Energy Experts Advocate Moving Beyond LCOE for Grid Decarbonization
Key Insights
A new report by the Clean Air Task Force (CATF) urges abandoning the Levelized Cost of Electricity (LCOE) metric, citing its failure to account for grid reliability and integration costs.
The report highlights the limitations of LCOE in high-renewable grids, where intermittent generation creates hidden costs like storage and grid upgrades.
Clean firm technologies, such as advanced nuclear and long-duration storage, are emphasized as critical for grid stability and cost-effective decarbonization.
The CATF recommends adopting new metrics like Value-Adjusted LCOE (VALCOE) and Full-System Cost Modeling to better reflect real-world energy system needs.
A growing consensus among energy experts is calling for a shift away from the Levelized Cost of Electricity (LCOE) as the primary metric for evaluating clean energy technologies. The Clean Air Task Force (CATF) released a report titled Beyond LCOE: A Systems-Oriented Perspective for Evaluating Electricity Decarbonization Pathways, arguing that LCOE’s narrow focus risks misdirecting investments and delaying grid decarbonization. The report underscores the metric’s inability to account for system-wide factors such as reliability, grid integration, and on-demand generation—critical considerations as renewable penetration increases.
LCOE, which calculates the lifetime cost of electricity generation per megawatt-hour, has long been a staple for analysts and policymakers. However, the CATF report points out its shortcomings in today’s evolving energy landscape. Electrification of transport, industrial reshoring, and surging data center demands are driving higher energy consumption and peak loads, particularly in North America and Europe. While wind and solar boast low LCOEs, their intermittent nature introduces hidden costs like curtailment, storage, and grid stability challenges—factors LCOE fails to capture.
The report advocates for clean firm technologies—such as advanced nuclear, geothermal, and carbon-capture-equipped combustion—as essential for grid stability. For instance, Ontario’s approval of a small modular nuclear reactor (SMR) project at Darlington, despite its higher LCOE, was deemed more cost-effective than relying solely on renewables and storage. This aligns with findings from Princeton’s Net-Zero America and Carbon-Free Europe studies, which highlight the cost and reliability benefits of diversified energy portfolios.
To address these gaps, the CATF proposes new metrics like Value-Adjusted LCOE (VALCOE), which incorporates capacity and reliability, and Full-System Cost Modeling, which accounts for grid integration and transmission needs. The report stresses the importance of jurisdiction-specific modeling tailored to local infrastructure, weather patterns, and decarbonization goals.
With trillions in clean energy investments flowing from policies like the U.S. Inflation Reduction Act and the European Green Deal, the choice of metrics carries significant implications. As the report warns, "Good intentions and bad metrics can still build the wrong grid."