|
|

|Updated Capital Cost Estimates for Electricity Generation Plants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The current and future projected cost of new electricity  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 determining the mix of  capacity additions that will serve growing loads in the future. New plant costs also help to determine how  new capacity competes against existing capacity, and the response of the  electricity generators to the imposition of environmental controls on  conventional pollutants or any limitations on greenhouse gas emissions.
          The current and projected future costs of energy-related  capital projects, including but not limited to new electric generating plants,  have been subject to considerable change in recent years. EIA updates its cost and  performance assumptions annually, as part of the development cycle for the *Annual  Energy Outlook* (AEO). For the *AEO2011* cycle, EIA commissioned an external consultant to develop current cost  estimates for utility-scale electric 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 estimates to those used in *AEO2010*. The final section discusses how EIA uses  information on cost and other factors in modeling technology choice in the  electric power sector.
          **Developing updated estimates: key design considerations**
            In order to maximize its value to EIA and external energy analysts,  the project focused on gathering current information regarding the "overnight"[2] cost for a wide range of generation technologies, while taking care to use a  common boundary in the costing exercise across those technologies. The cost estimates for each technology were  developed for a generic facility of a specific size and configuration, and  assuming a location without unusual constraints or infrastructure needs.
          Current information is particularly important during a  period when actual and estimated costs have been evolving rapidly, since the use  of up-to-date cost estimates for some technologies in conjunction with  estimates that 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 available, project costs were estimated by using  costing models that account for current labor and material rates that would be necessary  to complete the construction of a generic facility.
          The use of a common boundary for costing is also very important. From experience in reviewing many costing  studies for individual technologies, EIA is well aware that differences in  practices regarding the inclusion or exclusion of various components of costs  can have a large impact on overall cost estimates. This includes the categories  of civil and structural costs (e.g., allowance for site preparation, drainage, underground utilities, and  buildings), project indirect costs (e.g.,  a construction 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 interconnection costs, including a plant switchyard and  tie-in to nearby transmission).
          **Summary of updated overnight capital costs estimates and  comparison to information used in *AEO2010***Table 1 summarizes the updated cost estimates for the generic  utility-scale generation plants represented in EIA's model, including 7 powered  by coal, 6 by natural gas, 3 by solar energy, 2 each by wind, hydro, biomass,  and geothermal power, and 1 each by uranium and municipal solid waste. For some plant types there are several  options shown to better represent the range of plants that might be built and  their costs. For example, both single  unit and dual unit advanced pulverized coal plants are shown, because many plants  include multiple units and the costs associated with the dual unit  configuration might better reflect the costs of most plants built.  Similarly, solar photovoltaic technologies  include a relatively small 7 MW system and a much larger 150 MW system, because  there is such variance in the sizes of the facilities being considered. The nominal capacity of the generic plants  ranges from a 7 megawatt (MW) solar plant to a 2,236 MW advanced dual-unit nuclear  plant, reflecting the significant variation in the scale of utility  applications. Each technology is  characterized by its overnight 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 those 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 coal and nuclear power plants are 25 to 37 percent above those in *AEO2010*. The higher cost estimates reflect many factors including the overall trend       of rising costs of capital intensive technology in the power sector,       higher global commodity prices, and the fact that there are relatively few       construction firms with the ability to complete complex engineering       projects such as a new nuclear or advanced coal power plant. The study       assumes cost-sharing agreements between the project owner and the project       construction contractors are reflective of those recently observed in the       marketplace. As shown in Table 1, dual unit coal and nuclear plants       generally have lower overnight costs per kilowatt than single-unit plants,       reflecting their ability to take advantage of redundancies and scale       economies in onsite infrastructure such as wastewater management and       environmental controls to reduce the estimated total per-kilowatt cost of       the project.
            **Natural Gas:**The updated cost estimates for natural       gas combined cycle and combustion turbines generally remained similar to       those of *AEO2010*
            **Solar**: The overnight capital costs for solar thermal and photovoltaic technologies  dropped by 10 percent and 25 percent, respectively. The decrease in the cost of photovoltaics  was due to the assumption of larger plant capacity and falling component costs.
            **Onshore Wind**: Overnight costs for onshore wind increased by       about 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 and may include sites that are built along side existing       plants (and are thus able to avoid some amount of infrastructure costs).
            **Offshore Wind**: While offshore wind plants have been built in       Europe, there have only been proposals in the United States, with final       permitting only recently issued on the first of these proposals. The updated costs, some 50 percent       higher than *AEO 2010* estimates, are consistent with substantial first-of-a-kind costs that       would likely be encountered when building projects in the United States,       which largely lacks the unique infrastructure, needed to support this type       of construction.
