Can Electricity Generators Survive with LCOE Higher than Wholesale Prices?

[LT Judd]

TL;DR

There seems to be a disconnected between wholesale electricity prices and the Levelized cost of electricity.

I can't see how electricity generators can make money. I am from Australia so multiply figures by around 0.7 to convert to USD.

Electricity prices and power generation have become a bit of an ideological battle ground in my country so prices are in the news . Whole sale electricity prices seem to be running around 50-80 $/MWhr this year . Taking the mid range- that works out to about 6.5c/kwhr. Household Retail price are about three times that, so that sounds fair to allow for transmission, distribution and profit.
We have a wholesale competitive market where generators bid in in 10 minute blocks - I believe the US has something similar. The whole sale price is what the generator gets paid .

However when I look at published data for LCOE for new entrants, it seems to be around 90-110 $/MWhr for new coal and gas turbine generation.

LCOE is supposed to just be the 'break even" cost so I don't understand how it can be more than the whole sale price . How does anyone make any money??. That's probably why is has become a political football. All I can think of is that most of our power comes from ageing coal fired plants whose capital costs have been written off long ago.
Is it the same dynamic in the US ?, anyone have any ideas how this can be?

 

[anorlunda]

Summary:: There seems to be a disconnected between wholesale electricity prices and the Levelized cost of electricity.

Is it the same dynamic in the US ?, anyone have any ideas how this can be?

It is complicated, so simplified answers should be taken with a grain of salt.

We are in a time where many things are changing, technology, costs, laws, business models. That alone should be expected to produce winners and losers.

That same wholesale model applies to large parts of the USA. While generalization is risky, I believe that the majority of merchant generators who entered this market have lost money, instead of earning profits. (But I have no access to their balance sheets to verify that.) It is worrisome because the markets could become unstable.

This PF Insights article addresses the question of energy market stability.
https://www.physicsforums.com/insights/renewable-energy-meets-power-grid-operations/

 

[Rive]

about 6.5c/kwhr. Household Retail price are about three times that, so that sounds fair to allow for transmission, distribution and profit.

And tax too. Never forget the tax.

LCOE is supposed to just be the 'break even" cost so I don't understand how it can be more than the whole sale price . How does anyone make any money??.

They have to aim for special periods or circumstances. In Europe old coal and old nuclear keeps the average price low, and there is practically no gap here till they exists (in sufficient number). On the other side intermittent 'green' made a wide gap for reserve gas, and being a reserve pays out far above average => gas turbine plants like mushrooms after a rain.

Also, there is some room for scheduled generation.

But eventually old coal and old nuclear will phase out, and after that prices will considerably rise. That's it in short.

 

[anorlunda]

Taking the mid range- that works out to about 6.5c/kwhr.

By the way, wholesale prices in the USA are now in the 2.0-2.5c/kwhr price range. Prices have been severely depressed because of COVID, and the generators are losing money faster than ever.