Benchmarking Energy Systems by LCoE and LCoS

Climate Agreements are the main drivers behind the Energy Transition, as they impose governmental limits to the maximum allowed emissions for energy. Let us first define “Energy”: At the demand side, Energy can be split into three primary markets – Electricity, Heat, and Mobility. 


Out of this total energy demand, the share of Electricity contributes for only roughly 20%, which is fairly stable over time. And within this 20%, Renewable Electricity roughly contributes for about a quarter (of course, varying per country). 

From the above, we may conclude that Renewables are still far minority within the full Energy Mix but are making good progress in the Electricity Mix already. 

Let us see it from the positive side: this still allows for huge growth of Renewable Electricity. If managed well, this growth can help accelerating post-COVID economies in growth.

Levelized Cost of Energy (LCoE)

Green electricity needs to be competitive

Within the optional technology for “zero-emissions” energy, there is fierce competition on price. The most commonly used abbreviation for comparing the costs for generating energy, is the LCoE: Levelized Cost of Energy.
LCoE is calculated as the sum of costs over lifetime, divided by the sum of energy produced over same lifetime (in the official definition, both sums even need to be converted to Net Present Value).  

The result is an electricity generation cost per unit of energy, usually Euro (or US$) per KWh or MWh. This cost still excludes all transportation, storage and taxes, and should be used to benchmark generation techniques only. 

The nominator within this formula includes all costs, and is comparable to TCO (Total Cost of Ownership): purchase, logistics, installation, maintenance, depreciation, and even disassembly.
The denominator includes all energy generated, and so includes nominal capacity, efficiency and capacity factor. The capacity factor is defined as the actual energy generated, versus it’s theoretical maximum, and so is a kind of utilization factor. The higher this capacity factor is, the lower the LCoE.

Furthermore, LCoE is hugely depending on geographic location and scale size of the installed equipment. Hence, LCoE is always listed as a range, and not as a precise value. Please see below the LCoE range for Renewable Energy Generation Techniques by IRENA. (Source & Copyright holder: IRENA - International  Renewable Energy Agency, www.irena.org)


One of the biggest hurdles with any Energy Transition can be summarized with one word – Fluctuations. Factors such as energy generation / supply, and energy demand fluctuate over time, which makes it difficult to keep both aspects consistently well-adapted. 

On the Energy Generation supply side of the equation, the main challenge is that most Renewable Energy generation sources, such as Wind Energy and Solar Energy, are intermittent. Due to this, the availability of this type of energy will always vary by weather conditions with two major cycles, and multiple options to provide more stability to supply levels playing a critical role here. These two major cycles are: 

Short Cycle

Daily fluctuations where there may be an energy supply shortage one day, and excess energy another day. 

Long Cycle

Seasonal fluctuations with sunshine during the summer months, more wind and rain during autumn and winter, and melting ice in the spring. 


When the output of both is combined, it becomes clear that both are complementary, giving more stability to the supply side. Wind Energy and Hydro Energy can then be used for the base load at all hours of the day, and Solar Energy can be added during the day, when demand peaks.  

Although big progress has been made in recent years, the contributions of Renewables are not yet sufficient to cover the full electricity demand, and hence there still is a need for additional electricity generation – see grey area in graphs to the right. 

In the coming years, this grey area will reduce while renewables (wind, solar, hydro, biomass) will take over. As a consequence, there also will be more time slots where generation exceeds demand.

Balancing Supply and Demand 

In addition to this, the demand side also has two cycles which include: 

  • Short Cycle - Daily fluctuations due to high demands during the daytime, and low demand at night and during weekends. 
  • Long Cycle - Seasonal fluctuations where more heat is required in the winter, and electricity demands rise during the summer months.  

Balancing the demand side is even more difficult, as a main factor is human behavior. Many solutions today can assist: smart homes where electrical equipment is turned off based on the availability of energy, and many more to come. 

Managing the Excess of Energy 

The excess of energy can be used in two ways: 

  • Larger grid. The size of the grid system can be increased by adding interconnections and long distance power supply cables. This allows the generated power to be well spread over a larger area, and so will prevent peaks in both excess or shortage.  
  • Storage. A large local storage capacity, which can “charge” when supply exceeds demand, and “uncharge” when demand exceeds supply.  

But as share of renewables will continue to grow across the whole grid in coming years, there will be more and more time slots where there is a real excess of energy, which cannot be spread over the larger grid anymore. As soon as these moments frequently occur, there is a business case to install storage techniques.  

There are several ways to store energy; and all have their specific characteristics. Some storage techniques will cover the short (daily) cycles, while other techniques are better suited to cover the seasonal fluctuations, and so offer long-term energy storage. 

Electrochemical Storage

Electrochemical Storage, also referred to as batteries, is well-known today. Excess electricity can be used to charge batteries and, once charged, the electricity is readily available. Furthermore, batteries can be used in a variety of applications, from portable consumer electronics, to larger mobile application such as electric vehicles and emergency energy sources in homes, and in power plants 

Electrical Storage

Electrical Storage has some similarities to Batteries, but is purely based on the storage by electric fields, and so does not have any chemicals involved. As energy is already stored in the form of electricity, it is very rapidly available. 

Chemical (H2 related) Storage

Chemical (H2 related) Storage is another candidate. In this option, excess electricity can be used to create eFuels (energy-carriers), in gas or liquid phase. Most known is the splitting of pure water into Hydrogen and Oxygen. The Hydrogen can be captured, compressed, stored, and can be used as fuel in times of low energy availability.  
As hydrogen can be challenging to store due to high pressure and cooling, an additional step could be added here where Hydrogen can be processed into Ammonia, allowing easier long term storage. When energy is required, it can be turned back into hydrogen, and used in fuel cells to supply the energy to the grid. 

Pumped Storage

Pumped Storage is not new, despite the fact that many people have not heard about it yet. Pumped Storage can store excess electricity by pumping water back into the reservoir, so that it can be used again to generate hydro-electricity at times of excess demand. Due to the high environmental impact of huge water reservoirs, pumped storage installations are location dependent, and are usually limited to mountain-rich areas. 

Flywheel Storage

Flywheel Storage is based on heavy rotors that operate at high rotation speeds. During periods of excess energy the flywheel us charged and, therefore, is brought up to maximum speed. At times of excess demand, the stored kinetic energy can be taken from the flywheel by use of a generator. 

Levelized Cost of Storage (LCoS)

Just as for the above explained LCoE (Levelized Cost of Electricity), the storage systems can also be benchmarked – through a parameter called LCoS (Levelized Cost of Storage). It is calculated as the sum of costs over lifetime, divided by the sum of energy stored & released over same lifetime.Both LCoE and LCoS together will finally define the competitiveness of Renewable Energy and drive the change to a more sustainable planet. The result is a storage cost per unit of energy, in Euro or US$ per KWh or MWh.  

As you can see, there are many options to store energy efficiently and effectively. Although each of these options vary due to factors like capital costs, operating costs, and response times, Mitsubishi Chemical Advanced Materials fully supports the Energy Transition, and has materials available as solutions in every phase. Please reach out to us with any questions that you may have, and stay tuned for our next articles related to Renewable Energy! 

Please reach out to us for more information, and stay tuned for our next articles related to Renewable Energy!