            **Geothermal**: Geothermal costs are highly site-specific, and are       represented as such in the AEO estimates. The updated 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 employing       gasification and a combined cycle generator; the new estimate is for a       significantly less efficient direct combustion boiler. The lower operating efficiency (and       therefore higher operating cost) for the biomass plant considered in the       updated cost estimate implies a reduced attractiveness of investment in       new biomass generation at an overnight cost similar to that for the more       efficient biomass plant characterized in *AEO2010.*While estimates of the current cost of generic electric  generation capacity of various types are one key input to EIA's analysis of  electricity markets, the evolution of the electricity mix in each of the 22  regions to be modeled 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  wholesale power markets are  regulated or  competitive, the existing generation mix, additional costs associated with environmental  control requirements, load growth, and the load shape. Almost all of these factors can vary by  region, as do capacity factors for renewable generation, operations and  maintenance costs associated with individual plants, and cost multipliers  applied to the generic estimates of overnight capital costs outlined in Tables  1 and 2. The next section provides a  brief overview of some of the relevant issues, which are described in more detail  in the description of the Electric Market Module included in the 2010 edition  of the documentation for EIA's National 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 capacity in EIA modeling analyses. EIA also considers regional variation in construction costs, the  structure of wholesale 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
            three distinct dynamic forces that drive changes in plant  cost over time. One is the projected  relationship between rate of inflation for key drivers of plant costs, such as  materials and construction costs, and the overall economy-wide rate of  inflation. A projected economy–wide  inflation rate that exceeds projected inflation for key plant cost drivers  results in a projected decline in real (inflation-adjusted) capital costs. Projected capital costs also reflect  projected technology progress over time. Learning-by-doing, which allows for additional reductions in projected  capital costs as a function of cumulative additions new technologies, has a  further effect on technology costs.  See  the *AEO2010* assumptions and model documentation for more details.[4]
          Levelized cost is often cited as a convenient summary measure  of the overall competiveness of different generating technologies. Levelized  cost represents the present value of the total cost of building and operating a  generating plant over an assumed economic life, converted to equal annual  payments and expressed in terms of real dollars to remove the impact of  inflation. Levelized costs, which  reflect overnight capital cost, fuel cost, fixed and variable O&M cost, are  a useful indicator of the competitiveness of different generation  technologies. For technologies such as  solar and wind generation that have no fuel costs and relatively small O&M  costs, levelized cost changes in rough proportion to the estimated overnight  capital cost of generation capacity. For  technologies with significant fuel cost, both fuel cost and overnight cost  estimates significantly affect levelized cost. Thus, while Table 2 shows little change  between the updated capital cost estimates for natural gas combined cycle  plants and those used in *AEO2010*, improved supply prospects for natural  gas that will be incorporated in *AEO2011* result in lower projected  prices that in turn lower the levelized cost of gas-fired generation and  improve the attractiveness of operating and adding gas-fired generation  technologies.
          It is important to note, however, that actual investment  decisions are affected by numerous factors other 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 investment through  its effect on the economics surrounding the displacement of existing  resources. For example, a wind resource  that would primarily back out existing natural gas generation will generally  have a higher value than one that would back out existing coal generation under  fuel price conditions where the variable cost of operating existing gas-fired  plants exceeds that of operating existing coal-fired plants.
          A related factor is the ***capacity value****,* which  depends on both the existing capacity mix and load characteristics in a region*.*Since load must be balanced on a  continuous basis, units whose output can be varied to follow demand generally  have more value to a system than less 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  investment decisions. Finally, although  levelized cost calculations are generally made using an assumed set of capital  and operating costs, the inherent uncertainty about future fuel prices and  future policies, may cause plant owners or investors 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 important inputs  for EIA modelers and other analysts, they are not the sole driver of the choice  among electric generation technologies. Users interested in additional details  regarding these updated cost estimates should review the consultant study  prepared by R.W. Beck for EIA  in the appendix of the compete report linked to above.
          Complete Report with Appendix (pdf) PDF GIF
          **Footnotes**1 EIA's electricity modeling  includes both combined heat and power (CHP) technologies as well as a variety  of distributed generation technologies, but those technologies were not  addressed in the study, which focused on technologies within the electric power  sector.
          2 "Overnight cost" is an  estimate of the cost at which a plant could be constructed assuming that the  entire process from planning through completion could be accomplished in a  single day. This concept is useful to  avoid any impact of financing issues and assumptions on estimated costs. Starting from overnight cost estimates, EIA's  electricity modeling explicitly takes account of the time required to bring  each generation technology online and the costs of financing construction in  the period before a plant becomes operational.
          3 In *AEO2010* and prior editions, the  continental U.S., excluding Alaska, was divided in  13 regions for purposes of electricity modeling. The 22 region model that will be used  starting with *AEO2011* will allow for better representation of policy  boundaries and market structure at the State level.
