A new benchmark for assessing total system costs estimates a cheapest mix of offshore wind and solar power at around €46 ($54.20)/MWh in a future climate-neutral energy system for Denmark. Researchers tell pv magazine that figure is less than half the equivalent cost of nuclear power under the same conditions.
A peer-reviewed study using Denmark as a case study found that renewable energy portfolios outperform nuclear energy in terms of total system costs in the modeled future integrated Danish energy system, once the costs of grid balancing, storage and sector coupling are included in the equation.
The “SLCOE – system-based LCOE for comparing energy technologies in different systems“study, recently published in Energy and led by Henrik Lund from Aalborg University, introduces system-based leveled energy costs (SLCOE) as an alternative to the standard LCOE metric. LCOE only measures the cost of producing a unit of electricity from a particular technology, but SLCOE adds the cost of integrating that technology into the broader energy system. The co-author list includes 10 other researchers.
“While the LCOE is a function of the technology itself, the SLCOE is a function of both the technology and the energy system context in which it operates,” the article said.
Co-author Christian Breyer, professor of solar energy at LUT University in Finland, explains pv magazine that the metric addresses a fundamental gap. “If you only optimize within the electricity sector, you won’t be able to identify these much better solutions,” Breyer said.
The study models Denmark’s current electricity grid and a future climate-neutral energy system with full sector coupling, using the EnergyPLAN model for hourly simulation in all energy sectors. The authors note that some conclusions are specific to Denmark, given its wind-dominant resources and existing flexibility infrastructure.
In the current electricity-only system, the system costs for all technologies are high when each technology is modeled as the sole source of supply. Solar in that context has a combined SLCOE of around €/MWh – not because PV is inherently expensive to integrate, the authors argue, but because each individual technology faces high system costs without the flexibility options that a fully connected energy system offers. Nuclear power reaches approximately €141 ($166.3)/MWh in the same electricity-only context. The cheapest mix of offshore wind, solar and gas combined cycle turbines is approximately €66/MWh.
In a future climate-neutral integrated system, which is the central equation in the document, the SLCOE of nuclear energy is approximately €100/MWh. The cheapest mix of offshore wind energy and PV is approximately €46/MWh. Offshore wind power alone also reaches around €46/MWh. Onshore wind reaches approximately €106/MWh, while solar as a standalone technology reaches approximately €178/MWh. Its costs drop sharply in combination with wind energy in the cheapest portfolio.
The driving force behind this cost reduction for renewable energy sources is sector coupling, says Breyer.
“We document how essential it is to involve the entire energy system in the search for lowest-cost solutions,” said Breyer. Sector coupling offers thermal storage, hydrogen storage via electrolysis, flexible heat pump operation and smart charging of electric vehicles – options not available in an electric grid, he added.
The sensitivity analysis tests four sets of cost assumptions: projections from the IEA World Energy Outlook 2023 and 2024 and two scenarios from the Danish Energy Agency, one of which uses 50% higher capital expenditure on renewable energy to reflect inflation after 2022. The costs of flexibility technologies are also stress-tested with a 50% capital increase, with minimal impact on results.
Under all scenarios in the future integrated system, renewable energy sources outperform nuclear energy on SLCOE. Nuclear energy does not appear in the cheapest solution under any tested assumptions.
The article uses International Energy Agency (IEA) assumptions of $480/kW for utility-scale solar in 2050. Breyer noted that current real utility-scale solar is closer to $400/kW, meaning the modeled solar benefit may understate what current market conditions would deliver.
For solar-dominant markets outside Denmark – Southern Europe, the Middle East, India – where wind energy resources are limited, Breyer pointed to external literature showing that batteries and flexible demand serve as the key integration tools.
“The combination of very low-cost solar PV LCOE and low-cost battery capex is the central backbone of any energy system in the Sunbelt,” he said. These figures are not part of the Danish SLCOE modelling.
The article explicitly excludes the costs of storage facilities for nuclear waste and the opportunity costs of the foregone use of renewable energy during the construction of nuclear energy. Breyer said their inclusion would further widen the cost gap, although the article does not quantify this.
For nuclear energy, the document models an effective capital cost of €10,000/kW in EnergyPLAN. The article notes that this is not a literal nightly cost, but a modeling tool: applying an 8% discount rate to the IEA’s nightly cost assumption of €4,500/kW produces the same annualized capital burden as assuming €10,000/kW at a uniform rate. The article notes that nuclear capital costs in recent European projects have exceeded initial estimates by roughly 100%, and that a literature review of nuclear learning rates has found a range of 25% to zero – the least favorable of all generation technologies examined.
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