Economic Methods for the Selection of Renewable Energy Sources: A Case Study

Governments need to evaluate technologies generating electricity from different sources; levelised cost of energy (LCOE) is a widely used metric. However, LCOE is weak at comparing disparate technologies, especially where they have different operational lifespans. The discrepancy is demonstrated using UK government data to examine a range of technologies, namely combined cycle generation (natural gas and hydrogen), sustainable renewable technologies along with independent data describing nuclear power and tidal range schemes. Three methods of analysis were used: LCOE, the internal rate of return (IRR), and a novel analysis. A new metric, the sustained cost of energy (SCOE), negates some of the LCOE shortcomings such as the application of discounting. SCOE examines a fixed period of continuous generation, using the lowest common length of operating life of the technologies analysed. It appears to be a useful metric, especially when interpreted with IRR. The analyses produce broadly similar ordering of technologies, but the longer-lasting systems with high initial costings perform better in SCOE. Subsidies, carbon tax, or credit schemes are essential government incentives if net zero emissions targets are to be met without overly burdening consumers with rapidly growing electricity rates.