Cost of Production of Electricity: A Systematic Review.

Abstract

Despite advancements in energy production technologies, renewable electricity remains more expensive to produce compared to conventional fossil fuels. This paper conducts a comprehensive review of methodologies used to estimate the cost of electricity production and the factors influencing these costs. A systematic literature review was employed to identify, select, evaluate, and synthesize relevant published and gray literature. The review reveals that less than half (43.8%) of the studies utilized the Levelized Cost of Electricity (LCOE) method for cost estimation, with only 14.5% focusing specifically on LCOE. Moreover, only 22.9% of the studies explored the factors determining the cost of electricity production. Key factors identified include operation and maintenance costs, project lifetime, technological advancements, fuel prices, and capital costs. Additional factors such as interest rates on capital and environmental charges were also noted. Notably, no studies examined the cost of electricity production through a theoretical framework at the firm level. This gap indicates a need for future research to incorporate theoretical perspectives, particularly focusing on technology investment and operational efficiency, to better understand their impact on electricity production costs.

Keywords: Cost of production, Electricity, Systematic review, Levelized Cost of electricity