| Estimating the Cost of Generating Electricity |
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As shown in the table below, we have estimated the cost of generating electricity and the potential generating capacity from renewable sources available in the Pacific Northwest. The cost estimates are for wholesale power in cents per kilowatt-hour. These are levelized life-cycle costs in 1998 dollars. Retail power costs would be higher. The cost estimates are for base case assumptions. Actual project costs could be higher or lower. Estimates of generating potential are in average megawatts. The Northwest Power Planning Council (NWPPC) supplied data for the cost and generating potential estimates.
For comparison, the table shows an estimated 7,400 average megawatts of electricity could be generated in the region from natural gas. The estimated cost of base-load power generation using combined-cycle combustion turbine technology is 2.7 cents per kilowatt-hour, based on a December 1998 estimate. In addition, an estimated 4,600 megawatts of natural gas-fired industrial cogeneration could be developed in the region at a cost ranging from 2.7 to 6.4 cents per kilowatt-hour.
Table
Potential Generation and Estimated Wholesale Cost
- Levelized life-cycle cost
The present value of the cost of generating electricity from a resource, including capital, financing and operating costs.
How do we calculate it?
We relied on calculations by the NWPPC staff as follows: The annual costs of project development, operation and decommissioning were calculated for each year over the economic life of the project. The resulting series of annual cash flows were discounted by a discount rate, then summed to a net present value. The present value was converted into a uniform series of annual cash flows using the same discount rate. The uniform annual cash flow was adjusted to present value dollars, then divided by the estimated annual energy production in kilowatts to yield the unit (per kilowatt-hour) levelized life-cycle cost.
Present value
Future costs expressed in terms of their current value. For these calculations, the current value is the value in 1998. The Department of Energy converted NWPPC estimates to 1998 dollars. This conversion does not reflect real changes in cost or performance improvements that may have occurred since the time the estimate was made.
Discount rate
A rate used to convert future costs to their present value.
Base case assumptions Costs are calculated using base-case assumptions. For example, we used financing typical of independent power producers for each calculation. This results in levelized costs that more-or-less reflect the basic costs and capabilities of the technology. Financing, however, can greatly affect the cost of energy from a given technology, and in the real world, different technologies may be developed using different types of financing. For example, rooftop photovoltaic systems might be developed using home mortgage financing, which could reduce the energy cost by 50 percent. Some projects that use renewable resources are eligible for federal or state incentives, which would reduce the cost. No incentives are included in these cost estimates.
Average megawatts An average megawatt is the energy produced by the continuous operation of one megawatt of capacity over a period of one year (8,760,000 kilowatt-hours).
NWPPC estimates We based our estimates on the NWPPC's Fourth Northwest Conservation and Electric Power Plan, issued in draft form on March 13, 1996, and the addendum to the draft Fourth Plan, issued in August 1997. The NWPPC adopted the Fourth Plan in July 1998. Jeffrey C. King, Senior Resource Analyst for the NWPPC, supplied updated estimates.
Potential Generation and Estimated Wholesale Cost
| Resource |
Cost
(cents per kilowatt-hour) |
Region-Wide Potential for Generation (average megawatts) |
| Hydroelectric |
1.1 to 7.0 |
170 |
| Chemical recovery boilers |
2.6 |
195 |
| Natural gas |
2.7 |
7,400 |
| Industrial cogeneration (natural gas) |
2.7 to 6.4 |
4,600 |
| Landfill gas |
3.1 |
94 |
| Wood residue |
4.3 to 5.4 |
300 |
| Geothermal |
5.2 to 6.5 |
390 to 1,070 |
| Wind |
5.3 to 8.1 |
700+ |
| Forest biomass |
5.5 to 6.6 |
300 to 1,000 |
| Solar thermal |
8.6 |
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| Solar photovoltaic (large-scale) |
19.4 |
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| Solar photovoltaic (small-scale) |
21.5 to 23.6 |
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What is Renewable Energy?
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