Connect with us

Hi, what are you looking for?

CleanTechnica
Disney World solar power plant from Origis Energy. Image Cynthia Shahan, CleanTechnica.

Clean Power

Revenue-to-Cost Ratios for Solar PV & Natural Gas — U.S. EIA Forecast by Region & Overall

Editor’s note: Note that this evaluation does not take social, environmental, or public health costs into account, and natural gas comes with high social, environmental, or public health costs. Those costs, for the most part, are not priced into power plant costs in the United States.


value-cost ratio and capacity additions for new natural gas combined-cycle plants

Source: U.S. Energy Information Administration, Levelized Costs of New Generation Resources in the Annual Energy Outlook 2021. Note: Region average is a simple average of regional values across the 25 U.S. supply regions of the Electricity Market Module.


A supplemental report to the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2021 (AEO2021) describes how EIA uses a ratio of a power plant’s revenue to its cost (or value-cost ratio) as a simple metric to explain the economic competitiveness and, in turn, the types of power plants most likely to be built in EIA’s long-term model for the U.S. energy sector.

The average value-cost ratio for solar photovoltaic (PV) is estimated to be greater than one, which suggests power plant revenue will generally be greater than its costs through the projection period. The economic attractiveness of solar PV leads to more than 160 gigawatts (GW) of new capacity additions in the AEO2021 Reference case between 2023 and 2050. With an average value-cost ratio slightly less than one, nearly 132 GW of new natural gas-fired combined-cycle capacity is added during the same period because some regions still have higher-than-average value-cost ratios.



The cost metric, or levelized cost of electricity (LCOE), includes installed capital costs and operating expenses of a power plant, converted to an equal annual quantity over the plant’s assumed cost recovery period. The LCOE for natural gas-fired combined-cycle plants is higher than solar PV, and it increases over time because of the rising natural gas prices that, in turn, increase plant operating costs. The LCOE for solar PV increases in the near term because the current solar Investment Tax Credit is set to decline from 30% to 10% of the initial capital cost by 2024, but the LCOE is expected to trend downward over the long term as solar PV capital costs continue to decline.

The value metric, or levelized avoided cost of electricity (LACE), is an estimate of a plant’s potential revenues from the sales of electricity generated from displacing other more expensive generation. As with LCOE, these revenues are converted to an equal annual amount over the plant’s assumed cost recovery period. The LACE for solar PV generally declines over time as the daylight power market becomes saturated with generation from solar PV plants, which have no fuel and operating costs. LACE for combined-cycle plants is higher because it can generate during the hours when power prices are higher.

More information about LCOE, LACE, and the economic competitiveness of electricity generating technologies in the AEO2021 Reference case is available in EIA’s Levelized Costs of New Generation Resources in the Annual Energy Outlook 2021 report.

Principal contributor: Manussawee Sukunta

Courtesy of U.S. EIA.

 
Appreciate CleanTechnica’s originality? Consider becoming a CleanTechnica Member, Supporter, Technician, or Ambassador — or a patron on Patreon.
 
 

Advertisement
 
Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.

-- the EIA collects, analyzes, and disseminates independent and impartial energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment.

Comments

You May Also Like

Clean Power

Part of NRDC’s Year-End Series Reviewing 2021 Climate & Clean Energy Developments By Nathanael Greene  When it comes to renewable energy, the more things...

Clean Power

Solar power is growing fast -- how far can we take it in the coming decades?

Fossil Fuels

As the cost of capital goes up, the prospects for fossil fuel projects go down.

Clean Power

One decade ago, I was writing about the rapid growth of solar power in the United States and the exciting forecast for much more...

Copyright © 2021 CleanTechnica. The content produced by this site is for entertainment purposes only. Opinions and comments published on this site may not be sanctioned by and do not necessarily represent the views of CleanTechnica, its owners, sponsors, affiliates, or subsidiaries.