The levelized costs of electricity generation by the CDM power projects

Abstract

This paper examines the costs of electricity generation by the power projects under the Clean Development Mechanism (CDM) of the Kyoto Protocol. Using the CDM project-specific data, the levelized cost of electricity (LCOE) for each project is calculated. Based on the calculated LCOEs, an electricity cost function is estimated and the average cost curves for different renewable technologies, project locations, and time are derived. The results show that LCOE decreases, at a decreasing rate, with the scale and duration of the projects while the degree of economies of scale and time significantly vary across different technologies and locations. Results further show that the distribution of power projects in the CDM energy portfolio or a given location does not quite follow the relative cost structure for different technologies. Also, the distribution of different types of projects across different regions or host countries does not strictly follow the relative average costs for different locations. As the power projects under the CDM earn additional revenues from the sales of Certified Emissions Reduction credits (CERs), the CDM enables renewable electricity to be more competitive which crucially depends on CER prices, costs of CER issuance, and the length of crediting period.