VME Energy Transition Strategy. External costs and benefits of electricity generation
Decisions on investments in new generating capacity are still based on the direct production costs of the respective generating technologies, with coal consequently often emerging as the cheapest option. If the so-called external costs of power generation are also factored into the investment decision the picture changes, though. Examples of external costs include the indirect costs embodied in greenhouse gas emissions, air pollution and accidents during recovery and transport of raw materials as well as during power station operation. The costs of incorporating an intermittent power source like wind into the grid are also important.
This report evaluates whether the cost rankings of the various generating technologies change when indirect costs are included along with direct costs. Once generators are confronted with these aggregate costs, investment decisions will take a different turn.
The report concludes that the costs associated with CO2 emissions are substantial, constituting some 70-85% of the overall environmental costs of coal-fired power stations. For biomass- (co-)fired plant the external costs associated with land use are likewise substantial. The estimated external costs that can be ascribed to feeding wind energy into the power grid may be as much as € 120 per MWh.
The study was commissioned by the Dutch Association for Energy Markets (VME).