          4 Assumptions and model  documentation for the *Annual Energy Outlook 2010* are available at http://www.eia.doe.gov/oiaf/aeo/index.html
|The current and future projected cost of new electricity  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 determining the mix of  capacity additions that will serve growing loads in the future. New plant costs also help to determine how  new capacity competes against existing capacity, and the response of the  electricity generators to the imposition of environmental controls on  conventional pollutants or any limitations on greenhouse gas emissions.
          The current and projected future costs of energy-related  capital projects, including but not limited to new electric generating plants,  have been subject to considerable change in recent years. EIA updates its cost and  performance assumptions annually, as part of the development cycle for the *Annual  Energy Outlook* (AEO). For the *AEO2011* cycle, EIA commissioned an external consultant to develop current cost  estimates for utility-scale electric 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 estimates to those used in *AEO2010*. The final section discusses how EIA uses  information on cost and other factors in modeling technology choice in the  electric power sector.
          **Developing updated estimates: key design considerations**
            In order to maximize its value to EIA and external energy analysts,  the project focused on gathering current information regarding the "overnight"[2] cost for a wide range of generation technologies, while taking care to use a  common boundary in the costing exercise across those technologies. The cost estimates for each technology were  developed for a generic facility of a specific size and configuration, and  assuming a location without unusual constraints or infrastructure needs.
          Current information is particularly important during a  period when actual and estimated costs have been evolving rapidly, since the use  of up-to-date cost estimates for some technologies in conjunction with  estimates that 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 available, project costs were estimated by using  costing models that account for current labor and material rates that would be necessary  to complete the construction of a generic facility.
          The use of a common boundary for costing is also very important. From experience in reviewing many costing  studies for individual technologies, EIA is well aware that differences in  practices regarding the inclusion or exclusion of various components of costs  can have a large impact on overall cost estimates. This includes the categories  of civil and structural costs (e.g., allowance for site preparation, drainage, underground utilities, and  buildings), project indirect costs (e.g.,  a construction 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 interconnection costs, including a plant switchyard and  tie-in to nearby transmission).
          **Summary of updated overnight capital costs estimates and  comparison to information used in *AEO2010***Table 1 summarizes the updated cost estimates for the generic  utility-scale generation plants represented in EIA's model, including 7 powered  by coal, 6 by natural gas, 3 by solar energy, 2 each by wind, hydro, biomass,  and geothermal power, and 1 each by uranium and municipal solid waste. For some plant types there are several  options shown to better represent the range of plants that might be built and  their costs. For example, both single  unit and dual unit advanced pulverized coal plants are shown, because many plants  include multiple units and the costs associated with the dual unit  configuration might better reflect the costs of most plants built.  Similarly, solar photovoltaic technologies  include a relatively small 7 MW system and a much larger 150 MW system, because  there is such variance in the sizes of the facilities being considered. The nominal capacity of the generic plants  ranges from a 7 megawatt (MW) solar plant to a 2,236 MW advanced dual-unit nuclear  plant, reflecting the significant variation in the scale of utility  applications. Each technology is  characterized by its overnight 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 those 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 coal and nuclear power plants are 25 to 37 percent above those in *AEO2010*. The higher cost estimates reflect many factors including the overall trend       of rising costs of capital intensive technology in the power sector,       higher global commodity prices, and the fact that there are relatively few       construction firms with the ability to complete complex engineering       projects such as a new nuclear or advanced coal power plant. The study       assumes cost-sharing agreements between the project owner and the project       construction contractors are reflective of those recently observed in the       marketplace. As shown in Table 1, dual unit coal and nuclear plants       generally have lower overnight costs per kilowatt than single-unit plants,       reflecting their ability to take advantage of redundancies and scale       economies in onsite infrastructure such as wastewater management and       environmental controls to reduce the estimated total per-kilowatt cost of       the project.
            **Natural Gas:**The updated cost estimates for natural       gas combined cycle and combustion turbines generally remained similar to       those of *AEO2010*
            **Solar**: The overnight capital costs for solar thermal and photovoltaic technologies  dropped by 10 percent and 25 percent, respectively. The decrease in the cost of photovoltaics  was due to the assumption of larger plant capacity and falling component costs.
            **Onshore Wind**: Overnight costs for onshore wind increased by       about 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 and may include sites that are built along side existing       plants (and are thus able to avoid some amount of infrastructure costs).
            **Offshore Wind**: While offshore wind plants have been built in       Europe, there have only been proposals in the United States, with final       permitting only recently issued on the first of these proposals. The updated costs, some 50 percent       higher than *AEO 2010* estimates, are consistent with substantial first-of-a-kind costs that       would likely be encountered when building projects in the United States,       which largely lacks the unique infrastructure, needed to support this type       of construction.
