Value chain · CLM-0308
In plain terms
The IEA's alternative metric adds credit for how much a power plant helps keep the grid reliable, on top of its raw energy cost, but the IEA itself says the answer depends heavily on what the future electricity system is assumed to look like.
The claim as recorded
IEA defines value-adjusted LCOE (VALCOE) as LCOE modified by a system value component built from energy value, capacity value and flexibility value, intended to reflect "its contribution to enabling all aspects of securely operating the system," and states that results depend on "the overall share of variable renewables" and "the costs of complementary resources such as energy storage or interconnections," while the underlying model "does not take into account grid bottlenecks or cross-border flows."
Scope and limits
FORMULA NOW HELD, 2025 VERSION (SRC-762 p.59, 2026-10-09): VALCOE_x = LCOE_x + [E-bar - E_x] + [C-bar - C_x] + [F-bar - F_x], each bracket the system-average value less the technology's own, with energy value from simulated hourly wholesale prices and output, and capacity and flexibility values per MWh from a capacity credit or a flexibility multiplier over capacity factor (pp.59-60). Hourly models are applied for the United States, European Union, China and India only (p.59), and "network integration costs are not included" (p.60). Whether the 2025 formula matches the WEO 2019 box is not checked. The text that follows is the record's earlier limit, kept for the record: Confidence MED, not HIGH, because the original WEO2019 formula that most citing literature attributes VALCOE to sits behind an IEA paywall and could not be independently verified; this claim rests on IEA's 2020 Projected Costs report and a current IEA webpage instead, both of which describe VALCOE consistently but without a full worked formula.
What it assumes
No assumptions are recorded against this claim.
Where it comes from
PSRC-01: "the IEA has developed a methodology to adjust the costs by a system value component known as the value adjusted LCOE (VALCOE). It modifies the LCOE of an individual technology in a particular electricity system according to its contribution to enabling all aspects of securely operating the system." SRC-762 p.58: "The value-adjusted LCOE (VALCOE) is a metric for competitiveness for power generation technologies", adding "three elements of value: energy, capacity and flexibility".
Related records
- Answers question
- QST-021 not published in this release
Cite this
energyaperture.com/c/clm-0308
CLM-0308, Energy Aperture, as of 2020-12.
Connected records
Other published records linked to this one. A list, not a judgement.
- Also from SRC-161
- CLM-0300The main international definition of LCOE is the flat price per unit of electricity a power plant would need to be paid, every year of its...CLM-0301The IEA itself says plain LCOE misses how useful a power plant is to the wider electricity system, which is why it built a second, add-on...CLM-0304The interest rate assumed changes an LCOE figure a lot, and most for plants that cost the most to build: in a 2020 international study...CLM-0305How long a power plant is assumed to last matters much less to its cost per unit of electricity than the interest rate does.
- Cited in articles