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Paris, 16 April 2018

Accounting for the full cost of electricity

The market price of generating electricity doesn't necessarily account for the social and environmental impacts of its generation, says the Organisation for Economic Co‑operation and Development Nuclear Energy Agency¬†(NEA) in its new report The Full Costs of Electricity Provision.

"What this report reveals is that the notion of "electricity cost" that we often use today, the levelised costs of electricity (LCOE), is just a part of a much bigger picture. While LCOE is a useful tool to compare the costs of baseload technologies in regulated systems, it leaves out many decisive aspects of the costs of electricity. In particular, the grid‑level system costs and the social costs that are not captured by LCOE are too important to be ignored any longer" said NEA Director‑General William D. Magwood, IV, at the report's launch.

"Market prices and production costs account for an important share of the overall economic impacts of electricity. However the social and environmental impacts of electricity provision are affecting people in ways that are not currently captured by market prices," said Kirsty Gogan, Co‑founder and Executive Director at Energy for Humanity in London, during the webinar to launch the report. "Issues such as system costs, atmospheric pollution, the security of energy supply, and technology developments all must be considered when implementing policies for clean, affordable and secure energy."

The full costs of electricity provision are composed of three categories: plant‑level production costs, grid‑level system costs, and external social and environmental costs. The new NEA report summarises and synthesises the most recent research on the measurement of all these costs. It stresses the importance of full cost accounting and suggests that energy policy makers must use these combined insights into their policies if they are to improve the wellbeing of society as a whole and the welfare generated by their economies.

Matt Crozat, Senior Director of Policy Development at the Nuclear Energy Institute (NEI) and Co‑Chair of the NEA Working Party on Nuclear Energy Economics (WPNE) which took the lead in preparing the report, noted that "The NEA is at the forefront of the development of new methodologies for measuring electricity generating costs, including both the full costs and the grid‑level system costs of decarbonising electricity systems." He said: "Decision makers have to develop policies that ensure broader social impacts are either reflected in markets or addressed through other means."

"Based on the needs and wishes of their citizens, every country has the sovereign right to determine their own electricity technology mix," said Mr Magwood. "The NEA is here to help its member countries in ensuring that the contribution of each technology, including that of nuclear energy, is adequately recognised so as to meet the demand for low‑carbon energy at the least cost to the overall system along the path towards fully sustainable electricity systems."

Notes to editors

The Nuclear Energy Agency (NEA) is an intergovernmental agency which operates within the framework of the Organisation for Economic Co‑operation and Development (OECD). It facilitates co‑operation among countries with advanced nuclear technology infrastructures to seek excellence in nuclear safety, technology, science, related environmental and economic matters and law. The mission of the NEA is to assist its member countries in maintaining and further developing, through international co‑operation, the scientific, technological and legal bases required for a safe, environmentally sound and economical use of nuclear energy for peaceful purposes. It strives to provide authoritative assessments and to forge common understandings on key issues as input to government decisions on nuclear technology policies. NEA membership includes 33 countries that co‑operate through joint research, consensus building among experts and development of best practices.

The NEA is currently working on a number of other reports to be released in the coming months. These include Climate Change: Assessment of the Vulnerability of Nuclear Power Plants and Adaptation Costs, Estimation of Potential Losses Due to Nuclear Accidents, Measuring Employment Generated by the Nuclear Power Sector and System Costs in Deep Decarbonisation Scenarios: The Contributions of Nuclear Energy and Renewables.

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