The transformation of electricity systems towards net-zero emissions requires policymakers to look beyond the costs of individual technologies and consider the broader impact of how different generation sources interact within an integrated system. The OECD Nuclear Energy Agency (NEA) has developed a System Cost Analysis framework to help countries understand these dynamics.
Unlike traditional cost comparisons, which often stop at the plant level (such as the levelised cost of electricity, LCOE), NEA’s system cost approach accounts for the real costs of operating an entire power system under stringent carbon constraints. These include not only generation costs, but also the additional costs of balancing variability, reinforcing grids, ensuring flexibility, and maintaining security of supply.
By providing a holistic perspective, system cost analysis allows policymakers to identify the most cost-effective pathways to decarbonisation, balancing variable renewables like wind and solar with dispatchable low-carbon sources such as nuclear and hydro.
The NEA works closely with its member countries to model realistic scenarios for achieving their national climate and energy goals. This involves building tailored energy system models that reflect the unique features of each country – from its demand patterns and electricity mix to its level of interconnection and available flexibility options.
For example, NEA studies have supported governments in exploring different pathways to net-zero electricity systems. These analyses do not simply add an “extra cost” to a technology; rather, they present the total cost of a full system scenario. This provides valuable insights into how strategic choices – such as extending existing nuclear plants, investing in new renewables, or deploying additional storage – affect overall system costs, reliability, and emissions.
Through this collaborative approach, system cost studies become a powerful decision-making tool, helping governments weigh the trade-offs between different technology mixes and policy objectives.
At the core of this work is the NEA Power System (POSY) model, a state-of-the-art optimisation tool. POSY is designed to calculate the least-cost mix of generation and flexibility resources needed to meet demand every hour of the year under a given carbon constraint.
The model integrates:
By combining investment decisions with real-time operational dispatch, POSY provides a realistic picture of how future electricity systems could perform. This ensures that analysis goes beyond theoretical averages and captures the complexities of balancing low-carbon grids.
NEA’s system cost analysis has become a valuable resource for energy ministries, regulators, and stakeholders across OECD countries. By linking rigorous modelling with practical policy questions, it helps deliver credible, policy-relevant insights that support the design of energy strategies which are both economically efficient and environmentally sustainable.
