Comparative Costs of Electricity Generation: A Canadian Perspective

Abstract

The comparative cost of generating electricity from different energy sources and technologies is a key factor in electric utility decisions on capacity additions. As they struggle with declining load growth and concerns about the cost of electricity, utilities themselves are naturally keenly interested in the costs of the supply options available to them. Since electricity is so essential to the Canadian. and world economies, and utility activities have such far-reaching economic, social and environmental impacts. a much broader audience shares this interest in the economic analysis of generation costs. This paper focuses on the internationally accepted Levelized Unit Energy Cost (LUEC) approach used to estimate the cost of various forms of generating electricity. It discusses the key factors impacting on costs of nuclear, coal and gas-fired electricity. presents some results from recent international and Canadian studies of generation costs and comments on the relation between such studies and the actual costs encountered in the real world. A review of LUEC studies by the Nuclear Energy Agency of the OECD. the National Energy Board of Canada and Natural Resources Canada (NRCan), shows that there is consistency in the overall relative costs of electricity from coal, gas and nuclear power plants. In Canada. as in other parts of the world. no one fuel will be able to satisfy all regions and all circumstances. Nuclear power is competitive with coal and gas-fired generation in certain regions of Canada and of the world and will continue to be an appropriate and economic option. The studies also show that the comparative economics of nuclear, coal and gas-fired stations will depend on: the cost of fossil fuel and the impact of environmental policies on the LUEC of fossil plants; the future p price and supply of natural gas and the ability of gas technologies to compete; the capital cost and performance of nuclear power reactors. One can conclude. on the basis of these LUEC studies and actual cost results. that the challenge on costs for the nuclear industry in Canada and elsewhere over the next decade will be to operate existing nuclear plants consistently at high capacity factors. and to build new plants on schedule and on budget (having first gained acceptance from the public and orders from the utilities) and operate them at high capacity factors as well.