Atlantic Council GLOBAL ENERGY CENTER
ISSUE BRIEF
Transitioning to the Clean Energy Grid: A Deep Dive into the Levelized Cost of Electricity AUGUST 2023 KEN BERLIN AND FRANK WILLEY
Background
The US electricity system is at an inflection point. The current and future impacts of the climate crisis require the world to transition rapidly from fossil fuels to renewable energy. Renewable power is well positioned to meet energy transition goals, as renewable generators now produce electricity at a lower cost than fossil fuel generators, according to studies of the levelized cost of electricity (LCOE).1 LCOE measures the average, net present cost at which a generator produces each unit of electricity over the asset’s lifetime, measured in dollars per megawatt-hour (MWh). While this metric is a critical tool for understanding the costs of generating electricity, it accounts for neither the cost of ensuring the reliability of intermittent renewable energy nor the cost of delivering that electricity to the consumer. As they stand, the aging US electric transmission system and the associated planning and permitting processes are not capable of meeting the demands of a new clean energy system. Electric power transmission lines are, on average, forty years old, with more than a quarter of projects built more than fifty years ago and 70 percent of lines more than twenty-five years old.2 These decades-old transmission lines will in many cases need to be rebuilt or retrofitted even without the addition of renewable energy, but the intermittent, decentralized characteristics of renewable generation require that the grid be expanded with many new interconnection points and data-driven technologies that make the grid “smarter.”3
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1
Michael Taylor, Pablo Ralon, and Sonia Al-Zoghoul, Renewable Power Generation Costs in 2021, International Renewable Energy Agency (IRENA), July 2022, https://www.irena.org/-/media/Files/ IRENA/Agency/Publication/2022/Jul/IRENA_Power_Generation_Costs_2021.pdf.
2
Christine Oumansour et al., “Modernizing Aging Transmission,” Public Utilities Fortnightly, April 2020, https://www.marshmclennan.com/insights/publications/2020/apr/modernising-ageingtransmission.html?bsrc=mmc or for subscribers, https://www.fortnightly.com/fortnightly/2020/04/ modernizing-aging-transmission; and Office of Electricity, “DOE Launches New Initiative from President Biden’s Bipartisan Infrastructure Law to Modernize National Grid,” US Department of Energy, January 12, 2022, https://www.energy.gov/oe/articles/doe-launches-new-initiativepresident-bidens-bipartisan-infrastructure-law-modernize.
3
Jay Caspary and T. Bruce Tsuchida, “Unlocking the Queue with Grid Enhancing Technologies Case Study–Southwest Power Pool Study Approach,” The Brattle Group, January 27, 2021, https://www.brattle.com/wp-content/uploads/2021/06/21200_unlocking_the_queue_with_grid_ enhancing_technologies.pdf.