System LCOE

LCOE answers "what does this plant cost?" System LCOE answers "what does adding this plant cost the entire electricity system?" The difference can change which technology looks cheapest, especially at high renewable penetration.

System LCOE adds three adjustments to plant-level LCOE. Profile cost: the value of electricity at the hours the plant generates. Solar produces at midday when prices are lowest; a gas plant dispatches during expensive evening peak. A solar MWh may be worth $25 while a gas MWh dispatched at peak is worth $65. Balancing cost: the reserves and ramping capacity needed to manage the plant's variability. Near zero for dispatchable plants; $2-5/MWh for wind and solar. Grid cost: transmission and distribution upgrades needed to deliver the plant's output to load.

Compare two options. Solar LCOE: $30/MWh. Profile cost adjustment: +$10 (midday value is below average). Balancing: +$3. Grid: +$5. System LCOE: $48/MWh. Gas CCGT LCOE: $55/MWh. Profile: -$5 (dispatches at above-average-value hours). Balancing: $0. Grid: $0. System LCOE: $50/MWh. The gap narrows from $25/MWh (LCOE) to $2/MWh (system LCOE).

Does system LCOE always favor dispatchable generation?

No. At low renewable penetration, profile costs are small and solar's low LCOE dominates. System LCOE narrows the gap at higher penetration but rarely reverses it in current market conditions. The metric's value is not in picking winners but in revealing costs that plant-level LCOE hides, ensuring that system planning accounts for the full cost of integrating each technology.

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