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## Updated Capital Cost Estimates for Electricity Gene ration Plants Complete Report with Appendix(pdf)

Release Date: November 2010 Next Release Date: One-Time

The current and future projected cost of new electr icity generation capacity is a critical input into the development of energy projections and analyses. The cost of new generating plants plays an important role in determ ining the mix of capacity additions that will servegrowing loads in the future. New plant costs also help to determine how new capacity competes against existing capacity, an d the response of the electricity generators to the imposition of environmental controls on convention al pollutants or any limitations on greenhouse gas emissions.

The current and projected future costs of energy-re lated capital projects, including but not limited t o new electric generating plants, have been subjectto considerable change in recent years. EIA updates its cost and pe rformance assumptions annually, as part of the deve lopment cycle for the Annual Energy Outlook (AEO). For the AEO2011 cycle, EIA commissioned an external consultant to develop current cost estimates for utility-scale el ectric generating plants. [1] This paper briefly summarizes the design of the project and provides a summary of its main findings, including a comparison of the new e stimates to those used in AEO2010 . The final section discusses how EIA uses information on cost and other factors in m odeling technology choice in the electric power sec tor.

Developing updated estimates: key design considerat ions In order to maximize its value to EIA and external energy analysts, the project focused on gathering c urrent information regarding the "overnight" [2] cost for a wide range of generation technologies, while taking care to use acommon boundary in the costing exercise across tho se technologies. The cost estimates for each techno logy were developed for a generic facility of a specific size and configuration, and assuming a location withoutunusual constraints or infrastructure needs.

Current information is particularly important durin g a period when actual and estimated costs have bee n evolving rapidly, since the use of up-to-date cos t estimates for some technologies in conjunction with estimates tha t are two, three, or even five years old for others can significantly skew the results of modeling and analysis. Where possible, costs estimates were based on information regarding actual or planned projects available to the consultant. When this information was not avail able, project costs were estimated by using costing models that accountfor current labor and material rates that would be necessary to complete the construction of a generi c facility.

The use of a common boundary for costing is also ve ry important. From experience in reviewing many cos ting studies for individual technologies, EIA is we ll aware that differences in practices regarding the inclusion orexclusion of various components of costs can have a large impact on overall cost estimates. This incl udes the categories of civil and structural costs (e.g., allowance for site preparation, drainage, underground utilities, and buildings), project indirect costs (e.g., a con struction contingency), and owners costs (e.g., development costs, preliminary feasibility and engineering studies, environmental studies and permitting, legal fees, insurance costs , property taxes during construction, and the electrical interconnec tion costs, including a plant switchyard and tie-in to nearby transmission).

Summary of updated overnight capital costs estimate s and comparison to information used in AEO2010 Table 1 summarizes the updated cost estimates for the gene ric utility-scale generation plants represented in EIA's model, including 7 powered by coal, 6 by natu ral gas, 3 by solar energy, 2 each by wind, hydro, biomass, an d geothermal power, and 1 each by uranium and munic ipal solid waste. For some plant types there are se veral options shown to better represent the range of plants that might be built and their costs. For example, both s ingle unit and dual unit advanced pulverized coal p lants are shown, because many plants include multiple units and the costs associated with the dual unit configuration m ight better reflect the costs of most plants built. Â Similarly, solar photovoltaic technologies include a relatively smal l 7 MW system and a much larger 150 MW system, beca use there is such variance in the sizes of the faci lities being considered. The nominal capacity of the generic pla nts ranges from a 7 megawatt (MW) solar plant to a 2,236 MW advanced dual-unit nuclear plant, reflecti ng the significant variation in the scale of utility appli cations. Each technology is characterized by its ov ernight capital costs, heat rate (where applicable) , non-fuel operations and maintenance costs, and, though not shown in Table 1 , its environmental characteristics.



