NEA reports that electricity production, transport and consumption affect every facet of life in the advanced market economies of countries such as those which are members of the Organisation of Economic Co-operation and Development (OECD) and the Nuclear Energy Agency (NEA). Market prices and production costs are important measures of the economics of electricity. However, over at least the past two decades, there has been a growing recognition that these values do not represent the whole story; the social and environmental impacts of electricity provision affect individuals, economies and countries in ways that are not captured in market prices, but yet are too important to be neglected.
Despite their importance, full accounting for these costs remains difficult. From researching biophysical dose-response function, calibrating dispersion models and probabilistic assessments to the contentious issue of monetary valuation, different groups of experts need to be coordinated in large-scale multi-year efforts to arrive at robust results. Such a large, systematic effort is, however, beyond the scope of this report. Nevertheless, the issue is too important to be disregarded. The NEA has therefore decided to produce the present study on The Full Costs of Electricity Provision in order to summarize and synthesise the most recent research in this area. Research on the full costs of energy and electricity is an ongoing effort. The report highlights the importance of full cost accounting, in particular in the context of the energy transitions under way in several countries. Ideally, it will contribute to spawning new and more comprehensive research in the area of the full costs of electricity to allow policy makers and the public to take better informed decisions along the path towards fully sustainable electricity systems.
For a number of years, the NEA has been analysing and researching different aspects of the full costs of electricity. The results of this work have found their expression in a number of publications that have already appeared or are forthcoming. While most of these publications centred on nuclear energy, others included different sources of power generation. They include:
• Risks and Benefits of Nuclear Energy (2007).
• Comparing Nuclear Accident Risks with Those from Other Energy Sources (2010).
• The Security of Energy Supply and the Contribution of Nuclear Energy (2010).
• Projected Costs of Generating Electricity: 2010 Update (2010), with the International Energy Agency (IEA).
• Economics of Long-term Operations of Nuclear Power Plants (2012).
• Nuclear Energy and Renewables: System Effects in Low-carbon Electricity Systems (2012).
• The Economics of the Back End of the Nuclear Fuel Cycle (2013).
• Projected Costs of Generating Electricity: 2015 Update (2015), with the IEA.
• Nuclear Energy: Combating Climate Change (2015).
• Costs of Decommissioning Nuclear Power Plants (2016).
The NEA is also currently working on a number of publications with relevance to the discussion on full costs and that will be forthcoming in the coming months. These include:
- Climate Change: Assessment of the Vulnerability of Nuclear Power Plants and Adaptation Costs, Estimation of Potential Losses Due to Nuclear Accidents, Measuring Employment Generated by the Nuclear Power Sector, and
- System Costs in Deep Decarbonization Scenarios: The Contributions of Nuclear Energy and Renewables.
A significant number of studies have also been published by other institutions, including the OECD Environment Directorate (see, for instance, The Economic Consequences of Outdoor Air Pollution, The Cost of Air Pollution: Health Impacts of Road Transport or Mortality Risk Evaluation in Environment, Health and Transport Policies) and the IEA (see, for instance, World Energy Outlook Special Report 2016: Energy and Air Pollution or Harnessing Variable Renewables: A Guide to the Balancing Challenge) alongside a rich academic literature on the full costs of energy, some of which is summarized in the different chapters of this report.
Full Costs: Key Concepts, Measurement and Internalization
The costs of electricity provision fall into three different, comprehensible categories. The first category is constituted of plant-level costs, which include the concrete and steel used to build the plant, and the fuel and the manpower to run it. The NEA and the IEA publish a survey of the plant-level costs in OECD countries every five years in the Projected Costs of Generating Electricity series (see IEA/NEA, 2010 and IEA/NEA, 2015; IEA/NEA, 2020 is currently in preparation).
The second category concerns the costs at the level of the electricity system, linked through the transmission and distribution grid. It includes the costs that plants impose on the system in terms of extending, reinforcing or connecting to the grid, but also the costs for maintaining spinning reserves or additional dispatchable capacity when the output of some technologies – typically wind and solar photovoltaic (PV) – is uncertain or variable.
The third, even broader, category includes items that impact the well-being of individuals and communities outside the electricity sector. Known as external or social costs, such costs include the impacts of local and regional air pollution, climate change, the costs of major, frequently not fully insurable, accidents, and land use or resource depletion. Social costs also include the impacts of different power technology choices on the security of energy and electricity supply, employment and regional cohesion or on innovation and economic development. If these impacts are negative, they add to the full costs of a technology; if they are positive, in principle, they need to be deducted as a social benefit.
The full costs of energy provision now include the totality of the three categories: plant-level costs of generation, grid-level system costs and the external social and environmental costs. In the case of both grid-level system costs and external costs, the actors who cause them are not those who are primarily affected by them. Grid-level system costs thus have an “external” or “social” component as well. In essence, this means that an outside actor, the government, the regulator or the system operator, needs to step in to ensure that such external costs are not overproduced and are correctly internalized.
Economic theory has devised a number of corresponding instruments, including standards and technical regulations, pollution taxes, new markets such as emissions trading, better information and research, as well as an overall strengthening of the legal system. Overcoming the knowledge gap is also part of moving towards sustainable electricity systems.
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