            **Geothermal**: Geothermal costs are highly site-specific, and are       represented as such in the AEO estimates. The updated 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 employing       gasification and a combined cycle generator; the new estimate is for a       significantly less efficient direct combustion boiler. The lower operating efficiency (and       therefore higher operating cost) for the biomass plant considered in the       updated cost estimate implies a reduced attractiveness of investment in       new biomass generation at an overnight cost similar to that for the more       efficient biomass plant characterized in *AEO2010.*While estimates of the current cost of generic electric  generation capacity of various types are one key input to EIA's analysis of  electricity markets, the evolution of the electricity mix in each of the 22  regions to be modeled 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  wholesale power markets are  regulated or  competitive, the existing generation mix, additional costs associated with environmental  control requirements, load growth, and the load shape. Almost all of these factors can vary by  region, as do capacity factors for renewable generation, operations and  maintenance costs associated with individual plants, and cost multipliers  applied to the generic estimates of overnight capital costs outlined in Tables  1 and 2. The next section provides a  brief overview of some of the relevant issues, which are described in more detail  in the description of the Electric Market Module included in the 2010 edition  of the documentation for EIA's National 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 capacity in EIA modeling analyses. EIA also considers regional variation in construction costs, the  structure of wholesale 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
            three distinct dynamic forces that drive changes in plant  cost over time. One is the projected  relationship between rate of inflation for key drivers of plant costs, such as  materials and construction costs, and the overall economy-wide rate of  inflation. A projected economy–wide  inflation rate that exceeds projected inflation for key plant cost drivers  results in a projected decline in real (inflation-adjusted) capital costs. Projected capital costs also reflect  projected technology progress over time. Learning-by-doing, which allows for additional reductions in projected  capital costs as a function of cumulative additions new technologies, has a  further effect on technology costs.  See  the *AEO2010* assumptions and model documentation for more details.[4]
          Levelized cost is often cited as a convenient summary measure  of the overall competiveness of different generating technologies. Levelized  cost represents the present value of the total cost of building and operating a  generating plant over an assumed economic life, converted to equal annual  payments and expressed in terms of real dollars to remove the impact of  inflation. Levelized costs, which  reflect overnight capital cost, fuel cost, fixed and variable O&M cost, are  a useful indicator of the competitiveness of different generation  technologies. For technologies such as  solar and wind generation that have no fuel costs and relatively small O&M  costs, levelized cost changes in rough proportion to the estimated overnight  capital cost of generation capacity. For  technologies with significant fuel cost, both fuel cost and overnight cost  estimates significantly affect levelized cost. Thus, while Table 2 shows little change  between the updated capital cost estimates for natural gas combined cycle  plants and those used in *AEO2010*, improved supply prospects for natural  gas that will be incorporated in *AEO2011* result in lower projected  prices that in turn lower the levelized cost of gas-fired generation and  improve the attractiveness of operating and adding gas-fired generation  technologies.
          It is important to note, however, that actual investment  decisions are affected by numerous factors other 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 investment through  its effect on the economics surrounding the displacement of existing  resources. For example, a wind resource  that would primarily back out existing natural gas generation will generally  have a higher value than one that would back out existing coal generation under  fuel price conditions where the variable cost of operating existing gas-fired  plants exceeds that of operating existing coal-fired plants.
          A related factor is the ***capacity value****,* which  depends on both the existing capacity mix and load characteristics in a region*.*Since load must be balanced on a  continuous basis, units whose output can be varied to follow demand generally  have more value to a system than less 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  investment decisions. Finally, although  levelized cost calculations are generally made using an assumed set of capital  and operating costs, the inherent uncertainty about future fuel prices and  future policies, may cause plant owners or investors 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 important inputs  for EIA modelers and other analysts, they are not the sole driver of the choice  among electric generation technologies. Users interested in additional details  regarding these updated cost estimates should review the consultant study  prepared by R.W. Beck for EIA  in the appendix of the compete report linked to above.
          Complete Report with Appendix (pdf) PDF GIF
          **Footnotes**1 EIA's electricity modeling  includes both combined heat and power (CHP) technologies as well as a variety  of distributed generation technologies, but those technologies were not  addressed in the study, which focused on technologies within the electric power  sector.
          2 "Overnight cost" is an  estimate of the cost at which a plant could be constructed assuming that the  entire process from planning through completion could be accomplished in a  single day. This concept is useful to  avoid any impact of financing issues and assumptions on estimated costs. Starting from overnight cost estimates, EIA's  electricity modeling explicitly takes account of the time required to bring  each generation technology online and the costs of financing construction in  the period before a plant becomes operational.
          3 In *AEO2010* and prior editions, the  continental U.S., excluding Alaska, was divided in  13 regions for purposes of electricity modeling. The 22 region model that will be used  starting with *AEO2011* will allow for better representation of policy  boundaries and market structure at the State level.
          4 Assumptions and model  documentation for the *Annual Energy Outlook 2010* are available at http://www.eia.doe.gov/oiaf/aeo/index.html