### Table 2 compares the updated overnight cost estimates to t hose used as inputs to the AEO2010 . To facilitate comparisons, both are shown in real year 2010 dollars. Notable changes between the updated estimates and the AEO2010 values include:

Coal & Nuclear: The updated overnight capital cost estimates for co al and nuclear power plants are 25 to 37 percent ab ove those in AEO2010 . The higher cost estimates reflect many factors includin g the overall trend of rising costs of capital inte nsive technology in the power sector, higher global commodity prices, and the fact that there are relat ively few construction firms with the ability to co mplete complex engineering projects such as a new nuclear or advanced coal power plant. The study ass umes cost-sharing agreements between the project ow ner and the project construction contractors are reflective of those recently observed in the ma rketplace. As shown in Table 1, dual unit coal and nuclear plants generally have lower overnight costs per kilowatt than single-unit plants, reflecting th eir ability to take advantage of redundancies and s cale economies in onsite infrastructure such as wastewater management and environmental controls to reduce the estimated total per-kilowatt cost of th e project. •

Natural Gas: The updated cost estimates for natural gas combined cycle and combustion turbines generally remained s imilar to those of AEO2010 • Solar : The overnight capital costs for solar thermal and photovoltaic technologies dropped by 10 percent an d 25 percent, respectively. The decrease in the cost of photovoltaics was due to the assumption of larger plant capacity and falling component cos ts. •

Onshore Wind : Overnight costs for onshore wind increased by abo ut 21 percent relative to AEO 2010 assumptions. This is based on a specification for a new, stand-alone wind plant including all owners' costs and may differ from other reported costs in the literature, which are not fully characterized a nd may include sites that are built along side existin g plants (and are thus able to avoid some amount of infrastructure costs). •

Offshore Wind : While offshore wind plants have been built in Eur ope, there have only been proposals in the United S tates, with final permitting only recently issued on the first of these proposals. Th e updated costs, some 50 percent higher than AEO 2010 estimates, are consistent with substantial first -of-a-kind costs that would likely be encountered w hen building projects in the United States, which l argely lacks the unique infrastructure, needed to support this type of construction. •

Geothermal : Geothermal costs are highly site-specific, and ar e represented as such in the AEO estimates. The upd ated cost estimate is over 50 percent higher than the same site in AEO 2010. •

Biomass: Biomass capital costs are largely unchanged from AEO2010 . However, the technology represented by the costs has changed significantly. Prior estimates were for a highly efficient plant e mploying gasification and a combined cycle generato r; the new estimate is for a significantly less efficient direct combustion boiler. The lower opera ting efficiency (and therefore higher operating cos t) for the biomass plant considered in the updated cost estimate implies a reduced attractiveness of i nvestment in new biomass generation at an overnightcost similar to that for the more efficient biomas s plant characterized in AEO2010. •

While estimates of the current cost of generic elec tric generation capacity of various types are one k ey input to EIA's analysis of electricity markets, the evolution of the electricity mix in each of the 22 regions to be mod eled in AEO2011 [3] is also sensitive to many other factors, including the projected evolution of capital costs over the modeling horizon, projected fuel costs, whether who lesale power markets are Â regulated or competitive , the existing generation mix, additional costs ass ociated with environmental control requirements, load growth, an d the load shape. Almost all of these factors can v ary by region, as do capacity factors for renewable generation, operations and maintenance costs associated with in dividual plants, and cost multipliers applied to th e generic estimates of overnight capital costs outl ined in Tables 1 and 2. The next section provides a brief overview of so me of the relevant issues, which are described in m ore detail in the description of the Electric Marke t Module included in the 2010 edition of the documentation for EIA's Nat ional Energy Modeling System.

EIA's analysis of technology choice in the electric power sector Estimates of the overnight capital cost of generic generating technologies are only the starting point for consideration of the cost of new generating ca pacity in EIA modeling analyses. EIA also considers regional vari ation in construction costs, the structure of whole sale power markets that affect financing costs, the length of time required to bring each type of plant into service, and the capacity availability factors for solar and wind generation plants. EIA also accounts for thre e distinct dynamic forces that drive changes in plant cost over time. One is the projected relationship between rate of i nflation for key drivers of plant costs, such as materials and construction costs, and the overall economy-wide rate of inflati on. A projected economyâ€ “wide inflation rate that exceeds projected inflati on for key plant cost drivers results in a projected decline in real (inflation-adjusted) capi tal costs. Projected capital costs also reflect projected technology progress over time. Learning-by-d oing, which allows for additional reductions in projected capital costs as a function of cumulative additions new technologie s, has a further effect on technology costs.Â See the AEO2010 assumptions and model documentation for more detail s. [4]

