Levelized Cost of Baseload Energy
Electricity generation is the most significant contributor to Greenhouse Gas emissions. Electricity usage is only going to increase in the coming decades because of three key drivers:
- As the standard of living increases all over the world, the per capita electricity use will increase
- The world population will itself increase at least till the middle of the century
- As part of the green transition, one mantra is “ Electrify everything and make electricity green.” Essentially, electricity will enter new markets like mobility and hydrogen, which currently don’t use electricity. This shift will further increase electricity demand.
A lot of efforts, rightly so, focus on generating electricity cleanly (not releasing any GHGs). There are mature options like solar, wind, hydro, and nuclear. There is constant research to find new alternative options like enhanced geothermal, wave, tidal, in-line hydro, concentrated solar, etc. Moreover, in each of the options mentioned above, several alternative technologies will have different costs, efficiencies, etc. E.g., within solar itself, there are monocrystalline silicon, organic PV, multijunction, perovskite, etc., to name a few. It becomes essential to have a term that can compare the technologies across such a broad spectrum.
LCOE — Levelized cost of energy is such a term. LCOE represents the average revenue per unit of electricity generated required to recover the costs of building and operating a generating plant during an assumed financial life. Given a specific cost of capital from an investment perspective, comparing the LCOE of different technologies is essential.
I feel the use of LCOE is inherently flawed. The energy generation of a particular technology is viewed in isolation and not as part of the broader grid. One should consider the Grid as a customer of any energy generation technology. The current significant suppliers (fossil fuel derived) to the grid are all baseload suppliers. From the grid’s perspective, it would expect any replacement of existing suppliers to be baseload suppliers. Such an expectation may not be a requirement when the share of renewables is low, but as the share increases, this becomes quite important.
Consider two technologies, both having the same LCOE. However, one gives constant energy while the other is highly variable. The grid would favor the one constant energy; however, the LCOE doesn’t incorporate this property. Energy storage is needed to make a variable energy technology into a consistent one. Like in energy generation, there are various established and upcoming technologies. An analogous measure to LCOE in storage is the Levelized Cost of Storage (LCOS). The significant parameters that vary in energy storage are the duration of storage, power, and number of cycles.
In an ideal case, every variable energy source should be matched with a complementary energy storage system to give a consistent energy source. We should effectively change the measure of LCOE to LCOBE (Levelized cost of Baseload energy). This measure would incorporate the cost of storage. Though I haven’t derived the correlation, LCOBE should be a function of LCOE and LCOS. LCOBE is a measure that also gives a better comparison between different technologies. A low LCOE but a high LCOBE implies that the technology will have challenges in achieving scale.
There are a lot of discussions nowadays on how renewables like solar and wind have less LCOE than coal or other fossil fuels. However, the LCOBE comparison between them will tell a different story. Similarly, the LCOBE of solar and wind compared to nuclear will also be much closer than LCOE. By coming up with this measure, the intention is to understand better technologies and the challenges they may face when they become a significant component of the grid. Moreover, the thought should shift from just a particular technology to a system. A system would have several energy generation and storage technologies. The complementary nature of wind and solar means that the need for storage decreases if they are deployed together. A hybrid wind and solar system would have a lower LCOBE.
One key challenge to the concept of baseload energy requirement is that the grid in the future may be adaptive enough to match the demand with supply. As the grid infrastructure improves and more market-linked incentives like surge pricing get more widely deployed, the flexibility of the grid will indeed improve. I feel the goal for a scalable technology or system would still need to be quite consistent. Hence though the requirement might not be as stringent as it would be now, it still would be significant.
Getting baseload energy isn’t the only criteria from the grid's perspective. In most, if not all, countries, the grid has 3 phase AC electricity. Hence any technology must supply energy in this form. This requirement would require some electrical transformation for certain technologies like solar (which produces DC electricity). However, LCOE would include the costs of such transformation, and hence by default, the costs are a part of LCOBE.
In summary, LCOBE as a measure would give more information on the cost of technology at a scale that would make it an essential supplier to the grid. It would also help focus on the collaboration of different technologies, which may complement each other and bring down the LCOBE of a system.
