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

Sung-Hyun Hwang, Mun-Kyeom Kim and Ho-Sung Ryu
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Sung-Hyun Hwang: Department of Energy System Engineering, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 06974, Korea
Mun-Kyeom Kim: Department of Energy System Engineering, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 06974, Korea
Ho-Sung Ryu: Department of Energy System Engineering, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 06974, Korea

Energies, 2019, vol. 12, issue 13, 1-18

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.

Keywords: real LCOE; indirect costs; renewable energy; market value; social welfare (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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