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The price of electricity

Wind Power: redefining the cost debate

Wind power is one of the most promising renewable energy sources. While some criticize its costs relative to conventional power sources, a new model for system cost calculation shows a different story. 

Levelized Cost of Electricity

The basis for today’s calculation

Society needs the right technologies and the right framework conditions to ensure that populations can be supplied with environmentally friendly, reliable, and affordable energy in the future. Today, the Levelized Cost of Electricity (LCOE) model informs decisions around which technologies should be used. 

Several onshore wind turbines

The LCOE represents system costs in terms of the expected useful life of a power station. It is calculated as the ratio of the lifetime sum of discounted capital and operating costs, including fuel, divided by the lifetime sum of discounted electricity output. However, thorough research and expert insight has shown that the LCOE comparison does not reflect the complete cost-benefit ratio on a macroeconomic scale.

Society’s Cost of Electricity

Calculating on a broader level

To arrive at a more realistic estimate of which energy generation technologies benefit our society the most, Siemens has developed a model for that provides a truer and more accurate representation to replace the LCOE model – named Society’s Cost of Electricity (SCOE). 

A more accurate picture

Getting a more accurate picture

When broadening the scope of electricity cost calculation from LCOE to SCOE, account is taken of factors that cannot be considered under the LCOE model: partially hidden subsidies, grid access costs, varying availability costs, social costs, economic benefits, and geopolitical impact.
Using SCOE enables a comparison of the different technologies for the first time, based on actual social impact factors and benefits. The result is that the cost of wind power in general, and offshore wind in particular, decreases considerably from the simpler calculation represented by the LCOE.

Get a deeper understanding of society’s cost of electricity (SCOE)
Download the full presentation

An Investment that Pays Off

The new formula for progress

The SCOE calculation quantifiably shows that offshore wind is not only a reliable source of energy for a sustainable future – but also a competitive one that will show dividends for generations to come. 

Onshore wind turbines on dry ground

Siemens needs to be sure it is investing in the right-generation technology; we want to challenge our own business strategy assumptions.

Jan Rabe, Director of Sustainability, Siemens Wind Power

The SCOE outlines how the offshore wind industry is positioned to be a main pillar of tomorrow’s energy supply. It generates clean and climate-friendly electricity, creates jobs, and reduces risks on several levels – from exposure to particulate matter and security of supply to susceptibility to the price volatility of imported fuel.

 

Jobs related to the installation and long-term maintenance of wind turbines can be localized. And additional jobs will be created for offshore wind in turbine assembly and embarkation ports. These jobs will provide significant economic impact to the regions with additional local consumption of goods and services.

 

The SCOE calculation further shows that gas is the most efficient and lowest-cost backup solution for all renewables, as a means of achieving a reliable, low-emission energy supply system.

 

The sample calculation for UK in 2025 demonstrates the paradigm shift that applying the SCOE concept could involve – which will ensure a redefined, more balanced and fruitful cost debate for the benefit of society.

 

For a true representation of costs, it is recommended that the energy sector and society in general widen the scope and consider SCOE as the standard for measuring tools when selecting energy technologies. Only by embracing such logical and empirical evidence can the potential of the offshore wind industry be fully appreciated.

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