The Cost of Generating Electricity.

13 February 2004

The Royal Academy of Engineering commissioned PB Power to conduct a study of the comparative costs of generating electricity from a number of available technologies.

Introduction 
In order to make sensible decisions about energy policy.... policy makers need to be able to compare the costs and benefits ....on a like for like basis ....

The Royal Academy of Engineering ....has often been concerned about the lack of clarity between competing claims ....

To help improve understanding, the Academy has attempted to compare the costs of generating electricity from a number of different technologies in an even-handed and dispassionate manner....

The results of the study are contained in the Academy’s report, 

The Costs of Generating Electricity.
The Cost of Generating Electricity

The cost of generating electricity ....is expressed in pence per kWh delivered at the boundary of the ....site. 

This cost value, therefore, includes the capital cost of the generating plant and equipment; the cost of fuel burned; the cost of [O & M] .... 

.... the cost refer[s] to that of providing a dependable .... supply. For intermittent sources .... an additional amount has been included for ....standby generation. 

Conclusions  

The issues to be addressed ...include: 

security of supply,

environmental impact, 

national competitiveness

social concerns. 

....the 

mix of generation ....should not be determined solely by cost ....

understanding of .... costs will enable policy makers to understand the levels of subsidy or 

market manipulation ....to give a desired outcome.

....those market 

mechanisms and subsidies should relate directly to the particular form of generation and the 

perceived benefit rather than being smoothed across the system ....

The renewables sector already benefits from subsidies worth in the region of £485 million a

year ....and concern has been expressed that Government plans to offer further subsidies (e.g. reductions in transmission charges) ....will not lead to extra investment. .... and

could be regarded as further distortions to the market.

This examination of the costs of generating electricity is a foundation upon which discussion

about future energy policy including subsidies and market mechanisms can be based....