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Energy planning is not easy, and when governments shop around for energy sources, they must balance costs and benefits of available options.

Whether fossil fuels, nuclear energy or alternative sources, a sensible energy policy must also take into account a reliable mix of energy generation to support economic growth, promote the environment and also reduce dependence on imported fuels from possibly unstable exporting countries.

Previous editions of Projected Costs of Generating Electricity, published by the OECD Nuclear Energy Agency (NEA) and the International Energy Agency (IEA), provide generation cost estimates for over a hundred power plants that use a variety of fuels and technologies. These include coal-fired, gas-fired, nuclear, hydro, solar and wind plants. Cost estimates are also given for combined heat and power plants that use coal, gas and combustible renewables.

The study shows that the competitiveness of alternative generation sources and technologies ultimately depends on many parameters: there is no clear-cut “winner”. Major issues related to generation costs addressed in the report include: descriptions of state-of-the-art generation technologies; the methodologies for incorporating risk in cost assessments; the impact of carbon emission trading; and how to integrate wind power into the electricity grid.

The 2004 World Energy Outlook (see "Energy policy" article) predicts that in 2030 wind power will be the second-largest source of renewable electricity after hydroelectricity. The key here is supply flexibility, says Projected Costs of Generating Electricity, as there will only be wind power when there is wind. However, construction costs are competitive with both nuclear and coalfired power plants, ranging between $1,000-2,000 per kilowatt, but less so with gas-fired plants, which cost between $400-800 per kilowatt to build.

None of the traditional electricity-generating technologies can be expected to be the cheapest in all situations, warns Projected Costs of Generating Electricity. Furthermore, the best source of electricity will depend on the specific circumstances of each project.

ISBN 9264-008268. See the New Publications pages or www.oecdbookshop.org for ordering details.

©OECD Observer No 249, May 2005