Understanding the Full System Costs of the Electricity System

Rethinking cost metrics in power system planning

The global energy transition presents a complex challenge: how to decarbonize electricitysystems while maintaining affordability and reliability. Historically, system planning has often reliedon simplified evaluations of individual technologies, most notably using cost metrics such as thelevelized cost of electricity (LCOE). While LCOE has become a commonly adopted benchmarkamong stakeholders, recent analyses have highlighted its significant limitations in capturing thefull system-level perspective (Moraski et al., 2025). Leading research and policy efforts nowemphasize the need for sophisticated cost optimization modelling approaches that account forthe complementary roles of different power assets, their collective impact on overall systemcosts, and the essential capabilities required for a resilient and affordable power system.

This study’s objective is to enhance power system planning by deepening our understanding offull system costs, an essential step in supporting the development of resilient and carbon-neutralelectricity systems. Specifically, we (i) examine cost metrics such as the levelized cost ofelectricity (LCOE) and their limitations in reflecting system-wide costs, (ii) identify key gaps incurrent cost-optimization modelling approaches, and (iii) highlight critical aspects of resiliencethat should be integrated into future planning frameworks.

Understanding the full system cost of electricity with the novel SCBOE

At an initial stage, this study reviews a wide range of cost metrics, all aiming to provide anaccessible framework for understanding the role of technologies in power system planning. Theserange from the widely used, producer-focused LCOE to the levelized full system cost of electricity(LFSCOE), which allocates all system integration costs to each technology individually. While theyrepresent opposite ends of the spectrum—one focused solely on plant-level costs, the otherassuming each technology must provide all system capabilities on its own—neither fully reflectsthe interactions and complementary capabilities of diverse assets in a modern power system.Misuse of these metrics can therefore lead to misleading conclusions and poor policy decisions.