Definitions

Parameters

Levelized Cost of Energy

Levelized Cost of Energy (LCOE) is a summary metric that combines the primary technology cost and performance parameters: capital expenditures, operations expenditures, and capacity factor. It is useful for discussing technology advances that yield future projections because it illustrates the combined effect of the primary cost and performance parameters in each of the technology innovation scenarios. The ATB focuses on defining the primary cost and performance parameters for use in electric sector modeling or other analysis where more sophisticated comparisons of technologies are made. LCOE accounts for the energy component of electric system planning and operation. It uses an annual average capacity factor when spreading costs over the anticipated energy generation. Although LCOE accounts for many variables important to determining the competitiveness of building and operating a specific technology (e.g., up-front capital costs, capacity factor, and cost of financing), it does not necessarily demonstrate which technology in a given place and time would provide the lowest cost option for the electricity grid. For example, it ignores specific operating behavior such as ramping, startup, and shutdown that could be relevant for more detailed evaluations of generator cost and value. Such analysis is performed using electric sector models such as the Regional Energy Deployment System (ReEDS) model and corresponding analysis results such as the NREL Standard Scenarios.

Capital Expenditures

The following cost items are included in capital expenditures (CAPEX) for all technologies, unless otherwise noted. Individual technologies may include additional items as explained on the technology pages.

Inclusions in CAPEX

Category

Item

Balance of System

Balance of System

Electrical Infrastructure & Interconnection (electrical interconnection, electronic, electrical infrastructure, electrical)

Internal and control connections

Onsite electrical equipment (e.g., switchyard)

Power electronics

Transmission substation upgrades

Generation Equipment & Infrastructure (civil works, generation equipment, other equipment, support structure)

Plant construction

Power plant equipment

Installation & Indirect

Distributable labor and materials

Engineering

Start up and commissioning

Owner's Costs

Development costs

Environmental studies and permitting

Insurance costs

Legal fees

Preliminary feasibility and engineering studies

Property taxes during construction

Site

Access roads

Buildings for operations and maintenance

Fencing

Land acquisition

Site preparation

Transformers

Underground utilities

Operations Expenditures

The following operations expenditures are included in operations expenditures for all technologies, unless otherwise noted. Individual technologies may include additional items as explained on the technology pages.

Inclusions in O&M

Category

Item

Fixed Costs

Administrative fees

Administrative labor

Insurance

Land lease payments

Legal fees

Operating labor

Other

Property taxes

Site security

Taxes

Fixed Costs Component

Project management

Maintenance

General maintenance

Scheduled maintenance over technical life

Unscheduled maintenance over technical life

Maintenance Component

Transformers

Replacement Costs

Annualized present value of large component replacement over technical life

Capacity Factor

Capacity factor is generally defined as the ratio of actual annual output to output at rated capacity for an entire year, using a long-term average over lifetime, without curtailment for renewable generation. Capacity expansion models (including the ReEDS model used by NREL) calculate the optimized capacity factor for each conventionally fueled plant. The default capacity factors listed in the ATB data spreadsheet are meant to be representative—not to reflect exactly what values result from the modeling. The annual capacity factor ignores specific operating behavior such as ramping, startup, and shutdown that could be relevant for more detailed evaluations of generator cost and value. Electricity generation technologies have different capabilities to provide such services. For example, wind and PV are primarily energy service providers while other electricity generation technologies provide capacity and flexibility services in addition to energy. These capacity and flexibility services are difficult to value and depend strongly on the system in which a new generation plant is introduced. These services are represented in electric sector models such as ReEDS and corresponding analysis results such as the Standard Scenarios.

Other Data Dimensions

Technology Innovation Scenarios

The three renewable electricity generation technology innovation scenarios are generally described as follows:

Conservative

Historical investments come to market with continued industrial learning. Technology looks similar to today, with few changes from technology innovation. Public and private R&D investment decreases.

Moderate

Innovations observed in today's marketplace become more widespread, and innovations that are nearly market-ready today come into the marketplace. Current levels of public and private R&D investment continue. This scenario may be considered the expected level of technology innovation.

Advanced

Innovations that are far from market-ready today are successful and become widespread in the marketplace. New technology architectures could look different from those observed today. Public and private R&D investment increases.

For conventional technologies, technology cost designations appearing in ATB tables and figures, refer to technology assumptions and the range of fuel price projections as described in the conventional technologies section.

Financial Assumptions Cases

Financial assumptions impact LCOE by changing the cost of capital needed to finance electricity generation projects. Two project finance structures are used within the ATB: an R&D Only Financial Assumptions Case (R&D Only Case) and a Market + Policies Financial Assumptions Case (Market + Policies Case).

R&D Only Case

This sensitivity case allows technology-specific changes to debt interest rates, return on equity rates, and debt fraction to reflect effects of R&D on technological risk perception, but it holds background rates constant and excludes effects of tax reform and tax credits. See the financial assumptions cases and methods for details.

