduction in the capital expenditure and operating costs associated with employing the new technologies, coupled with increases in productivity.
The reductions bring the average costs of producing one MWh of energy to EUR 46 for Danish offshore wind projects, EUR 30 for onshore wind, and EUR 40 for photovoltaic solar energy. That brings offshore wind on par with nuclear power, while onshore wind is by far the cheapest, and solar PV closing in quickly, as long as the assumption of rapid technology development holds true.
The calculations are based on local contingencies, but the Danish Energy Agency has made the calculator and documentation freely downloadable so that anyone can use it to investigate corresponding prices for other energy markets. The agency stresses that the results will vary greatly based on assumptions and locality. For example, increasing the discount rate would make energy sources that require big investments (solar PV, wind, and nuclear power) a lot more expensive alternatives. Also, the calculator does not include revenue calculations as it is meant to holistically compare socio-economic costs per energy generated in a region and not the financial viability of any individual project.
Regardless of variability, the calculator clearly illustrates the economic importance of including all cost factors and externalities in the comparison of energy sources – and that renewable energy sources are quickly becoming very competitive alternatives.
A note on the methodology of the LCoE calculator:
- The levelized cost of energy methodology discounts the time series of expenditures and incomes to their present values in a specific base year. It provides the costs per unit of electricity generated which are the ratios of total lifetime expenses (net present value) versus total expected electricity generation, the latter also expressed in terms of net present value. These costs are equivalent to the average price that would have to be paid by consumers to repay all costs with a rate of return equal to the discount rate (Ea Energy Analyses, 2007).
- The cost elements comprising the LCoE include investment costs, fuel costs, operation and maintenance costs, environmental externalities, system costs, and heat revenue for combined heat and power plants.
Information on the calculator is available here.