Levelized cost is often cited as a convenient summa ry measure of the overall competiveness of differen t generating technologies. Levelized cost represent s the present value of the total cost of building and operating agenerating plant over an assumed economic life, co nverted to equal annual payments and expressed in t erms of real 

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12/11/2013 http://www.eia.gov/oiaf/beck_plantcosts/dollars to remove the impact of inflation. Levelize d costs, which reflect overnight capital cost, fuel cost, fixed and variable O&M cost, are a useful in dicator of the competitiveness of different generation technologie s. For technologies such as solar and wind generati on that have no fuel costs and relatively small O&M costs, levelized cost changes in rough proportion to the estimated o vernight capital cost of generation capacity. For t echnologies with significant fuel cost, both fuel c ost and overnight cost estimates significantly affect levelized cost. Thus , while Table 2 shows little change between the upd ated capital cost estimates for natural gas combine d cycle plants and those used in AEO2010 , improved supply prospects for natural gas that wi ll be incorporated in AEO2011 result in lower projected prices that in turn lowe r the levelized cost of gas-fired generation and improve the attractiven ess of operating and adding gas-fired generation te chnologies.

It is important to note, however, that actual inves tment decisions are affected by numerous factors ot her than levelized costs. The projected utilization rate , which depends on the load shape and the existing resource mix in an area where additional capacity is needed , is one such factor. The existing resource mix in a region can directly affect the economic viability of a new inv estment through its effect on the economics surroun ding the displacement of existing resources. For ex ample, a wind resource that would primarily back out existing nat ural gas generation will generally have a higher va lue than one that would back out existing coal gene ration under fuel price conditions where the variable cost of operati ng existing gas-fired plants exceeds that of operat ing existing coal-fired plants.

A related factor is the capacity value

, which depends on both the existing capacity mix an d load characteristics in a region

. Since load must be balanced on a continuous basis, units whose output can be varied to follow d emand generally have more value to a system than le ss flexible units or those whose operation is tied to the availability of an intermittent resource. Policy-related factors , such as investment or production tax credits for specified generation sources, can also impact inves tment decisions. Finally, although levelized cost calculations are g enerally made using an assumed set of capital and o perating costs, the inherent uncertainty about futu re fuel prices and future policies, may cause plant owners or investor s who finance plants to place a value on portfolio diversification

. EIA considers all of these factors in its analyses of technology choice in the electricity sector.

In sum, while overnight cost estimates are importan t inputs for EIA modelers and other analysts, they are not the sole driver of the choice among electri c generation technologies. Users interested in additional detail s regarding these updated cost estimates should rev iew the consultant study prepared by R.W. Beck for EIA in the appendix of the compete report linked to above.

Footnotes 1 EIA's electricity modeling includes both combined heat and power (CHP) technologies as well as a var iety of distributed generation technologies, but th ose technologies were not addressed in the study, which focused on t echnologies within the electric power sector.

2 "Overnight cost" is an estimate of the cost at wh ich a plant could be constructed assuming that the entire process from planning through completion cou ld be accomplished in a single day. This concept is usefu l to avoid any impact of financing issues and assum ptions on estimated costs. Starting from overnight cost estimates, EIA's electricity modeling explicitly takes accountof the time required to bring each generation tech nology online and the costs of financing constructi on in the period before a plant becomes operational.

3 In AEO2010

and prior editions, the continental U.S., excludin g Alaska, was divided in 13 regions for purposes of electricity modeling. The 22 region model that wil l be used starting with AEO2011 will allow for better representation of policy bou ndaries and market structure at the State level.

4 Assumptions and model documentation for the Annual Energy Outlook 2010 are available at http://www.eia.gov/oiaf/aeo/index.html

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