Understanding Renewable Energy Cost Parityby and -
This factsheet is a simple, go-to resource outlining how electricity supply options (renewable vs. traditional) can be appropriately compared.
This publication is the first in a series of three tools to help breakdown these analyses for greater clarity and precision in weighing the cost effectiveness of renewable energy options.
Comparing the cost of renewable energy options to traditional electricity supply is critical for decision-makers, policy experts, investors, and regulators to determine the most efficient and cost-effective way to supply electricity.
The problem is that comparing these costs “apples-to-apples” can be difficult and confusing. That means that businesses, policymakers, and other groups may be choosing an electricity option based on inaccurate or incomplete information.
With the cost of renewable energy systems falling globally—particularly large-scale wind and solar energy in the United States—these comparisons will become more and more important. WRI’s new fact sheet, Understanding Renewable Energy Cost Parity, outlines, the accuracy of these comparisons is drastically improved by clearly defining the perspective from which the comparison is being made; the electricity supply options being considered; and what other factors should be taken into account.
Cost parity: Cost-competitiveness between a renewable energy option and the comparable, traditional electricity supply option(s)
Behind-the-Meter Generation: Generation that supplies electricity at the point of demand without first interacting with the grid
The Grid: The transmission and distribution system that connects generators and end-users
Average Cost of Energy: The cost of each unit of energy a project produces calculated using information from past projects or the levelized cost of energy (LCOE)
Levelized cost of energy (LCOE): The projected total system and operating costs divided by total kWh produced over the lifetime of the project or contract
Capacity Factor: The percentage of time a project is expected to produce Electricity
Power Purchase Agreement (PPA): A fixed-price contractual agreement to purchase a power plant’s energy, typically calculated using project finance LCOE or set at the feed-in-tariff price
Independent Power Producer (IPP): A power plant owner and/or operator independent of the local utility
Wholesale Generation Price: The price ($/MWh) of the most expensive plant operating in a particular block of time in order to meet demand
Marginal Cost of Production: The cost of producing each additional megawatt hour (MWh)
Integrated Resource Planning (IRP): Regional planning process for energy resources to help meet long-term energy demand with least-cost supply and energy efficiency while mitigating risk
Requests for Proposals (RFPs): Calls for competitive proposals for projects fitting specific characteristics