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CLIMATE ROUNDTABLE - TOWARDS A GREENER FUTURE
We continue to live in a challenging and volatile energy
environment. Just one example of this volatility is the recent
dramatic drop in oil prices – something none of us expected.
At the same time many of our most pressing energy challenges
remain. I would argue that the most urgent of these continue
to be the risks associated with climate change.
Responding to these threats requires immediate action.
As the IPCC reported in November 2014, the 2°C goal
continues to be within reach. I share this view. But how we
get there remains unclear.
To reach this goal it is essential that we develop effective and
cost-efficient CO
2
-free power sources. Carbon dioxide accounts
for more than 80 per cent of total global greenhouse gas
emissions and the energy sector is the single largest contributor,
responsible for more than 40 per cent of emissions globally.
By 2035 this figure could grow to more than 60 per cent.
The good news is that we are already well underway in developing
CO
2
-free power sources and CO
2
-free renewable energy sources.
The single greatest challenge remains making these power
sources more economically competitive. This demands accurate
measurement of the costs of competing energy sources.
The conventional yardstick for measuring the cost of energy
sources continues to be “Levelised Cost of Energy” (LCoE).
LCoE is the sum of discounted capital and operating costs,
including fuel and emission costs, divided by the lifetime
sum of discounted energy output.
LCoE is a useful tool in some ways, but I would argue that
it does not accurately measure the true costs to society of
various sources of electricity. LCoE is too narrow and overlooks
important externalities. The result is that relying only on LCoE
can produce misleading – and potentially invalid – conclusions
about true energy costs, leading to faulty decision-making.
A more accurate and comprehensive way to measure the true cost
of electricity is what I call “Society’s Cost of Electricity” (SCoE).
This measurement tool takes into account additional factors or
social costs. There are six categories of these costs that must
be factored into an accurate measurement of energy prices.
Cost of energy
By Markus Tacke
CEO Wind Power And Renewables Division,
Siemens AG