Real Levelized Cost of Energy with Indirect Costs and Market Value of Variable Renewables: A Study of the Korean Power Market

Abstract

A levelized cost of energy (LCOE) is a methodology for comparing power generation costs in the transition to renewable energy (RE). However, the major limitation of evaluating RE based on the LCOE is that it does not consider indirect costs, such as the environmental and curtailment effect. This paper proposes the real LCOE (rLCOE) approach that accounts for indirect and direct generation costs. The mathematical approach to estimating indirect costs is derived from economic theory. The indirect effects, which quantify all benefits generated due to RE, is related to the variability of the share RE in the energy generation mix. The rLCOE enhances the accuracy of the economic comparison of power generation costs and the derivation of the optimal quantities of RE because external effects are incorporated into the LCOE principles. This approach has taken into account electricity demand, fuel prices, and environmental costs for each energy source to adequately compare generation costs. Simulations have been performed to demonstrate the application of the rLCOE approach in the Korean power market. Here, the unit variation of costs with the RE share were analyzed. The results show that indirect cost savings of an additional unit of RE begin to fall in scenario 3 in contrast to the result of LCOE approach indicating higher generation costs with RE share, especially, the proportion of RE in the generation mix is higher than 20%. Thus, the optimal power generation can be evaluated using the rLCOE approach.

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“…Furthermore, using Equations (14), (16), and (17), countries can decide which models best suit their energy needs. However, the proposed solution of Equation (14) outperforms Equations (17) and (16) with the least energy generation cost. Tables 3 and 4 confirm that the proposed BDES achieves minimum energy generation cost for 60% and 99% of the population in SSA with retail price of 100 kWh per month.…”

“…An opportunity LCOE is estimated such that the contractual length should be within 7 years, whereas corporate power purchase agreement price ranges from 75 £/MWh to 100 £/MWh. In Korea [17], real LCOE is responsible for direct and indirect generation costs and economic theory is used to derive these costs. Indirect cost is used to quantify the importance of the energy generation mix.…”

“…In this study, analysis of rural electricity generation option in SSA has assumed a daily energy demand to be 8.2 kWh. Also, the energy generation of 100 kWh per month is shown in Figures 12-14 using Equations (16), (17), and (14), for DES, CES, and BDES, respectively. It is observed from these figures that some regions like Morocco, Algeria, Libya, Nigeria, Gabon, Zambia, and Zimbabwe have high energy generation cost, which is above 2.5 $/kWh for the decentralized infrastructure as compared to CES and BDES.…”

“…A cost-effective energy planning model is used to compare the energy generation capacity of a CES with the options of DES that often consider solar with battery storage [2]. brown Several energy planning models were proposed in the literature to provide cost-effective solutions to classes of DES for different countries [12][13][14][15][16][17][18]; however, their focus was on isolated geographical locations. Although, the authors of [19] have proposed a model for energy planning for multiple SSA locations.…”

A Comprehensive Review of Recent Advances in Smart Grids: A Sustainable Future with Renewable Energy Resources

“…Therefore, robust optimization algorithms are needed. Furthermore, since the prices are set and sent day ahead, the utility may incur a financial loss if the peak occurs during low-price periods [399].…”