Decision-making based on energy costs: Comparing levelized cost of energy and energy system costs

Some energy policies aim to increase the share of renewable energy in the most cost-effective way, but the challenge is how to assess the costs of integrating these technologies into an energy system. This article analyzes two cost estimation methods, the Levelized Cost of Energy (LCOE) and the Energy System Analysis (ESA) methods. These methods are compared for electricity, decentralized heating and district heating technologies for two system configurations of the German energy system. The Advanced Energy System Analysis Tool EnergyPLAN is used to model a situation where nuclear power is decommissioned and a situation without coal and oil boilers for heating. The results indicate that priorities differ according to the applied method. The results also show that looking beyond costs and including other parameters such as energy system efficiency and CO2 emissions will significantly change energy priorities. Various system dynamics that are not captured in the LCOE method are highlighted and discussed.