Improving the traditional levelized cost of electricity approach by including the integration costs in the techno-economic evaluation of future photovoltaic plants

Abstract

The levelized cost of electricity (LCOE) is a techno-economic parameter used to evaluate the cost of a kilowatt-hour of energy produced from a selected power plant. The initial investment, annual operation and maintenance costs together with the annual energy production are some of the input data needed to determine the LCOE. The most typical approach to calculate the LCOE does not account for the interaction of the new power plant with the existing energy system, assuming indirectly the power plant as stand-alone. This can be misleading in scenarios with high variable renewable energy sources (VRES) penetration as costs related to overproduction, reinforcement of the grid and additional efforts of existing fossil fuels power plants to satisfy the electricity demand that is not instantly covered by VRES production are not accounted for. The aim of this work is to define a general methodology of easy application for the estimation of these additional costs, called integration costs, of the photovoltaic (PV) technology with the corresponding parameter called system LCOE. In order to demonstrate the importance of the new definition, the methodology is applied to the future Italian energy system and PV sector foreseen for the year 2030. The Italian PV LCOE in 2030 calculated with the usual methodology ranges from 12.55 to 15.93 €/MWh, while the system LCOE can be as high as 22 €/MWh with a relevant increase by on average 50%. In case of addition of storage to PV systems, the system LCOE after the addition of the integration costs ranges from 45 to 51 €/MWh. However, even when batteries and integration costs are included, PV remains competitive compared to the market price.