The Energy Technologies Institute (ETI) commissioned Frontier Economics to develop a robust framework for comparing the costs and benefits of electricity generation, storage and interconnection investments in Great Britain, and to produce transparent decision support tools that facilitate their comparison. The framework and tools can be applied by policy makers and other interested parties to evaluate and compare the value for money (VfM) of electricity technology investments.
Frontier found that VfM metrics should:
- Include the full set of cost and benefits associated with technologies – both within and outside the electricity sector.
- Take account of the value of implicit support and risk transfers under the current policy and market framework.
Doing so can materially affect the VfM ranking of technologies, compared with commonly-used partial measures such as ‘levelised costs’ and ‘strike prices’.
The framework illustrates that VfM estimates can be highly sensitive to key assumptions, such as costs or discount rates, so a range of scenarios needs to be examined to derive robust VfM conclusions. Results are also very specific to the assumed energy system context and may not apply in other situations.
Claire Thornhill, manager in Frontier’s Energy practice, said: “Assessing VfM is not easy. The ideal would really be to ensure that wider system costs are internalised in the market framework. But our tools can at least help users to drill into the VfM estimates produced by black box modelling and better understand the key drivers behind the results.”
Frontier regularly advises clients on energy policy matters.
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