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."
The Full Costs of Electricity Provision
Friday, 13 April 2018 at 14:30-15:30 Paris time
On 13 April 2018, the Nuclear Energy Agency (NEA) launched The Full Costs of Electricity Provision .
Electricity production, transport and consumption affect every facet of life. Market prices and production costs account for an important share of the overall economic impacts of electricity. However, there has been growing recognition that the market value of electricity is not the whole story.
As currently constituted, the price of electricity in today's markets does not accurately reflect the costs of electricity on the society and the environment. As a result, decisions made regarding supply and future planning based on current market prices fail to capture all of the factors needed to ensure reliable electricity supply in the future.
The NEA has therefore synthesised the most recent research in this area. Adopting this approach would allow policy makers and the public to make better informed decisions along the path towards fully sustainable electricity systems.
William D. Magwood, IV, Director-General of the NEA, Matthew Crozat, Senior Director of Policy Development at the Nuclear Energy Institute (NEI), Kirsty Gogan, Co‑founder and Director of Energy for Humanity, and Jan Horst Keppler, Senior Economist at the NEA, provided a briefing on the key findings of this study. They then took questions on the most recent research on full cost accounting of electricity, in particular within the context of the energy transitions under way in OECD and NEA countries.