Market + Policies Case

This sensitivity case retains the technology-specific changes to debt interest, return on equity rates, and debt fraction from the R&D Only Case and adds in the variation over time consistent with AEO2020 (EIA, 2019) as well as effects of tax reform and tax credits. See the financial assumptions cases and methods for details. This sensitivity case retains the technology-specific changes to debt interest, return on equity rates, and debt fraction from the R&D Only Case and adds in the variation in those parameters over time consistent with AEO2020 (EIA, 2020) as well as effects of tax reform and tax credits. See the financial assumptions cases and methods for details.

Year

Base Year

2018 is the base year for the 2020 ATB, because this is the year for which sufficient historical data are available. Sources for the base year include cost and performance estimates from published, regularly updated sources or methods. If estimates are not based directly on market data, then they are compared with market observations as possible

Projected Years

2019–2050 is the range of 2020 ATB projections.

Dollar Year

All monetary values are in 2018 U.S. dollars, using the Consumer Price Index (BLS, 2020) for dollar year conversions unless noted otherwise. We do not rigorously distinguish prices from costs.

Cost Recovery Period

An important assumption for computing LCOE is the period over which the electricity generation plant cost and performance are levelized. In the ATB, this period is defined as the cost recovery period, and it represents the period over which the initial capital investment to build a plant is recovered. Three options are available for Cost Recovery Period. Use the chart below to explore the effects of cost recovery period.

The technical life for each technology is shown in the following table. A technical life that is longer than the cost recovery period means residual value may be left after costs have been recovered. The value of a 30-year life for wind technologies is consistent with current industry trends. However, ReEDS continues to use a 20-year cost recovery period for all generating technologies regardless of their technical life.

Technical Lifetimes for Technologies

Technology

Technical Life (years)

Land-based wind

30

Offshore wind

30

Solar-utility PV

30

Solar-distributed commercial PV

30

Solar-distributed residential PV

30

Solar-CSP

30

Geothermal

30

Hydropower

100

Coal

75

Biopower

45

Gas-CC

55

Gas-CCS

55

Nuclear

60

Technology Detail Assumptions

Technology Detail

Technology details indicate resource levels and specific technology subcategories. Minima and maxima show the range of resource- and technology-specific values. For renewable technologies, ranges span resource characteristics available within the contiguous United States. For fossil fuel technologies, ranges illustrate the effects of capacity factor and, for natural gas technologies, fuel cost assumptions.

Representative Value

The ATB plant characteristics (and associated resource quality) that most closely align with recently installed or anticipated near-term installations of electricity generation plants are defined as the representative value. The representative value for renewable technologies is calculated based on the resource quality that was used in recent or near-future plants in the base year, in combination with the technology cost and performance and financial assumptions indicated. For coal and natural gas technologies, the representative value is calculated based on the fleetwide average capacity factor reported in AEO2019 (EIA, 2019), in combination with the other technology cost and performance, fuel cost, and financial assumptions indicated. The technology detail plant characteristics selected as representative values are as follows (see individual technology sections for description of ATB representative plant characteristics):

Standard Assumptions

Labor cost

Labor costs are the average of union and nonunion labor rates

Regional Cost Variation

Capital costs represent a national average benchmark. Regional variations are not applied.

Materials Cost Index

Materials costs are given in 2018 U.S. dollars, using the Consumer Price Index (BLS, 2020) for dollar year conversions, unless otherwise noted.

Scale of Industry

Technology costs assume fully mature and industrialized supply chain and manufacturing capacity for a given technology and economies of scale are reached.

Policies and Regulations

Financial assumptions include current laws and regulatory regimes only.

Inflation

All values are given in 2018 U.S. dollars, using the Consumer Price Index (BLS, 2020) for dollar year conversions. Projections use an inflation assumption of 2.5% per year.

Other

Capital Regional Multiplier (CapRegMult)

Regional multipliers are not used in ATB, but are used in ReEDS. Capital cost multipliers to account for regional variations that affect plant costs (e.g. labor rates); separate multipliers are applied for each technology to . There are no multipliers for geothermal or hydropower because of the site-specific nature of plant cost estimates.

Construction Finance Factor (ConFinFactor)

Portion of all-in capital cost associated with construction period financing; ConFinFactor is a function of costs, fixed costs, and indirect costs.

References

The following references are specific to this page; for all references in this ATB, see References.

BLS (2020). CPI for All Urban Consumers (CPI-U). U.S. Bureau of Labor Statistics. https://beta.bls.gov/dataViewer/view/timeseries/CUSR0000SA0

EIA (2019). Annual Energy Outlook 2019 with Projections to 2050. (No. AEO2019). U.S. Energy Information Administration. https://www.eia.gov/outlooks/aeo/pdf/AEO2019.pdf

EIA (2020). Annual Energy Outlook 2020 with Projections to 2050. (No. AEO2020). U.S. Energy Information Administration. https://www.eia.gov/outlooks/aeo/pdf/AEO2020.pdf


Developed with funding from the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy.