Electricity generation costs are a fundamental part of energy market analysis, and a good understanding of these costs on a comparable basis is important when analysing and designing policy. DECC commissions regular updates by independent consultants, giving their, and key stakeholder, estimates of these costs. Cost data is broken down into detailed expenditure per MW or MWh for the lifetime of a plant, from planning costs right through construction and operating costs to eventual decommissioning costs.
These component costs are used to calculate a ‘levelised cost’ for each technology. This is the average cost over the lifetime of the plant of generating per MWh of electricity. Using levelised costs allows the comparison of costs across technologies.
It should be noted there is a large amount of uncertainty when estimating the future costs of electricity generation, due to the difficulty in forecasting future fuel prices and the construction costs of technologies that have yet to be deployed at a large scale in the UK.